Allahabad High Court Judgement

Allahabad High Court Judgement

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JUDGEMENT HEADLINE : The Decision Of Arbitrator Regarding Excepted Matter - Not Final
JUDGEMENT TITLE : Union Of India & Another Vs. M/S Madnani Construction Corp. P. Ltd. & Another On 29/04/2003 By Allahabad High Court
CASE NO : FIRST APPEAL FROM ORDER NO. 40 OF 1993
CORAM : Hon'ble Yatindra Singh,J.

HIGH COURT OF JUDICATURE AT ALLAHABAD

2003 (4) AWC 2624
AFR
Reserved

FAFO No. 40 Of 1993

Union Of India And Another … Defendant- Appellants
Versus
Madnani Construction Corporation (P) Ltd. And Another…Plaintiff-respondents.


Hon'ble Yatindra Singh, J
Hon'ble Mukteshwar Prasad, J

(DELIVERED BY HON'BLE YATINDRA SINGH, J.)

1. Is The Decision Of A Party To An Arbitration Contract About Non-arbitrability Of A Dispute (excepted Matters Under The Contract) Final Between The Parties? At What Stage, Can Objections Regarding Non-arbitrability Of A Dispute Be Taken? These Are Some Of The Interesting Questions Involved In This Case.

FACTS
2. Northern Eastern Railway, Gorakhpur (the Railways) Was Constructing Bridge Over Kosi River. They Entered Into Contract On 3rd November 1981 With M/s Madnani Construction Corporation (Pvt) Limited (the Contractor) For Constructing Bridge Island No. 13 And 14. There Were Special Conditions In The Contract (the SCC) And It States That General Conditions Of Contract And Standard Specification Of The Northern Eastern Railways (the GCC) Shall Form A Part Of This Contract. This Construction Was To Be Completed By 15th February 1982. After Completion, Some Payments Were Made To The Contractor But Were Received By Him Under Protest. The Contractor Served A Notice Dated 16.11.1983 For Appointment Of An Arbitrator To Settle The Dispute. The General Manager Of The Railways (the GM) Rejected It On 24th March 1986 On The Ground That The Dispute Was Non-arbitrable As It Fell Under Excepted Matters Of The Contract.
3. The Contractor Filed An Application On 18th August 1987 Under Section 20 Of The Arbitration Act 1940 (the Act)1 For Appointment Of An Arbitrator. This Application Was Transferred On 21st February 1990 To The Court Of JSCC/Additional Civil Judge (the Court Below). The Court Passed An Order On 2.3.1990 That 'File Received, Put Up On The Date Fixed'. Subsequently The Court Appointed One Sri BN Shukla, Advocate As An Arbitrator On 31.5.1991. The Railways Filed An FAFO No. 534 Of 1991 (the Earlier FAFO) Against This Order. It Was Dismissed On 27.8.1991. The Arbitrator Gave His Award On 13.4.1992 Holding That The Railways Should Pay An Amount Of Rs. 4,48,873.22 Alongwith Compoundable Bank Interest Prevalent At That Time From 16.11.1983 To 21.3.1992.

4. The Contractor Filed An Application On 8.5.1992 Under Section 17 Of The Act For Pronouncing Judgment And Making Decree According To The Award. The Railways Filed Application Under Section 30 Read With Section 33 (Section 30/33) Of The Act Before The Civil Judge On 20th May 1992 For Setting Aside The Award. They Also Filed Objections On 24th August 1992 Against The Application Filed By The Contractor Under Section 17 Of The Act. The Railways Filed An Application Before The District Judge For Transfer Of The Application Filed By The Contractor Under Section 20 Of The Act Under Section 24 Of Civil Procedure Code. It Was Dismissed On 13th November 1992. The Railways Filed An Application On 23rd November 1992 Before The Court Below For Summoning Their Application Under Section 30/33 Of The Act From The Court Where It Was Filed. This Was Objected To By The Contractor On The Same Date. However, The Court Below Summoned It And Not Only Rejected It But Also Rejected Their Objections Against The Application Under Section 17 Of The Act. The Court Below By Its Order Dated 1.12.1992 Also Pronounced Judgment According To The Award And Decreed Interest At The Rate Given By The Bank From The Date Of The Award Till Actual Payment.


POINTS FOR DETERMINATION
5. We Have Heard Counsels For The Parties2. Following Points Arise For Determination:
(i)Whether The Court Below Had Jurisdiction To Decide The Case?
(ii)Whether Application Of The Railways Under Section 30/33 Of The Act And Their Objections Against The Application Of The Contractor U/s 17 Of The Act Were Rightly Rejected?
(iii)Whether The Decision Of The General Manager Dated 24.3.1986rejecting Request For Appointment Of Arbitrator On The Ground That Dispute Fell Under Excepted Mattersis Final Between The Parties?
(iv)Whether The Railways Is Entitled To Raise Objections Regarding Excepted Matters (non-arbitrability Of The Dispute) At The Stage Of Application Under Section 20 Of The Act?
(v)Whether The Dispute Relates To Excepted Matters Under The Contract And Was Non-arbitrable?
(vi)Whether The Terms Of The Contract Prohibit Payment Of Interest And No Interest Could Be Awarded?
(vii)Whether The Court Had Jurisdiction To Award Interest From The Date Of The Award?

1ST POINT: THE COURTS BELOW HAD JURISDICTION
6. The Counsels For The Railways Submitted That The Court Below Was The Court Of Small Causes Court And Had No Jurisdiction To Decide The Application Under Section 17 Of The Act. They Also Referred To Section 2(c), 14(2), 20, 21 And 40 Of The Act In Support Of Their Submission.

7. The Word 'court' Has Been Defined Under Section 2(c) Of The Act (See Appendix-I). It Means Civil Court That Has Jurisdiction To Decide The Questions Forming Subject Matter Of The Reference In Case The Same Was Subject Matter Of A Suit. The Subject Matter Of The Reference Was Cognisable By The Court Of Civil Judge And Not By The Small Causes Court. In View Of The Same Only Civil Judge Had Jurisdiction To Entertain Application For Appointment Of Arbitrator And Award Should Have Been Filed In His Court; Small Causes Court Had No Jurisdiction In The Matter.

