M/s. Raitani Engineering Works Pvt. Ltd. vs Union of India

Heard Mr. R. Hussain, learned counsel for the appellant as well as Mr. G. Goswami, learned counsel representing the respondent.

Dispute between the appellant and the respondent was settled by the Arbitral Award dated 08.10.2002 under the provisions of the Arbitration and

Conciliation Act, 1996 (for short, “1996 Actâ€). The said arbitration arose out of a contract agreement dated 23.03.1993 between the parties. In

the present appeal we are concerned with the Award passed in Claim No.12 of the appellant whereby the Arbitrator awarded simple interest of 12%

on the award of Rs.3,73,137/-, which are the undisputed Claim Nos.3 and 4. Interest was levied from the date of closure of contract till date of

payment. The undisputed Claim No.3 pertained to refund of Rs.3,03,257/- by way of security and the undisputed claim no.4 pertained to the final bill

amounting to Rs.69,880/-.

The respondent Railway authorities preferred Misc(Arb) Case No.26/2003 challenging the arbitral award in respect of the award on loss of profit

(Claim No.9) and the award of interest (Claim No.12). The said case was disposed of by the Addl. District Judge, Kamrup, Guwahati on 07.11.2005

without interfering with the award made on loss of profit but interfering with the award of interest in Claim No.12. Interference was made primarily

on the ground that Clause 16(3) of the General Conditions of Contract prohibited grant of interest and, therefore, the Arbitrator did not have

jurisdiction to grant interest in favour of the appellant. Aggrieved, the present appeal is laid.

It is too well settled in law and as held in the Constitution Bench judgment of the Supreme Court in Secretary, Irrigation Department, Government

of Orissa v. G.C. Roy, (1992) 1 SCC 508 that where agreement between the parties does not prohibit grant of interest and where a party claims

interest and the said dispute is referred to the Arbitrator, the said Arbitrator shall have power to award interest. Having regard to this settled position

of law, it would now be the endeavour to see whether there was an arbitration agreement between the parties prohibiting grant of interest. In this

connection, it would be pertinent to understand what constitutes an arbitration agreement and whether the definition of arbitration agreement would

take within its fold the entire array of clauses in the General Conditions of Contract, which are binding on both the parties.

Section 2(1)(b) of the 1996 Act defines “arbitration agreement†as an agreement referred to in Section 7 of the said Act. Sub-section (2) of

Section 7 states that an “arbitration agreement†may be in the form of an arbitration clause in a contract or in the form of a separate agreement.

This is supplemented by Clause (a) of Section 16 which provides that an arbitration clause forming part of a contract shall be treated as an agreement

independent of the other terms of the contract. The said provisions are being alluded to because of the submission made by Mr. G. Goswami, learned

counsel for the Railways that Clause 16(3) of the General Conditions of Contract, 1979, which provides that no interest will be payable on amounts

payable to the appellant under the contract, is part of the arbitration agreement entered between the parties which cannot be interpreted by an

Arbitrator in favour of the appellant by way of awarding interest. An answer to Mr. Goswami’s contention has to be tested having regard to the

provisions of the 1996 Act, as indicated above.

At the very outset, this Court is of the view that Clause 16(3) of the General Conditions of Contract, 1979 cannot be construed as integral to and/or

part of an arbitration agreement. The arbitration agreement between the parties is contained in Clause 62 and 63 of the General Conditions of

Contract, 1979, which is exhaustive in itself. The manner of settlement of disputes and differences of any kind arising out of or in connection with the

contract are provided in Clause 62 and 63 thereof. On a close perusal of the same, it does not contain any provisions prohibiting the Arbitrator from

awarding interest. This being so, it cannot be argued that award of interest by the Arbitrator is in any way contrary to the law laid down in G.C. Roy

(supra). In this connection, reference is also made to Clause 64.5 of the General Conditions of Contract, 1998 where, for the first time, a condition is

imposed stating that where the arbitral award is for the payment of money, no interest shall be payable. This is the basic difference between Clause

62 and 63 under the General Conditions of Contract, 1979 and that of Clause 63 and 64 of the General Conditions of Contract, 1998. This makes it

absolutely clear that it is only in the General Conditions of Contract, 1998, that a prohibition has been introduced. In the present case we are

concerned with the General Conditions of Contract, 1979.

The issue raised in the present appeal was also the subject-matter and gone into by this Court in Arbitration Appeal No.3/2004, which was disposed

of by the judgment and order dated 03.12.2013. This Court, by relying upon the decision in Madnani Construction Corporation Private Limited v. Union

of India and Ors., (2010) 1 SCC 549, held that Clause 16(3), as aforementioned, do not create any bar either on the part of the Tribunal or the

Arbitrator or the Court to award interest for pre-reference, pendenti lite or for post-reference period. This is so because a person deprived of the use

of money to which he is found legitimately entitled to has a right to be compensated for the deprivation by way of interest, compensation or damages,

by whatever name it is called. In the instant case, Claim Nos.3 and 4, which were claims for payment of the security amount and the final bill amount,

were not disputed by the Railway authorities. It was the duty of the Railway authorities to have paid the amount at the first instance and not to deprive

the appellant from the enjoyment of the property. The same not having been done, the appellant was necessarily to be compensated by award of

adequate interest.

Mr. Goswami places reliance in Union of India v. M/s. Ambika Construction, (2016) 6 SCC 36, particularly paragraph 10, to say that an Arbitrator

is the outcome of an agreement and he is to decide dispute as per the agreement entered into between the parties. This observation made by the

Supreme Court rather goes in favour of the appellant, in as much as, the Arbitrator had decided the dispute as per the agreement entered between the

parties. The award of interest, as alluded to above, is not prohibited under Clause 62 and 63 of the General Conditions of Contract, 1979, which is the

arbitration agreement entered into between the parties. As Clause 16(3) cannot be construed as part of the arbitration agreement, therefore, no error

can be attributed to the award of interest by the Arbitrator.

Having regard to the discussion above, this Court holds that the judgment dated 07.11.2005 of the Addl. District Judge, Kamrup, Guwahati in

Misc(Arb) Case No.26/2003 cannot stand the scrutiny of law, in so far as the setting aside of the grant of interest by the Arbitrator is concerned.

Accordingly, the present appeal stands allowed and the judgment dated 07.11.2005 is set aside by interfering with the rejection of grant of interest to

the appellant. Consequential action would now be taken by the respondent in terms of the Arbitral Award dated 08.10.2002.