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Judgment
Sanjib Banerjee, J.—The scope of the challenge to the award in the present case is limited. At the start of the proceedings the challenge was to the award made under the second, eighth and ninth heads of claim and on account of interest. The parties have agreed as to the quantum that would be payable under the eighth head. The challenge under the second head cannot proceed very far upon it being demonstrated by the claimant-contractor that there was a special clause in the agreement that had overriding effect over the bar on escalation in the general conditions governing the agreement. The real challenge is restricted to one made in respect of the ninth head of claim under which a sum of Rs. 72,000/- has been awarded and in respect of the award on interest. The contractor was awarded the remaining work relating to the construction of a workshop at Haldia and the extension of a workshop at Chiranjibpur. The work was to be completed within 18 months from the date of the work order. The work order was issued on June 18, 1983. The contractor claimed that work could not commence immediately upon issuance of the work order due to circumstances beyond the control of the parties; the site was inundated. The employer granted extension of time until completion without imposing any liquidated damages. The work was completed by June 15, 1986.
By an order passed by this court on May 20, 1994 a lawyer-arbitrator was appointed and the reference meandered over 94 sittings between June of 1999 and March of 2000. The award was rendered on May 10, 2001.
In respect of the heads of claim material for the purpose of the present proceedings, the award made was thus :
Claim No. 2 on account of escalation
Rs. 1,04,887/-
Claim No. 8 on account of loss of business
Rs. 2,70,000/-
Claim No. 9 on account of idle labour and machinery
Rs. 72,000/-
Claim No. 10 on account of interest
12 per cent per annum for both the pre reference and pendente lite period.
The employer refers to the bar as to a claim on account of escalation found in clause 8 of the special conditions of contract which provides that no escalation for variation on the price of material and labour would be entertained. Though called "special conditions of contract" such conditions are, in fact, the general conditions which apply to every contract of such nature entered into by the petitioner. The employer has referred to the judgments reported at Associated Engineering Co. Vs. Government of Andhra Pradesh and another, and Ramachandra Reddy and Co. Vs. State of Andhra Pradesh and Others, for the proposition that when there is a specific clause in the contract barring a particular claim or a species of claim is excluded or a matter is designated as an excepted matter, the arbitrator cannot entertain a claim in derogation of such provision. There cannot be any dispute with such proposition as an arbitrator is the creature of, generally, the same agreement which contains such clause and it is not open to the arbitrator to act de hors the agreement. An arbitrator may construe a clause and hold upon his construction of such clause that a claim made would not fall foul of the bar under a cited clause, but the arbitrator cannot ignore the terms of the agreement and proceed on the basis of his sense of fairness and in supersession of what the parties had bargained at the outset.
But such matters and consideration of the legal issues involved in connection therewith need not detain the challenge as to the award made under the second head of claim. There appear, in the work order of June 18, 1983, specific clauses permitting a claim of escalation on account of cost of labour and a claim of escalation on account of increased price of steel. Clauses (d) and (g) of the work order recognise escalation in respect of such matters. The general conditions that the employer relies on would have to yield in every case that the specific terms of the contract provide otherwise. In the event the terms of a contract are silent as to any matter covered by the general conditions, the relevant provisions of the general conditions would hold sway. The bar of escalation under clause 8 of the general conditions would be inapplicable to the extent clauses (d) and (g) of the work order cover the issues. The second head of claim was on account of escalation for increased labour cost. The arbitrator assessed the claim and found it to be justified because the agreement between the parties accommodated such a claim.
Since the second head of claim has been challenged only on the ground of the permissibility of such head of claim and not as to quantum, upon noticing clauses (d) and (g) of the work order, such challenge has to be repelled.