8. The Court Below Is Court Of Additional Civil Judge; This Court Is Also Ex-Officio Court Of Small Causes: It Has Dual Functions. As An Additional Civil Judge, The Court Below Was Entitled To Entertain The Suit Forming Subject Matter Of Reference. The Application By The Contractor Under Section 20 Of The Act For Appointment Of Arbitrator Was Transferred To His Court. It Was Registered And Was Allowed. This Order Has Been Upheld By Our High Court. The Award On The Application U/s 17 Of The Act Has Been Filed Before The Same Court That Had Appointed The Arbitrator. In These Circumstances It Can Not Be Said That The Court Below Had No Jurisdiction. The Award Can Not Be Set Aside On This Ground. This Point Is Decided Against The Railways.

2ND POINT: APPLICATION/OBJECTION WRONGLY REJECTED

9. The Court Below Has Rejected The Application Of The Railways Under Section 30/33 And The Objections Against Application U/s 17 Of The Act On The Following Grounds:
(i)Application Under Section 30/33 Of The Act Has Been Filed In A Different Court And Can Not Be Looked Into.
(ii)The Objections Are Beyond Time.
(iii)The Objections Are Not Properly Stamped.
None Of The Grounds Are Tenable.

10. The Application Under Section 30/33 Of The Act Has To Be Filed Within 30 Days Of The Notice Of The Award. The Railways Had Filed Their Application Under Section 30/33 Of The Act On 20.5.1992. According To The Court Below The Limitation Of Filing The Same Was Till 23.5.1992. The Application Under Section 30/33 Was Filed Within This Time. It Was Summoned By The Court Below. It Should Have Been Considered. In Case The Court Was Of The View That It Was Filed In The Wrong Court, Then Reasonable Time Should Have Been Given To Get The Cases Connected So That They May Be Decided By The Same Court. The Court Below Ought Not To Have Rejected It.

11. The Objections Of The Railways Were Of Similar Nature As Their Application Under Section 30/33 Of The Act. This Application Was Filed Within Time But In Different Court. One Of Them Was Sufficient For The Purposes Of The Case. We Have Already Held That The Court Below Ought To, Have Given Time To Get The Cases Connected Or Decided The Application On Merit. In These Circumstances, The Railways Were Vigilant; There Was Sufficient Cause To Condone The Delay: It Ought To Have Been Condoned.

12. In Case Objections Were Not Properly Stamped Then The Court Below Ought To Have Given Time To The Railways To Properly Stamp It, But Ought Not To Have Rejected It On This Ground. There Is Nothing On The Record To Show That Any Time Was Granted To Remove The Defect.

13. The Court Below Has Wrongly Decided This Point. However, It Is Not Necessary To Remand The Case As The Court Below Has Framed Issues On Merit Also And Has Recorded Its Findings Thereon.

3RD POINT: GENERAL MANAGER'S DECISION NOT FINAL.
14. Counsel For The Railways Referred To Clause 62 Of The GCC And Submitted That The Dispute Relates To Excepted Matters And The Decision On The Dispute By The General Manager Dated 24.3.1986 Was Final Between The Parties. He Has Cited Following Decisions To Support His Submission.
(i)Yellru Mohan Reddy Vs. Rastriya; Ispathnigam Ltd, Vishakhapatnam; AIR 1992 Andhra Pradesh 81 (the Yellru Case).
(ii) Vishwanath Sood Vs. Union Of India; AIR 1989 Supreme Court 952. (the Vishwanath Case).
(iii)Unreported Single Judge Decision In Rahedshyam Kedia Vs. Union Of India And Others In Civil Misc. Arbitration Application No. 7 Of 1997 Decided On 22.2.1999 (the Radheyshyam Case).

15. In The Yellru Case, Clause 16(I) Of The Contract Provided For Matters Which Were Excepted Matters. Clause 16(2)(a) Provided For Settlement Of Those Disputes By An Arbitrator That Were Not Excepted Matters. The Question In This Case Was Whether The Dispute Was Excepted Matter Or Not. The Andhra Pradesh High Court (paragraph 25) Held:
'The Dispute Whether The Work Is New Or Not Included In The Contract As Contended By The Contractor Or Whether It Is Already Included In The Contract As Contended By The Engineer Is Not A Question Covered By Clause 11.3 And Therefore The Matter Is Not An Excepted Matter Under Clause 16.1. …it Is Therefore A Matter In Regard To Which Any Decision Or Certificate Of The Engineer Could Be Treated As Not Binding.
The Court On This Finding Allowed The Application Of The Contractor And Appointed An Arbitrator To Decide The Dispute. This Case Does Not Support The Railways But On The Contrary Is Against Them.

16. In The Vishwanath Case Clause 2 Of The Contract Provided Compensation For Delay In Carrying Out The Work And Compensation Was Required To Be Determined By The Superintendent Engineer In Accordance With It. Clause 25 Of The Contract Provided For Settlement Of Those Disputes By An Arbitrator Which Were Not Already Provided For Under The Contract. The Arbitrator Had Awarded Compensation To The Department For Delay In Execution Of The Work. The Question Was Whether The Arbitrator Could Do So. There Was No Dispute That The Arbitrator Had Given Award For Delay In Executing The Work; A Matter For Which Provision Was There Under The Contract. It Is In This Light That The Supreme Court Held That Compensation For Delay Could Be Determined By The Superintendent Engineer Under Clause 2 And The Claim Was Non-arbitrable Under Clause 25 Of The Contract.

