Manzoor Ahmad Gunna And Ors vs State And Ors

Ali Mohammad Magrey, J

These two civil appeals, one by the claimant-contractor and the other by the State, have been filed against order dated 28.02.2014 passed by the learned Principal District Judge, Srinagar, whereby the court below, while modifying the arbitral Award, has reduced the rate of interest allowed by the Arbitrator from 18% to 6% on the award amount. The claimant is aggrieved of the order to the extent it reduced the rate of interest; whereas the State is aggrieved of the Award in its totality and the order passed by the court below making it the rule of the court after modifying it.

The matter pertains to the disputes arising out of the contract for construction of first 2.4 Kms, i.e. 0 to 2.4 Km, of the National Highway Bye Pass, starting from Athwajan Srinagar, which was allotted to the deceased father of the appellants in the first of these two appeals, viz. CFA no.15/2014, vide letter dated 20.09.1975. Pressing into service the arbitration clause of the contract, the contractor had sought appointment of an arbitrator by issuance of notice dated 11.04.1983 read with notice dated 17.01.1984. On account of inaction on part of the State, the contractor, in the year 1985, sought indulgence of this Court in the matter by filing Arbitration Petition no. 28/85 in consequence whereof, in terms of Court order dated 16.10.1989 passed therein, one Mr. Qazi Nizam-ud-Din, a retired Chief Engineer, was appointed as the sole Arbitrator to settle the dispute inter se the parties. However, while the arbitration proceedings were going on, the said Arbitrator died. In his place, another Arbitrator, namely, Mr. A. W. Karaipak, was appointed in terms of order dated 18.09.1995. While Mr. Karaipak was seized of the matter, the State filed an application seeking change of the Arbitrator. However, subsequently, the State insisted upon appointing someone as monitor, upon which one Mr. H. U. Dev, retired District Judge, was appointed as the monitor with a view to oversee proceedings of Mr. Karaipak. Mr. Karaipak, however, expressed his unwillingness to act as the Arbitrator in the matter. Resultantly, one Mr. Qazi Ghulam Rasool, retired Chief Engineer, was appointed as the Arbitrator, who ultimately entered upon the dispute between the parties, made and filed the award before the learned Principal District Judge. The learned Principal District Judge called objections. The claimants chose not to file any objection; while as the State filed objections. The learned Principal District Judge disallowed some of the claims of the claimants which had been allowed by the Arbitrator and also reduced the rate of interest awarded by the Arbitrator from 18% to 6%, and, thus, made the Award rule of the Court. As mentioned above, whereas the claimants are aggrieved of the order of the Principal District Judge only to the extent it slashed down the rate of interest, the State is aggrieved of the Award in its totality and, consequently, the order passed by the learned Principal District Judge.

I heard learned counsel for the parties, perused the record and considered the matter.

I will first deal with the appeal filed on behalf of the State. The State‟s appeal is, primarily, founded on the grounds: first, that the claim of the contractor was time barred and, therefore, it could not have been entertained by the Arbitrator; second, that the appointment of the Arbitrator, being not in accordance with the Clause 50 of the agreement between the parties, was itself a nullity; third, that the Arbitrator misconducted himself and the proceedings; fourth, that the appellants were not given ample opportunity to explain the allegation of misconduct; fifth, that the Award was improperly procured; sixth, that the award of interest by the Arbitrator is impermissible and, in any case, exorbitant.

So far as the first point, that the claim of the contractor was barred by limitation, is concerned, it is the case of the State-appellants that Clause 47 of the contract between the parties dealt with overpayments and underpayments and provided that the dispute of the amount of final bill could be referred to an arbitrator appointed under Clause 50 of the agreement. However, the right of the department to adjust the overpayments / underpayments was restricted to a limitation period of three years. It is stated that according to the contractor himself, the entire work stood completed in all respects and the final bill stood submitted on 01.09.1979. Therefore, any claim or dispute with regard to the final bill payment could have been referred for arbitration within three years of the date of final bill. It is the case of the State-appellants that the notice for arbitration was served on 17.01.1984 which was clearly beyond the period of three years. Therefore, according to them, the claim of the contractor was barred by limitation. In this regard, it is submitted that the learned District Judge committed a gross error in holding that notice had been served on 11.04.1983 which was within three years. It is submitted that apart from the fact that letter dated 11.04.1983 was not a notice for appointment of an arbitrator, but was merely a communication informing that arbitration clause would be invoked by the contractor if his claims were not settled, even this letter was issued beyond the period of limitation of three years.