The arbitrator awarded a sum of Rs. 2,70,000/- on account of compensation due to loss of earnings for the contractor overstaying by a period of 18 months. The quantum of award under such head is as claimed. The contract was required to be completed by a period of 18 months beginning June 18, 1983, but it took about 36 months to complete. The employer extended the time without reserving any claim for liquidated damages upon satisfaction that the delay was, due to reasons beyond the control of the contractor. Ordinarily, in such a case when a party had bargained to remain at a particular site for 18 months but was forced to remain thereat for double the originally contemplated period, such party would incur some loss. At least the quantum of profit that such party would have assessed and provided for in the material terms of the tender papers at the time of bidding for such work, would stand completely altered by reason of the extended period of the work. The parties have been gracious to arrive at an agreement in respect of the claim made under the eighth head of claim and the points urged need no longer be considered. Counsel for the employer has informed court on October 9, 2007 that the highest decision making body of the petitioner has agreed to pay a sum of Rs. 1 lakh to the contractor if the contractor was satisfied with such sum against an award made under the eighth head for Rs. 2.7 lakh. The contractor has agreed. The claim under the eighth head is thus modified by the consent of the parties and reduced from Rs. 2.71akh to Rs. 1 lakh.
Under the ninth head, the contractor claimed idling charges. The petitioner submits that clause 65 of the general conditions would bar a claim on such score :
"65. Extension of time. - Should the amount of extra or additional work of any kind or other special circumstances including exceptional weather conditions, civil commotion, strikes, or lockouts which may occur be such as to delay the completion of work, the Contractor shall apply in writing to the Engineer for an extension of time for the completion of work within the days of such occurrence. The Engineer shall determine the period of such extension and grant extension of the period of contract and waive the application of the compensation under Clause 48 hereof if he thinks the request reasonable. No extra payment shall be made to the Contractor on any account for such extension of period."
There is no dispute that the time was extended till completion and that during such period of extension, there was to be no claim on account of liquidated damages by the employer. The contractor has not been able to demonstrate that the letter of extension permitted the contractor to maintain a claim of the nature covered by the ninth head. It may be presumed that there was no reference in that regard in the letter of extension. In the absence of the parties specifically agreeing to depart from a position'' that would be covered by the general conditions, the relevant clause found in the general conditions would prevail. The last sentence of clause 65 would not permit any extra payment to be made to the contractor on account of the extended period.
The arbitrator referred to the claim for Rs. 1,44,000/- and the claimant''s contention that monthly expenses on account of payment of salary to supervisor, office and watch and ward staff and depreciation of equipment was at the rate of Rs. 8,000/- per month. The arbitrator referred to the list of machinery and other documents including salary vouchers being presented before him. The arbitrator merely concluded thereafter that a sum of Rs. 4,000/- per month, could be granted in his opinion in respect of such head of claim. With respect, since the arbitrator has given reasons elsewhere in the award and has expended a few lines in seeking to justify the award under the ninth head, he ought to have indicated the bass for arriving at such figure.
The petitioner has referred to the judgment reported at Jajodia (Overseas) Pvt. Ltd. Vs. Industrial Development Corporation of Orissa Ltd., as to what would constitute reasons and the necessity for reasons. But before the quantum granted by the arbitrator can be questioned and the necessity of reasons be looked into in the context, the reference being governed by the Arbitration Act, 1940, it has first to be assessed whether such a head of claim to have been entertained at all. On the strength of the last limb of clause 65 of the general conditions, it appears that such claim could not have been entertained at all. The award for Rs. 72,000/- under the ninth head is annulled.
It is only the claim on account of interest that remains and it can be seen in the award ''that the largest component of the award is the interest awarded. The total amount of interest is not quantified in the award but interest has been awarded for delayed payment of Rs. 4,29,132/- at the rate of 12 per cent awarded from June 15, 1986 (the date of completion of the work) till the date of the award on the amounts awarded under the second, third and sixth heads of claim. Interest has also been awarded at 12 per cent in respect of the sum awarded under the ninth head, but that is irrelevant upon the ninth head of claim having been struck down for being in derogation of the agreement between the parties.
The general conditions contain a clause which, according to the employer, has a bearing on the matter of grant of interest. Clause 13(g) of the general conditions provides as follows :
"13. Payments. -...
"(g) No claim for interest will be entertained by the Commissioners with respect to any delay on the part of the Commissioners in making interest or final payment or otherwise."