17. In The Radheshyam Case, Contract Between The Parties Was Similar To The Contract As In The Present Case And It Was Held:
The Decision Of The General Manager Was Final And Binding On The Contractor.
It Was Not Open For The Court To Review The Matter For Deciding Whether The Said View Was Correct Or Not.
The Decision Of The Railways That The Dispute Was Covered By Excepted Matters Could Not Be Interfered With.
This Case Supports The Submission Of The Counsels For The Railways.

18. The Counsels For The Railways Relied Upon The Radheshyam Case And Submitted That Once The GM Held That The Dispute Related To Excepted Matters, Then His Decision Was Final Even If It Was Wrong. According To Them, The GM By Wrongly Deciding The Question On Excepted Matters Could Exclude The Jurisdiction Of The Court As Well As Of The Arbitrator.

19. Here There Is No Clause In The Contract That If There Was Difference Of Opinion Between The Parties Regarding Any Dispute Being Excepted Matter Or Not Then What Would Happen. In Case There Was A Clause That In Such Event The Difference Of Opinion Would Be Referred To The GM And His Decision Would Be Final, Then The Case Would Have Been Different. In That Event The Decision Of The GM Would Have Been Final And Beyond The Reach Of The Court. The Counsels Of The Railways Could Not Point Any Such Clause In The Contract. In The Present Case There Is Difference Of Opinion Between The Parties Whether The Dispute Falls Under Excepted Matters Or Not And The Decision Of The GM Regarding Excepted Matter Is Not Final Between The Parties. The GM By Wrongly Deciding This Question Can Not Exclude The Jurisdiction Of The Court. In Our Opinion The Rahedshyam Case Is Wrongly Decided And Is Overruled.

4TH POINT: RAILWAY ENTITLED TO RAISE OBJECTION
20. The Railways Had Refused To Refer The Dispute On The Ground That It Related To Excepted Matters And Was Non-arbitrable. The Contractor Thereafter Filed An Application Under Section 20 Of The Act For Appointment Of An Arbitrator. This Was Objected By The Railways, Among The Others, On The Ground That It Was Excepted Matters. The Court Had Also Framed Issue No. 1 Regarding This. The Court Below By Its Order Dated 31.5.1991 Did Not Decide Whether The Dispute Fell Under Excepted Matters Or Not, But Left It To Be Decided By The Arbitrator And Appointed Sri BN Shukla, Advocate As An Arbitrator.

21. The Railways Had Filed The Earlier FAFO Challenging The Reference On The Ground That The Dispute Was Non-arbitrable. It Was Further Claimed That In Any Case If An Arbitrator Was To Be Appointed Then The Matter Ought To Have Been Referred To The GM And An Advocate Could Not Be Appointed As An Arbitrator.

22. The High Court Rejected The Contention Of The Railways Regarding Appointment Of An Advocate As An Arbitrator On The Ground That The GM Had Already Expressed His View And There Was Considerable Delay. However, The Court Did Not Say A Word Whether The Dispute Fell Under Excepted Matters Or Not. The High Court Merely Affirmed The Order Passed By The Trial Court. This Only Means That The Question, Whether Dispute Related To Excepted Matters Or Not, Was Left To Be Decided By The Arbitrator. He In His Award Held That None Of The Claims Of The Contractor Were Excepted Matters And He Was Entitled To Adjudicate Upon The Same.

23, The Supreme Court In General Manager Northern Railways Vs. Sarvesh Chopra; (2002) 4 SCC 45 (the Sarvvesh Chopra Case) Summed Up The Law (paragraph 17) As Follows:
' To Sum Up, Our Conclusions Are (I) While Deciding A Petition Under Section 20 Of The Arbitration Act, 1940, The Court Is Obliged To Examine, Whether A Difference Which Is Sought To Be Referred To Arbitration, Is One To Which The Arbitration Agreement Applies. If It Is A Matter Expected From The Arbitration Agreement, The Court Shall Be Justified In Withholding The Reference, (ii) To Be An Excepted Matter, It Is Not Necessary That Departmental Or An "in-house" Remedy For Settlement Of Claim Must Be Provided By The Contract. Merely For The Absence Of Provisin For In-house Settlement Of The Claim, The Claim Does Not Cease To Be An Expected Matter, And (iii) An Issue As To Arbitrabiliy Of Claim Is Available For Determination At All The Three Stages- While Making Reference To Arbitration, In The Course Of Arbitral Proceeings And While Making The Award A Rule Of The Court' (Italics Mine)

24. In This Case The Railways Have Raised Objections At The Time When Application Under Section 17 Of The Act (for Pronouncing Judgment On The Basis Of Award) Was Filed By The Contractor. However As This Question Was Not Decided In The Earlier Litigation, It Can Not Be Said That The Railways Are Precluded From Raising This Question In These Proceedings. They Can Raise This Objection As Is Clear From Observations In The Sarvesh Case.

5TH POINT: CLAIMSEXCEPTED MATTERS
25. The Relevant Part Of The Award Is Appendix-II To This Judgment. The Arbitrator Has Allowed Item Nos. 1 To 3, 5 To 8, 9(a), 9(d), 10(ii) And 11(b). Item No. 10(ii) Relates To Interest And Will Be Dealt While Deciding Point No. 6. Let's Consider Whether Remaining Items Are Excepted Matters Under The Contract Or Not.

26. Clause Nos. 62 And 63 Of The GCC (Appendix-III) State That Excepted Matters Can Not Be Referred To Arbitration. Clause No. 62 Explains As To Which Disputes Are Excepted Matters. It Refers To Many Clauses But According To The Counsels For The Railways, These Items Fall Under Two Clauses 22(5) And 45(a) Of The GCC (Appendix-III).

27. Clause 22(5) Of The GCC Merely Refers To Ambiguity In The Meaning And Intent Of, Any Drawing And Specification, Or Execution Or Quality Of Work Or Material, Or Measurements Of The Works.

28. Clause 21 Of The SCC (See Appendix -IV) States How Measurements Are To Be Taken. Clause 45(a) Of The GCC Refers To Dispute Regarding Measurements. This Clause States That In Case There Is Any Dispute Regarding Measurements, Then Objection Should Be Filed Within Seven Days By The Contractor And It Would Be Re-considered. Clause 45(b) Of The GCC States The Consequences Of The Same.