As said above, the Arbitrator in the case was appointed by order dated 16.10.1989 of this Court pursuant to an application filed in that regard on behalf of the contractor. Curiously, the State-appellants had chosen not to raise any objection to the application so filed by the contractor under Section 20 of the Jammu and Kashmir Arbitration Act, Svt. 2002 (1945 A. D.) [hereinafter the Act], which was applicable to the contract in question and had, rather, allowed the application to be decided ex parte. So, the State and its concerned functionaries, now appellants before the Court, in effect and in essence, shall be deemed to have waived this objection, if, at all, it was available to them under law, for, in terms of sub-section (3) of Section 20 of the Act, they could have shown the cause why the agreement should not be filed and why the order of reference should not be made. They having failed to show any such cause or take any such objection before this Court at the relevant time; they cannot be allowed to raise it now. It is also settled that when no such plea of bar by limitation was raised in the court or in the proceedings before the arbitrator either in the pleadings or in the evidence, it cannot be raised at a belated stage, before the High Court

The other limb of the argument on this point raised by the State appellants is that letter dated 11.04.1983 was not a notice for reference of the dispute to the Arbitrator, but was merely a letter for settlement of claims. It is stated that actually the notice for arbitration was served by the contractor on 17.01.1984 and, therefore, counting from the date of final bill, viz. w.e.f. 01.09.1979, it was certainly beyond the period of limitation of three years from the date of the bill. I have perused the record, especially the award. It is recorded in the Award at pages 105 and 106 that as per the M. M. Book 132 N. H., the work was completed on 01.10.1979 and that the payment of the final bill was not made to the contractor within time, but was paid to and received by the contractor under protest in October, 1981. It is mentioned therein that the contractor‟s final bill was not considered within time, and that the department framed its own final bill and paid it in October 1981, i.e., 2 years after the date of completion mentioned in M. M. Book Page 1. So, naturally, the cause of action in this regard would arise from the date such payments were received by the contractor under protest and, consequently, the period of limitation of three years would start to run from October, 1981, i.e., from the date the payment of the final was made/received by the contractor, not from the date the final bill had been submitted for payment. Thus, even if the notice had been issued on 17.01.1984, and not on 11.04.1983, it was still within the period of limitation, i.e., within three years from the date final payment was received by the contractor viz. from October, 1981. So, the grievance and argument raised on this score is untenable and, therefore, rejected.

The next point raised is that the appointment of the Arbitrator, being not in accordance with the Clause 50 of the agreement between the parties, was a nullity. At the very outset, it may be mentioned here that the point has been raised for the sake of it, for, such an argument does not have the backing of law. Reference in this regard may be made to Section 8 of the Act, which deals with the power of the Court to appoint an arbitrator or umpire in the circumstances enumerated in the three clauses mentioned thereunder. The very first clause of this Section, i.e., clause (a) states that where the arbitration agreement provides that the reference shall be made to one or more arbitrators to be appointed by consent of the parties, and all the parties do not, after differences have arisen, concur in the appointment or appointments, any party may serve the other parties or the arbitrators, as the case may be, with a written notice to concur in the appointment or appointments, and, if the appointment is not made within fifteen clear days after the service of the said notice, the Court may, on the application of the party who gave the notice and after giving the other parties an opportunity of being heard, appoint an arbitrator or arbitrators or umpire, as the case may be, who shall have like power to act in the reference and to make an award as if he or they had been appointed by the consent of all parties. This is what exactly has been followed in the instant case; therefore, the arbitrator appointed by the order of the Court in accordance with the said procedure has to be deemed to have been appointed by the consent of all the parties to the agreement. The point raised is wholly untenable, misconceived and against the law.

