Executive Engineer CED III CCU and The Chief Engineer Civil Construction Unit Ministry of Environment and Forests vs Kwality Construction Engineers

A.N. Venugopala Gowda, J.—This appeal is directed against a judgment and order dated 14.12.2007 passed by the VI Addl. City Civil Judge, Bangalore, in A.C. No. 30/1997, allowing the petition filed u/s 14 r/w S.17 of Arbitration Act, 1940 (for short ''the Act'') and making the award dated 28.08.1997 drawn in case No. ARB/4 by the learned Arbitrator as Rule of the Court, with which the application filed by the Appellant u/s 30 & 33 of the Act was rejected.

Brief facts of the case are:

The Appellant No. 1 issued a notification, inviting tenders for construction of 44 Nos. Quarters for Institute of Wood Science and Technology at Bangalore. The Respondent submitted the tender, which was considered and accepted by the Appellant No. 1 and an agreement was entered into on 13.12.1989. As per the terms and conditions of the agreement, the date of commencement of the work was 22.12.1989, to be completed before 21.06.1991. The work having not been completed within the agreed period, extension of time having been sought by the Respondent was allowed and the time was extended up to 31.03.1992. Respondent completed the work by 12.09.1992. Appellant No. 1 issued an intimation to the Respondent on 25.03.1994 to submit final bill. The final bill was prepared and payment made on 31.03.1994. Respondent being aggrieved by the settlement, raised a dispute and requested Appellant No. 2 for referring the dispute to the Arbitrator, which was rejected on the ground that, the claims are time barred and an intimation to the said effect was sent on 09.01.1995. The request was renewed by the Respondent on 17.06.1995. Appellant No. 2 appointed an Arbitrator on 02.01.1997. Claim statement was filed by the Respondent before the Arbitrator and a counter statement was filed by the Appellants. Additional claims were also putforth. The Arbitrator framed issues on 31.05.1997 and as per the order dated 11.07.1997, held that the claims are not barred by limitation and disputes do exist, which are arbitrable.

Said order was questioned by the Appellant No. 1 in AC 27/1997 on the file of City Civil Court, Bangalore, wherein a Grayer for removal of Arbitrator u/s 11 of the Act. was made. It was alleged that, the Arbitrator has misconducted the proceedings. However, No. interim order was passed in the matter. The Arbitrator having proceeded in the matter, the parties having agreed for extension of time to decide the dispute, passed an award on 28.08.1997 for `3,00,900/- with interest at 18% from 01.07.1995 till the date of payment or the date of decree, whichever is earlier. The Respondent filed AC 30/1997 u/s 14 r/w Section 17 of the Act to make the award, Rule of the Court. The Appellants filed application u/s 30 & 33 of the Act to set-aside the award. The City Civil Court upon consideration of the matter has passed the impugned judgment/order.

Sri M. Madhvachar, learned Counsel appearing for the Appellants, firstly contended that, the award having been passed beyond 4 months, there is bar of limitation. Reliance was placed on the decision reported at State of Punjab Vs. Hardyal, . Secondly, the claims put forth by the Respondent/contractor being beyond the agreement, the claim allowed is not justified. Thirdly, the award of interest is unjustified and reliance was placed on the decision reported at State of Rajasthan and Another Vs. Nav Bharat Construction Co., . Learned Counsel submits that, in the facts and circumstances of the case, the Civil Court is not justified in passing the impugned judgment/order and hence interference in the matter is called for.

Sri A. Madhusudhana Rao, learned Counsel appearing for the Respondent, on the other hand contended that, the time was extended for deciding of the reference by mutual consent of the parties and the award has been passed by the Arbitrator within the mutually extended period and hence the decision reported at State of Punjab Vs. Hardyal, has No. application. Learned Counsel submitted that, the Arbitrator and the Civil Court have considered the individual claims and have found that the claims made by the Respondent are tenable and hence the orders passed do not call for interference. Learned Counsel submits that the findings recorded by the Arbitrator, which was noticed by the Civil Court and there being No. misconduct committed by the Arbitrator, the application filed by the Appellants to set-aside being tenable was rejected and the award has been made Rule of the Court. Learned Counsel submits that the award of interest on the claims is permissible and if found appropriate, the rate of interest may be modified. Learned Counsel submits that, in catena of decisions of the Apex court, the award of interest by the Arbitrator and its upholding by the Civil Judge have been upheld.