29. Item Nos. 1 And 2 Relate To Claim Regarding Penetration Of The Ballies. This Difference Has Arisen Due To Different Measurements Claimed By The Contractor. This Is Clear From The Documents Examined By The Arbitrator As Mentioned In His Award. According To The Contractor, Item No.1 And 2 Have Been Awarded As The Depth Of The Penetration Of Ballies Was Not Recorded I.e. A Dispute Regarding Measurements. This Dispute Clearly Fell Under Clause 45(a) And Was Excepted Matter.

30. Item No. 3 And 5 To 8 Are Related To Item Nos. 1 And 2 And Arise Due To Them. If There Was No Difference In Measurement For Item Nos. 1 And 2 Then There Could Not Be Claim For Item Nos. 3 And 5 To 8. This Was So Explained To Us By The Counsels For The Contractor And The Engineer Who Was Present In The Court On Behalf Of The Contractor. In View Of This, These Items Also Relate To Measurements And Fall Under Excepted Matters Under Clause 45(a) Of The GCC. The Claims In Item Nos. 1 To 3 And 5 To 8 Were Non-arbitrable.

31. Item No. 9(a) Relates To Supply Of Boats. Item No. 9(d) Is Related To Item No. 9(a). Item No. 11(b) Relates To Cost Of Wastage Of Labour. These Items Are Not Related To Measurements. They Are Not Covered By Clause 22(5) Or 45(a) Of The GCC. The Counsel For The Railways Could Not Point Out Any Clause Of The Contract Under Which These Could Be Covered. In View Of This They Are Not Excepted Matters And Were Arbitrable.

32. The Supreme Court In Associated Engineering Company Vs. Govt. Of AP; {AIR 1992 SC 232 (paragraphs 28, 29)} Held That;
'An Umpire Or Arbitrator Can Not Widen His Jurisdiction By Deciding A Question Not Referred To Him By The Parties Or By Deciding A Question Otherwise Than In Accordance With The Contract. He Can Not Say That He Does Not Care What The Contract Says. He Is Bound By It. It Must Bear His Decision. He Can Not Travel Outside Its Bounds. If He Exceeded His Jurisdiction By So Doing, His Award Would Be Liable To Be Set Aside'.

33. Item Nos. 1 To 3 And 5 To 8 Were Excepted Matters And Were Non-arbitrable. The Arbitrator Committed An Illegality In Allowing Them. The Award On These Items Is Illegal And No Decree Can Be Passed On Their Basis.

6TH POINT: CONTRACT PROHIBITS INTEREST
34. The Question Whether The Arbitrator Could Award Interests Or Not Was Subject Matter Of Debate. It Has Been Answered By The Two Different Constitution Benches Of The Supreme Court. In The First Case (Secretary, Irrigation Department, Government Of Orissa Vs. GC Roy; AIR 1992 SC 732) The Court Held That,
'Where The Agreement Between The Parties Does Not Prohibit Grant Of Interest And Where A Party Claims Interest And That Dispute (along With The Claim For Principle Amount Or Independently) Is Referred To The Arbitrator, He Shall Have The Power To Award Interest Pendente Lite. This Is For The Reason That In Such A Case It Must Be Presumed That Interest Was An Implied Term Of The Agreement Between The Parties And Therefore When The Parties Refer All Their Disputes  Or Refer The Dispute As To Interest As Such  To The Arbitrator, He Shall Have The Power To Award Interest.'

35. In The Subsequent Case (Executive Engineer DMI Division Vs. NC Budhraj; AIR 2001 SC 628) The Court By Majority Held That:
'For All The Reasons Stated Above, We Answer The Reference By Holding That The Arbitrator Appointed With Or Without The Intervention 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'.

36. In Short, An Arbitrator Can Award Interest For A Period Prior To Reference And During Pendency Of The Arbitration Proceeding Unless It Is Prohibited Under The Agreement. These Decisions Specifically Overruled The Earlier Decision Reported In Ex-Engg, Irrigation Vs. Abhaduta Jena; AIR 1988 SC 1520. These Two Decisions Are Relevant For The Rest Of The Country But Not Necessary So Far As Our State Is Concerned In View Of State Amendment Conceding Similar Powers To The Arbitrator.

37. Section 3 (See Appendix-I) Of The Act States That Unless Different Intention Is Expressed The Items Mentioned In Schedule 1 Of The Act Are Implied In An Arbitration Agreement. This Schedule Did Not Include Any Item Related To Interest. It Has Been Amended In Our State And Paragraph 7-A (See Appendix-I) Has Been Inserted By UP Civil Laws (Reforms And Amendment) Act (Act No. 57 Of 1976) With Effect From 11.19.1977. It Is Clear From Paragraph 7-A To The Schedule 1 Of The Act That In Case Award Is For Payment Of Money Then Arbitrator May Award Interest For Following Period:
(i)up To The Date Of Commencement Of The Arbitration.
(ii)from The Date Of Commencement Of Arbitration Proceedings {as Defined In Section 37(3) Of The Act} Till The Date Of Award.
(iii)from The Date Of The Award Till The Date Of Payment Or Any Earlier Date.
There Is No Ceiling To The Rate Of Interest For The First Two Period Though It Has To Be Reasonable, But There Is Ceiling Of 6% Per Annum On The Rate Of Interest For The Third Period Namely From The Date Of Award Till The Date Of Payment Or Any Earlier Date.3

38. Items Mentioned In Schedule I To The Act Are Impliedly Included In An Arbitration Agreement But In View Of Section 3 Of The Act They Are Subject To Any Specific Terms Of The Contract. In View Of Section 3 And Para 7-A Of Schedule I Of The Act, Interest Can Be Awarded By An Arbitrator Only If It Is Not Prohibited By The Contract.
39. Clause 16(1) (Appendix III) Of The GCC Provides For Earnest Money And Security Deposit. Clause 16(2) Of The GCC Is As Follows:
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 Deposited In Terms Of Such Clause (1) Of This Clause Will Be Repayable With Interest Accrued Thereto.
This Clause Prohibits Payment Of Interest On Amounts Payable To The Contractor Under The Contract Except The Government Securities Mentioned Therein. Here The Payment Of Interest Is Not On Government Securities But On The Amount Alleged To Be Payable To The Contractor Under The Contract.