As to the argument that the Arbitrator misconducted himself and/or the proceedings, nothing material has been brought to the notice of the Court to, even remotely, suggest so. The learned court below has elaborately dealt with the point raised before it in this regard. The point has been again raised before this Court for the sake of it, without there being even an iota of material or case on this score. This Court cannot interfere with the Award on the mere taking of a statutory ground against it by a party, unless there is a wrong shown to have been committed by the Arbitrator, which has materially prejudiced the party taking the ground, to put its case or defence before the

Arbitrator. Attention of the Court was drawn to the instances of misconduct alleged against the Arbitrator, as given by the State-appellants in para 4(IV) of the appeal. It is stated therein that "to sum up, the following points make it clear that the arbitration proceedings were unfair and misconducted:

a. not hearing the matter impartially and not providing equal opportunities to represent the case;

b. supporting the baseless claims and allowing claims not provided for under the contract;

c. allowing the claims without seeking any evidence to ascertain whether the claims are genuine or not;

d. frequently trying to carve out a case for the contractor and not weighing the evidence impartially;

e. not considering some important points raised by the State during arbitration proceedings like not arraying the Ministry of Shipping and Transport of India as respondents in the proceedings despite the fact that they were necessary party;

f. accepting documents from the contractor after conclusion of hearings and after the dispute was reserved for judgment and basing the claim for costs on the basis of documents so received;

g. awarding of exorbitant interest rate, i.e., 18%;

h. leaving certain considerable blanks in the award;

i. mentioning with regard to certain clauses of the contract that they were not understood by the arbitrator;

j. holding almost all of the clauses of the contract to be arbitrary, unreasonable, unfair, infusion of disposition and dictatorship, vague, etc.;

k. filing several applications before the Hon‟ble Principal District and

Sessions Judge for extension of time for filing of the award;

l. filing of the award after about one and a half year after the grant of last extension;

m. violation of conditions of the contract and grant of claims in violation of the conditions of the contract."

It is seen that, barring a few of them, the State-appellants have described the instances on the establishment of which it can be said that an arbitrator has misconducted himself or the proceedings. It is one thing to give a description of the instances and another thing to demonstrate before the Court from the record the particulars of such instances to establish the misconduct. Nothing of that sort has been done on behalf of the appellants. It sounds strange on the part of the appellants to say that ample opportunity was not provided to them to prove the misconduct. The record suggests the otherwise round. In fact, there is an observation made by one of the Benches of this Court long back, to be precise, on 08.05.1998, which suggests that the State‟s attempt had been to stall the arbitration before the Arbitrator which, however, was aborted. As recorded above, initially the Arbitration was appointed by this Court by order dated 16.10.1989, i.e., 30 years back, yet the State-appellants are clamouring of lack of adequate opportunity given to them. This is unacceptable and, in any case, not established by record. It hardly needs a mention here that the burden of substantiating the averments urged as an objection tantamounting to misconduct on the part of the arbitrator or complaining of violation of natural justice is on the party claiming so. Such burden must be discharged on the basis of the evidence on record, which is missing in the instant case. As already said above, the court below has elaborately dealt with the point(s) raised in this regard and I do not see any reason or ground made out to interfere with what the court below has said in this behalf. Filing of applications seeking extension in time for filing the Award cannot be termed as misconduct. That, rather, is the requirement of law for an Award to be legally valid. So long as the intervening delay occurring between two extensions or between the last extension granted and the date of filing of the Award is subsequently condoned, it will have no impact on the validity of the Award and, in any case, it will not, in any way, adversely reflect upon the conduct of the Arbitrator or the proceedings. It is also not brought to the notice of the Court what conditions of the agreement have been violated by the Arbitrator and in what manner so as to invoke the same to suspect his conduct. make his conduct a suspect. Granting any claim in violation of the conditions of the contract cannot come within the definition of misconduct on the part of the Arbitrator, nor can the same be treated as misconduct of the proceedings. Besides, as per the own showing of the State-appellants in para 3 of their appeal, apart from reducing the rate of interest, out of the total 17 claims, the Arbitrator had rejected 8 claims of the claimants and four of the claims allowed by the Arbitrator have been disallowed by the court below.