In view of the rival contentions and the record of the case, which I have perused, the point for consideration is:

Whether the Civil Court is justified in rejecting the application filed by the Appellants u/s 30 & 33 of the Act and in allowing the application filed by the Respondent and making the award of the Arbitrator the Rule of the Court?

According to the Appellants, the learned Arbitrator ought to have passed the award within four months from the date of reference and the award having been passed after four months, there is misconduct on the part of the learned Arbitrator. There is No. merit in the contention. On perusal of the record, it is clear that the Arbitrator entered the reference on 31.05.1997. There was enlargement of time upto 01.09.1997. The award was made and signed on 28.08.1997. Taking note of the said events, the Trial Court has rightly overruled the contention urged by the Appellants. Reliance placed by Sri M. Madhvachar on the decision reported at State of Punjab Vs. Hardyal, in support of the contention does not advance the case of the Appellants. In that case, the parties participated in the arbitration proceedings, initiated with the intervention of the Court, even after expiry of four months period prescribed for submitting the award, as required by law, in the absence of extension of time granted by the Court, an award was made. An objection was filed u/s 30 of the Act to the award, on the ground that, the Arbitrator has No. jurisdiction to pass the award after the expiry of prescribed period of four months in the absence of any order of extension. On the said facts, Hon''ble Apex Court laid down that time to be fixed for making an award is initially one of agreement between the parties to the agreement, but if No. time has been specified by the parties in the arbitration agreement, then the award must be given within four months as prescribed in Section 3 read with Clause 3 of first Schedule to the Arbitration Act as time can be extended by the Court and not by the parties at any stage inasmuch as since the Arbitrator is injuncted to give an award beyond the prescribed period of four months unless the same is extended by the court, he has No. jurisdiction to make an award after the expiry of specified time in the absence of any order of extension and in view of this the award made beyond time is ipso facto invalid, the same having been prohibited by law and parties are not estopped by their conduct from challenging the same on the ground that it was made beyond time, merely because they participated in the proceedings before the arbitrator after expiry of prescribed period as the established principle is that there can be No. estoppel against a statute. The factual matrix herein being totally different, the Appellants having agreed for enlargement of time upto 01.09.1997 as per Clause 25 of the agreement, the award having been passed within the agreed period, it cannot be held that the Arbitrator committed misconduct and that there is bar of limitation merely on account of the award having been passed beyond four months period from the date of entering the reference.

The 2nd contention argued by Sri M. Madhvachar is also devoid of merit, since the Court below has considered the individual claims and has found that the Arbitrator is justified in allowing the claiMs. The claims put forth by the Respondent before the Arbitrator are not beyond the agreement. The Civil Court has examined each claim of the contractor on its merit and has found that the learned Arbitrator is justified in allowing the claims as per the award made on 28.08.1997.

The last contention of Sri M. Madhvachar with regard to the award of interest based on the decision reported at State of Rajasthan and Another Vs. Nav Bharat Construction Co., is concerned, there is merit to certain extent. It is not disputed by Sri Madhusudhan Rao that, in the arbitration agreement there is No. provision for payment of interest. However, the Arbitrator has the power to award interest. So far as the rate of interest is concerned, the learned Arbitrator is not justified in awarding 18% interest till the date of payment or the date of decree, whichever is earlier.

The subject matter relates to performance of the contract in pursuance of a tender notification and the agreement was signed on 13.12.1989. Nearly 20 years has already elapsed since the contract period. The claims made by the Respondent before the learned Arbitrator was accepted to certain extent and affirmed by the Civil Court, Having considered the totality of the circumstances, in my opinion, it would be just and proper to award interest at 9%, instead of 18% awarded by the Arbitrator i.e., from 01.07.1995 till the date of payment.

In the result, the appeal is allowed in part and the impugned judgment/award is modified.

The Appellants shall pay to the Respondent `3,00,900/- with interest at 9% p.a from 01.07.1995 to the date of payment.

Parties are directed to bear their respective costs. Draw modified award accordingly.