40. Clause 30 Of The SCC (Appendix - IV) Is Similar To Clause 52 Of The GCC. These Clauses Bar Interest And Damages In Respect Of Withholding Or Retention Under The Lien. To Our Mind, Clause 16(2) Read With Fifth Paragraph Clause 30 Of The SCC And Clause 52 Of The GCC Bar The Payment Of Interest To The Contractor. The Supreme Court Decisions Refereed Earlier (paragraph 34 And 35 Of This Judgment) And Para 7-A Of Schedule 1 Of The Act Apply Only In Case If The Contract Does Not Prohibit Payment Of Interest. We Have Already Held That Contract Prohibits Payment Of Interest: The Arbitrator Committed Illegality In Awarding Interest.

41. The Counsels For The Contractor Submitted That The Contractor Is Entitled To Interest Under Clause 19 Of The SCC (see Appendix-IV). This Clause Does Not Give Any Such Right To The Contractor. This Clause Merely Provides That The Railways Are Entitled To Interest Under The Circumstances Mentioned In That Clause But Does Not Give Similar Rights To The Contractor. We Are Afraid That Payment Of Interest To The Contractor Can Not Inferred From This Clause4.

42. Counsels For The Contractor Submitted That The Contractor Is Entitled To Interest On The Basis Of The Interest Act 1978. The Interest Act Applies To The Tribunal As Well As To The Arbitrator. Section 3 Of The Interest Act States That Interest Could Be Awarded, But Sub-section 3(a)(ii) Clarifies That This Can Not Be Done In Relation To Any Debt Or Damages In Case Payment Of Interest Is Barred By Express Agreement. We Have Already Held That Interest Can Not Be Paid As It Is Expressly Barred Under The Contract: No Interest Could Be Paid Under The Interest Act Also.

43. The Arbitrator Has Awarded Interest Under Item No. 10 Of Clause 1 Of The Award. He Has Further Awarded Interest From 16.11.1983 To 31.3.1992 On The Claim Awarded Under Clause 3 Of The Award. This Is Illegal.

7TH POINT: INTEREST FROM THE DATE OF DECREE
44. The Court Below Has Awarded Interest At The Rate Of Interest Given By The Bank From The Date Of The Award Till The Date Of Payment. Payment Of Interest By The Court Has Been Dealt Under Section 29 Of The Act (See Appendix-I) This Section Clearly States That The Court Could Award Interest From The Date Of Decree At Such Rate As The Court Deems Reasonable. The Court Below Has Awarded Interest, Which Is Given By The Bank. This Has Been Ordered As The Court Thought It To Be Reasonable. There Is No Illegality In Awarding This Rate Of Interest But This Could Be Awarded From The Date Of The Decree And Not From The Date Of Award. The Order Granting Interest From The Date Of Award Is Illegal.

CONCLUSION
45. Our Conclusions Are As Follows;
(a)The Court Below Had Jurisdiction To Entertain The Application Under Section 17 Of The Act.
(b)The Application Of The Railways Under Section 30/33 Of The Act And Their Objections Against Application Under Section 17 Were Wrongly Rejected But The Case Is Not Being Remanded As The Court Below Has Also Decided On Merits.
(c)The Decision Of The GMholding That The Dispute Relates To Excepted Matteris Not Final And Can Be Reviewed By The Court.
(d)The Question Whether The Claim Related To Excepted Matters Or Not Was Not Decided In The Previous Round Of Litigation And Was Left To Be Decided By The Arbitrator. It Can Be Considered In The Present Proceedings.
(e)Item Nos. 1 To 3 And 5 To 8 Of Clause 1 Of The Award Dated 13.4.1992 Relate To Excepted Matters And Were Non-arbitrable: No Decree Can Be Passed On Their Basis.
(f)The Contract Prohibited Payment Of Interest. Item 10 Is Award For Interest; It Could Not Be Awarded. Similarly No Interest Could Be Awarded Under Clause 3 Of The Award.
(g)There Is No Illegality In Awarding Interest Payable At The Bank Rate, But It Could Only Be Awarded From The Date Of Decree And Not From The Date Of Award.

46 In View Of Our Conclusions This FAFO Is Partly Allowed. Let The Decree Be Made Only In Respect Of Item No. 9(a) (Rs 7,657), 9(d) (Rs 47,553.07) And Item Nos. 11(b) (Rs 10,800) Of Clause 2 Of The Award (Total Rs. 65990.07). The Contractor Will Also Be Entitled To Interest At The Bank Rate On This Amount (as Awarded By The Court Below) From The Date Of Decree I.e. 1.12.1992 Till Actual Payment. As The Appeal Is Partly Allowed, The Parties Will Bear Their Cost Throughout.

Dated: 29.4.2003
SKS
Appendix I

Relevant Parts Of The Relevant Sections Under The Arbitration Act 1940 (the Act) Are As Follows:

Section 2(c): "Court" Means A Civil Court Having Jurisdiction To Decide The Questions Forming The Subject-matter Of The Reference If The Same Had Been The Subject-matter Of A Suit, But Does Not, Except For The Purpose Of The Arbitration Proceedings Under Section 21, Include A Small Cause Court.

Section 3. Provisions Implied In Arbitration Agreement. An Arbitration Agreement, Unless A Different Intention Is Expressed Therein, Shall Be Deemed To Include The Provisions Set Out In The First Schedule In So Far As They Are Applicable To The Reference.