Nothing has been brought to the notice of this Court to suggest that the Arbitrator has allowed any claim in violation of the agreement. The State appellants have also not shown it to the Court how the Award has been secured or obtained improperly.

It may also be mentioned here that it is settled law that the Court, while dealing with an arbitration award is not expected to sit in appeal against the award, scrutinize evidence adduced before the arbitrator, analyze and evaluate the evidence and to opine on the merits and the conclusions drawn by the arbitrator. The role of the Court, while dealing with a non speaking award is further restricted.

So far as the point of award of interest by the Arbitrator is concerned, which would also cover the other appeal filed on behalf of the contractor(s), it is seen that the Arbitrator had awarded 18% interest on the award amount. It is true that there is no provision in the Act providing for grant of interest, nor did the agreement between the parties contain a clause in this regard, however, it is settled that the Arbitrator has got the discretion to allow interest pendente lite. In this connection, reference may be made to the judgment of the Supreme Court in Board of Trustees, Port of Calcutta v. Engineers-De-Space Age, (1996) 1 SCC 516, wherein the two-Judge Bench, referring to the Constitution Bench judgment of the Court in Secy. Irrigation Deptt., Govt. of Orissa v. G. C. Ray, (1991) 4 SCC 93, observed and laid down as under:

"3. A Constitution Bench of this Court in Secy. Irrigation Deptt., Govt. of Orissa v. G. C. Ray was called upon to consider whether the decision of this Court in Executive Engineer (Irrigation) v. Abhaduta Jena 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 of interest pendente lite in the following terms: (SCC pp. 532-33, para 43)

„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 pendente 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.

(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 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. Thawardas 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 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 period 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 Code of Civil Procedure. Their Lordships pointed out that there was no reason or 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, like 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 of law has, therefore, been clearly stated in the aforesaid decision of the Constitution Bench."

(Highlighting supplied)

It is thus no more res integra that the arbitrator is competent to award interest pendente lite. However, the rate of interest is to be fixed in the circumstances of each case and, therefore, it may vary from case to case; and cannot be imposed at a uniform rate without looking into the circumstances of a given case.

The Substantive law, as it exists now, allows grant of interest on such amounts not to be more than 6%. As already mentioned, there was no such provision in the 1945 Act, which governed the instant contract. However, as said above, it is settled that the Arbitrator has got the discretion to award interest in absence of a clause to that effect in the agreement. Now, the question is what should have been the appropriate rate of interest. The arbitrator had awarded 18% pendente lite interest. It be seen that the award was filed on 09.08.2002. In Krishna Bhagya Jala Nigam v G. Harischandra Reddy, (2007) 2 SCC 720, the award was made by the arbitrator on 25.06.2000, granting 18 % interest. The Supreme Court held that, in view of substantial reduction of interest rate after economic reforms in the country, interest should be reduced to 9%. As mentioned earlier, the court below has reduced the interest as awarded by the Arbitrator from 18% to 6% per annum. However, I do not see any plausible reason or justification supplied by the learned court below in the impugned order for reducing the interest to 6%. As seen above, in the award passed around the same time, the Supreme Court has allowed 9% interest on the award amount. Furthermore, the deceased contractor in the instant case and, thereafter, his successors i.e., the claimants have been deprived of the use of money to which they were legitimately entitled for last more than 30 years and they have a right to be appropriately and adequately compensated for such deprivation in the shape of interest.

In light of the above and having regard to the facts and circumstances of the case, I think, it would be just, proper and equitable to allow 9% interest instead of 18% awarded by the Arbitrator which was reduced to 6% by the court below.

In view of above discussion, I find no merit in the appeal filed on behalf of the State-appellants. Consequently, CFA no.37/2017 is dismissed. So far as the other appeal filed on behalf of the contractor(s), viz. CFA no.15/2014, is concerned, the same is allowed to the extent that the interest part of the Award shall now be 9% instead of 6% granted by the court-below. The order dated 28.02.2014 passed by the learned Principal District Judge, Srinagar, is modified to this extent only. The award shall be made rule of the court accordingly.

Let the Registry send down the records to the learned Principal District Judge, Srinagar, alongwith a copy of this judgment for information and compliance.