The contractor has referred to the judgment reported at The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, , as to the interpretation of such clause. At paragraphs 4 and 5 of the report, the effect of such clause has been considered by the Supreme Court :
"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 ligitimate 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, that was a matter which fell within the jurisdiction of the arbitrator, as the arbitrator would have to interpret sub-clause (g) of clause 13 of the contract and decide whether that clause prohibits him from awarding interest pendente lit. In that case it cannot be said that the arbitrator had wandered outside the contract to deny to him jurisdiction to decide the question regarding payment of interest pendente lite. Even if we were to accept the contention urged by the learned counsel for the appellant placing reliance on paragraphs 26 and 29 of the Associated Engineering Co. case we think, that the aubitrator was well within his jurisdiction in awarding interest pendente lite."
In addition, the judgments reported at Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, and (199)4 SCC 423 have been relied upon by the petitioner in support of the contention that unless there is an agreement for payment of interest, the arbitrator has no authority to grant interest for the period before the reference and only upon a claim under the Interest Act being made would a party be liable for pre-reference interest. The contractor refers to the judgments reported a B.V. Radha Krishna Vs. Sponge Iron India Ltd., and (2001)2 SCC 721 in support of the arbitrator''s award on account of interest.
Ordinarily, the arbitrator has authority to award interest for all four stages : from the time of accrual of cause of action till filling of the arbitration proceedings; during pendency of the proceedings before the arbitrator; future interest arising between the date of the award and the date of the decree; and, interest from the date of the decree till realisation of the award. These are the four stages that are covered by the 1940 Act, though the third and fourth stages merge into one under the 1996 Act since an award under the 1996 Act does not need the imprimature of court for it to become executable. The arbitrator was free to interpret clause 13(g) of the general conditions for his authority to award interest pendente lite and interest till realisation of the dues. But, as the Supreme Court held in the Engineers-De-Space-Age case, the arbitrator''s authority is only as to interest pendente lite and post-award. For the prior period, the arbitrator could not have granted interest.
The next consideration would be as to the date from which interest may be granted - whether it would be the date on which the arbitrator enters upon the reference or it would be an earlier date. Under the 1940 Act, an arbitration is deemed to commence when one party to the arbitration agreement serves on the other, a notice requiring the appointment of an arbitrator, or where the arbitration agreement provides that the reference shall be a person named or designated in the agreement, requiring that the difference be submitted to the person so named or designated. It should be such date on which the claimant invokes the arbitration agreement that should be reckoned as the date from which interest may be awarded. This ought to be so as, in the absence of an arbitration agreement, the claimant may have filed a suit on such date.
It appears from the records, and is the fairly admitted position, that the contractor invoked the arbitration agreement on December 2, 1991. Such date should be reckoned as the date from which the arbitrator had authority, in view of clause 13(g) of the general conditions, to award interest and the award is modified as to the period of interest accordingly. The petitioner has relied on the judgments reported at (2000)7 SCC 700 and Rajendra Construction Company Vs. Maharashtra Housing and Area Development Authority and Others, for the proposition that the court has the authority to modify the rate of interest granted by the arbitrator. There is no doubt that the court has such authority and it is now recognised that the prevailing rate of interest during the period for which interest has been granted should be taken into consideration. The award was made in May, 2001 and till then the rates of interest were much higher than prevailing today and the grant of interest at the rate of 12 per cent per annum by the arbitrator is neither exorbitant nor does it require any modification.
The application is allowed in part. The challenge to the award made under the second head of claim is dismissed. The award in respect of the eighth head of claim is modified to Rs. 1 lakh by consent of parties. The award on account of the ninth head of claim is set aside. The rate of interest as granted by the arbitrator is maintained, but the period from which interest would be reckoned to be payable should be December 2, 1991 and not the dates indicated in the award. The rest of the award will remain as made. There will be no order as to costs.
There will be a judgment and decree in terms of the award as modified by this order. Urgent photostat certified copies of this judgment, if applied for, be issued to the parties upon compliance with requisite formalities.