Section 29. Where And In So Far As An Award Is For The Payment Of Money The Court May In The Decree Order Interest, From The Date Of The Decree At Such Rate As The Court Deems Reasonable, To Be Paid On The Principal Sum As Adjudged By The Award And Confirmed By The Decree.

Schedule 1 Para-7A
Para 7-A. Where And In So Far As An Award Is For The Payment Of Money, The Arbitrators Or The Umpire May, In The Award, Order Interest At Such Rate As The Arbitrators Or Umpire May Have Deem Reasonable To Be Paid On The Principal Sum Awarded, From The Date Of The Commencement Of The Arbitration, As Defined In Sub Section (3) Of Section 37, To The Date Of Award, In Addition To Any Interest Awarded On Such Principal Sum For Any Period Prior To Such Commencement, With Further Interest At Such Rate Not Exceeding Six Per Cent Per Annum As The Arbitrators Or Umpire May Deem Reasonable On Such Principal Sum From The Date Of Award To The Date Of Payment Or To Such Earlier Date As The Arbitrators Or Umpire May Think Fit, In No Case Beyond The Date Of The Decree To Be Passed On The Award.

Appendix -II
The Relevant Part Of The Award Dated 13.4.1992 Is As Follows:

`And Whereas I Have Gone Through The Claimant Contractor's Statement Of Facts, The Railway's Counter Statement Of Facts, And The Documents Evidences, Correspondence Submitted By Both The Parties And The Pleadings And Arguments Placed Before Me By The Respective Parties.
And Whereas The Final Hearing With Both The Parties Was Completed On 17.3.1992 With Affirmation By Both The Parties That They Have No Further Submissions To Make In Their Cases.
And Whereas I Have Especially Gone Through The Following Records Submitted By The Defendant In Course Of Hearing-
(a)i. The Level Book NO. 1. - Containing Initial Levels Of River Bed Taken On
4.12.1981 Before The Start Of Work.
ii. Graph Sheets - Said To Contain Initial Levels Of River Bed Taken On 12.12.81 During The Progress Of Work And Not Signed By The Contractor. Which Has Formed The Basis Of Final Payments.
iii. Log Book No. 1A- The Entries Made Earlier In Column - "Depth Of Water" For 7" Dia Ballies From 12.2.1982 Onwards (Ballies Nos. 469 To 726) Subsequent By Tampered, Altered And Over Written Without Putting Initials By The Defendant Or Any Of The Alterations And Overwritings.
iv. Lob Book No. 4 - For Supply Of Boats By The Contractor. Maintained By The Defendant In Triplicate For The Same Work And Period - Each Differ From Other In Behaviour And Character.
All The Above Manupulations/alterations/overwritings Made By The Defendant Have Resulted In Reducing The Quantities Of Works Done By The Contractor.
(B). Another Important Omission Which Came To My Notice Was That The Provisions Of Clause 21(iv) Of The Special Conditions Annexed To The C.A In Question For Taking Daily Progress Of Piling And Putting Sand Bags In Position To Be Taken Jointly And To Be Entered Into The M.B. And The Balance Measurements To Be Taken Jointly And To Be Taken Into M.B. Fortnightly, Were Not Followed By The Railway/ Defendant At All.
It Is Further Surprising That In Utter Violation Of Extant Railway Rules And Orders On The Subject, The Measurements Were Hardly Entered Into The Measurement Book Directly And Mostly Entries In The Measurement Books Were Copied Down From Subsidiary Records Or Note Books.
Now, Therefore, I Bashist Narayan Shukla, Sole Arbitrator Do Hereby Make My Award In Respect Of The Disputes/claims Submitted Before Me For Arbitration As Follows:


AWARD:
1. That None Of The Claims Of The Claimant Contractors Are 'excepted Matters'.
2. That The Defendant [the Railways] Shall Pay To The Claimant [contractor] Is As Follows:
Item No.
Particulars
Claim Of The Claimant (Rs)
Awarded Amount
( R )
1.
Penetration 7" Dia Ballies
13,906.55
13,906.55
2.
Penetration 6" Dia Ballies
26,947.05
26,947.05
3.
Fixing Bracings
4,295.13
4,295.13
4.
Splicing 6" Dia
4.300.00
Not Allowed
5.
Bamboo Mating
14,455.77
14,455,77
6.
Sand Filling
1,69,864.59
1,69,864.59
7.
Boulder Pitching (Crates)
21,460.29
21,460,29
8.
Bare Boulders
26,207.35
26,207.35
9.
a.Supply Of Boats
b.Pitching
c.Carriage & Stacking Of Ballies
d.Zonal Increase Of 621% Above SR On Item 9a. On Amount Of Rs. 7,657.50

7,657.50
891.00
5,000.00

53,085.18
7,657,50
Not Allowed
Now Allowed

47,553.07
10.
i.In Terms Of Clause 19 Of Special Condition Of Contract CE/5 Dated 3.11.1981 Interest @ 18% Per Annum.
ii.
(a)Delay In Making Payment Beyond Fortnightly Payment In Terms Of Clause 22 Of Special Condition Of Contract. CE/5 Dt. 13.11.81 Interest @ 18% Per Annum In Terms Of Clause 19 Of Special Condition Of Contract Agreement. Rs. 89,855.72
(b)Interest @ 18% Per Annum On Rs. 80,423,00 From 21.1.82 To 29.10.83. This Amount Was Arbitrarily Deducted By The Railway From The Fifth On Account Bill On 21.1.82 And Refunded On 29.10.83. Rs. 25,332.93






1,15,188.65
(Rs. 89855.72 + Rs. 25332.93)






1,15, 188.65

11.
Cost Of Wastage Of :
a)Boats
b)Labours

Lets 2% Rebate On Item 1 To 8 As NB2 Appended To Schedule Of Rates And Condition Annexed To Contract Agreement In Question.
27,000.00
21,600.00

Total 4,98,572.78





Not Allowed
10,800.00

4,54,335.95


(-) 5,462.73.00



Award


4,48,873.22 (A)
(Rupees Four Lac Forty Eight Thousand Eight Hundred Seventy Three And Paise Twenty Two Only.

3. That The Defendants Shall Pay To The Claimant Contractor Amount Of Rs. 4,48,873.22 (four Lac Forty Eight Thousand And Seventy Three And Paise Twenty Two Only) Alongwith Compoundable Bank Interest Thereon As Under:
The Defendant Will Pay The Claimant Contractor As Per Present Bank Interest (compoundable) On Rs. 4,48,873.22 From The Date 16.11.1983 Onward To 21.3.1992-alongwith Amount Of Principal Award Of Rs. 4,48,873.22.



Appendix - III
Relevant Parts Of Clauses 16, 22(5), 45(a) And 62 Of The General Conditions Of Contract Are As Follows:

16(1). The Earnest Money Deposited By The Contractor With His Tender Will Be Retained By The Railway As Part Of Security For The Due And Faithful Fulfilment Of The Contract By The Contractor. The Balance To Make Up This Security Deposit Which Will Be 10 Per Cent Of The Total Of Contract, Unless Otherwise Specified In The Special Conditions If Any, May Be Deposited By The Contractor In Cash Or In The Form Of Government Securities Or May Be Recovered By Percentage Deductions From The Contractor's "on-account" Bills.

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 Deposited In Terms Of Such Clause (1) Of This Clause Will Be Repayable With Interest Accrued Thereto.

22(5): If Any Ambiguity Arises To The Meaning And Intent Of Any Portion Of The Specifications And Drawings Or As To Execution Or Quality Of Any Work Or Material Or As To The Measurements Of The Works, The Decision Of The Engineer Therein Shall Be Final Subject To Appeal (within 7 Days Of Such Decision Being Intimated To The Contractor) To The Chief Engineer Who Shall Have The Power To Correct Any Errors, Omissions, Or Discrepancies In The Specifications, Drawings, Classification Of Work Or Materials, And Whose Decision In The Matter In Dispute Or Doubt Shall Be Final And Conclusive.

45. The Contractor Shall Be Paid For The Works At The Rate In The Accepted Schedule Of Rates And For Extra Works At Rate Determined Under Clause 39 Of These Conditions On The Measurements Taken By The Engineer Or The Engineer's Representative In Accordance With The Rules Prescribed For The Purpose By The Railway.
The Quantities For Items The Unit Of Which In The Accepted Schedule Of Rates 100 Or 1000 Shall Be Calculated To The Nearest Whole Number, Any Fraction Below Half Being Dropped And Half And Above Being Taken As One; For Items The Unit Of Which In The Accepted Schedule Of Rates Is Single, The Quantities Shall Be Calculated To Two Places Of Decimals.
Such Measurements Will Be Taken Of The Work In Progress From Time To Time And At Such Intervals As In The Opinion Of The Engineer Shall Be Proper Having Regard To The Progress Of The Works. The Date And Time On Which "on-account" Or Final Measurements Are To Be Made Shall Be Communicated To The Contractor Who Shall Be Present At The Site And Shall Sign The Results Of The Measurements (which Shall Also Signed By The Engineer Or The Engineer's Representative) Recorded In The Official Measurement Book As An Acknowledgement Of His Acceptance Of The Accuracy Of The Measurement. Failing The Contractor's Attendance The Work May Be Measured Up In His Absence, Be Binding Upon The Contractor Whether Or Not He Shall Have Signed The Measurement Book; Provided Always That Any Objection Made By Him To Any Measurement Shall Be Duly Investigated And Considered In The Manner Set Out Below:
(a)It Shall Be Open To The Contractor To Take Specific Objection To Any Recorded Measurement Or Classification On Any Ground Within Seven Days Of The Date Of Such Measurements. Any Re-measurements Taken By The Engineer Or The Engineer's Representative In The Presence Of The Contractor Or In His Absence After Due Notice Has Been Given To Him In Consequence Of Objection Made By The Contractor Shall Be Final And Binding On The Contractor And No Claim Whatsoever Shall Thereafter Be Entertained Regarding The Accuracy And Classification Of The Measurements.
(b)If An Objection Raised By The Contractor Is Found By The Engineer To Be Incorrect The Contractor Shall Be Liable To Pay The Actual Expenses Incurred In Measurement.

62. All Disputes And Difference Of Any Kind Whatsoever Arising Out Of Or
connection With The Contract, Whether During The Progress Of The Work Or After Its Completion And Whether Before Or After The Determination Of The Contract, Shall Be Referred By The Contractor To The Railway And The Railway Shall Within A Reasonable Time After Receipt Of The Contractor's Presentation Make And Notify Decisions On All Matters Referred To By The Contractor In Writing, Provided That Matters For Which Provision Has Been Made In Clause 18, 22(5), 39, 45(a), 55, 55-A (5), 60(2) And 61(1) (xiii) (B) (e) (b) Of The General Conditions Of The Contract Or In Any Clause Of The Special Condition Of Contract Shall Be Deemed As 'excepted Matters And Decisions Thereon Shall Be Final And Binding On The Contractor, Provided Further That 'excepted Matters' Shall Stand Specifically Excluded From The Purview Of The Arbitration Clause And Shall Not Be Referred To Arbitration.

63(1) In The Event Of Any Dispute Or Difference Between The Parties Hereto As To The Construction Or Operation Of This Contract, Or
The Respective Rights And Liabilities Of The Parties On Any Matter In Question, Dispute Or Difference On Any Account, Or
As To The Withholding By The Railway O Any Certificate To Which The Contractor May Claim To Be Entitled To, Or If The Railway Fails To Make A Decision Within A Reasonable Time.
Then And In Any Such Case,
But Except In Any Of The "excepted Matters" Referred To In Clause 62 Of These Conditions,
The Contractor, After 90 Days Of This Presenting His Final Claim On Disputed Matters, May Demand In Writing That The Dispute Or Difference Be Referred To Arbitration.
Such Demand For Arbitration Shall Specify The Matters Which Are In Question, Dispute Or Difference, And Only Such Dispute Or Difference Of Which The Demand Has Been Made And No Other, Shall Be Referred To Arbitration.
Appendix - IV

Clause 19, 21 And 30 Of Special Condition Of The Contract Dated 3.11.1981 (the SCC) Are As Follows:

19. All Items Of Works On Completion As Per Approved Plan And Directive Issued From Time To Time And To The Satisfaction Of The Engineer Shall Be Handover To Hi Representative On A Programmed Basic Decided By The Engineer. The Contractor Shall Be Responsible For Proper Maintenance Of The Work Till It Is Handedover To The Railway. The Contractor Shall Take Immediate Action To Remedy And Rectify Any Defects Pointed Out To Him To The Satisfaction Of The Engineer's Representative In Respect Of Notice In This Regard From Him. The Railway Shall Be Free To Get Defects And The Flaw Rectified Departmentally Or Though Any Other Appropriate Agency At The Risk And Cost Of The Contractor And Deduct Or Ask For The Payment Of Such Amount As May Be Decided By The Engineer And Contractor Shall Have No Objection Regarding Deduction Of Such Total Sum Of Money Claimed By The Engineer Within A Period Of Two 2 Weeks Of Issue Of Intimation, Failing Which Interest At The Rate Of 18% Or Commercial Lending Rate Of Nationalised Bank Whichever Shall Be More Shall Be A Levied.

21. Measurements.
(i)For Ascetaining The Dia Of Ballias (against Item 1 To 3) The Girth Will Be Measured At 1.0" Distance From The Bottom (i.e. Thicker End) And Length Will Be Measured From Bottom To Top End.
(ii)Contractor Will Mark The Linear Measurements On Each Billies Ready For Driving It Into The Bed At Every One Metre Apart And For This No Extra Payment Will Be Made.
(iii)The Measurement For Sand Filling Against Item No. 1 Will Be Based On Initial And Final Cross Sections. For The Sand Under Water No Shrinkage Will Be Deducted And For Sand Filled Above Water Level Shrinkage 5% Will Be Deducted. No Wastage For Sand Washed Away If Any During The Crocess Of Work Will Be Allowed. The Rate Will Be Inclusive Of All Lead, Lifts Descents, And Mode Of Carrying I.e. Head Load, Boat Or Any Other Means.
(iv)Daily Progress Of Piling And Putting Sand Bags In Position To Be Taken Jointly And To Be Entered Into M.B. And The Balance Measurements To Be Taken Jointly And To Be Entered Into The M.B. Fortnightly.
(v)Against Item No. 10 & 11 The Empty Bags After Filling With Sand Will Be Seen Properly With Sutli (and Not Be Tied). The Sutli Will Be Supplied By The Contractor And The Cost Of The Same Will Be Included In The Rate. Bags Will Be Filled To The Full Capacity. The Empty Bags For This Purpose Will Be Supplied By The Railway Free Of Cost. Railway May Take Supply Of Empty Cement Bags To The Extent Of 50,000 Nos. From The Contractor At Site And In This Case The Rates Provided In The Item No. 11 Instead Of Item No. 10 Shall Be Applicable.
(vi)Only The Actual Depth Penetrated Below The River Bed Shall Be Paid Against Item 1 To 4 And No Extra Payment Will Be Made For The Handing Of The Balance Length Of Ballies Required For The Purpose.
(vii)All Materials Required For Fixing, Lacing And Bracing 6" Dia Ballies (except Ballies) Against Item No 6 Will Be Supplied By The Contractor And The Cost Of The Same Will Be Included In His Rate.
(viii)All Materials Required For Splicing Ballies (except M.S. Flat) Against Item Will Be Supplied By The Contractor And Cost For The Same Will Be Included In His Rate.

30. Whenever Any Claim Or Claims For Payment Of A Sum Of Money Arises Out Of Or Under The Contract Against The Contractor, The Railway Shall Be Entitled To Withhold And Also Have A Lien To Retain Such Sum Or Sums In Whole Or In Part From The Security, If Any, Deposited By The Contractor And For The Purpose Aforesaid, The Railway Shall Be Entitled To Withhold The Said Cash Security Deposit Or The Security, If Any, Furnished As The Case May Be And Also Have A Lien Over The Same Pending Finalisation Or Adjudication Of Any Such Claim.
In The Event Of The Security Being In-sufficient To Cover The Claimed Amount Or Amounts Or If No Security Has Been Taken From The Contractor, The Railway Shall Be Entitled To Withhold And Have A Lien To Retain To The Extent Of The Such Claimed Amount Or Amounts Referred To Supra From Any Sum Or Sums Found Payable Or Which At Any Time Thereafter May Become Payable To The Contractor Under The Same Contract Or Any Other Contract With This Or Any Other Railway Or Any Other Department Of The Central Government Pending Finalisation Or Adjudication Of Any Such Claim.
It Is An Agreed Term Of The Contract That The Sum Of Money Or Monies So Withheld Or Retained Under The Lien Referred To Above, By The Railway Will Be Kept Withheld Or Retained As Such By The Railway Till The Claim Arising Out Of Or Under The Contract Is Determined By The Arbitrator (if The Contract Is Governed By This Arbitration Clause) Or By The Competent Court As The Case May Be And
That The Contractor Will Have No Claim For Interest And Damage Whatsoever On Any Account In Respect Of Such Withholding Or Retention Under The Lien Referred To Supra And Duly Notified As Such To The Contractor.
For The Purpose Of This Clause, Where The Contractor Is A Partnership Firm Or A Limited Company, The Railway Shall Be Entitled To Withhold And Also Have A Lien To Retain Towards Such Claimed Amount Or Amounts In Whole Or In Part From Any Sum Found Payable To Any Partner/limited Company, As The Case May Be, Whether In His Individual Capacity Or Otherwise.

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