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544 paragraphs · 10,967 wordsR. Banumathi, J.—These intra-Court Appeals are preferred against the common order made in O.P. Nos. 446/2002 and 78/2003,
dismissing the original Petitions filed u/s 34 of the Arbitration and Conciliation Act.
Both the appeals arise out of common order. Since common points fall for consideration, both the appeals were heard together and disposed of
by this common Judgment. For convenience, M/s. Sree Amman Constructions is referred as Claimant/Contractor and the Railway
Administration/Department is referred as ''Railway''.
Brief facts which led to the arbitration are as follows:
The Southern Railways called for tenders on 01.06.1995 in respect of the work ""JTJ-ED Section : contractor 12.54 Kms. CTR of Exg.90R/52
kg. Railways laid on CST.9/Wooden sleepers to 11.7 density with now 60 Kg/52 Kg. Rails on PSC Sleepers with elastic fastening between
Km.219/31-231/3- U/L with PQRS equipment"". Contractor submitted its quotation for the above said work and the same was accepted by the
Railway. Formal Agreement was entered into with the Railway bearing No. J/487/95 on 06.11.1995 with the currency period of three months
from 26.10.1995 to 25.01.1996 for execution of work in Jolarpet-Erode Section CTR for 12.54 Km - work described above. The total value of
the work was Rs. 17,32,010/-. The schedule consisted of 21 non-schedule items - items 2, 9, 12 and 19 were optional. Four extensions were
given for completion of work - the first extension up to 31.03.1996 and 2nd extension up to 31.05.1996, the third extension up to 31.08.1996
and the 4th extension up to 31.03.1997. Rider Agreements were executed for the same by the Contractor with the Railways.
Case of contractor is that since the work is time bound work, the contractor made all necessary arrangements for completing the work
expeditiously. But the Railway Authorities failed to supply the requisite permanent way materials such as concrete sleepers in time and failed to
arrange necessary traffic blocks to enable the contractor to do the work expeditiously. Inspite of representation to the Railway authorities in person
and by letters, no tangible progress could be achieved. Since the Railway administration delayed the matter, the Contractor incurred loss and the
work got delayed and the work could be completed in all respects only in eight months time, as against the three months period stipulated in the
Agreement. The contractor further claimed that he incurred loses and the costs of materials were also increased and field organisation was
rendered idle for many days for want of Railway materials and line blocks. As per the general conditions of the contract, the contractor has to
execute up to 25% more in quantities and accept payment at the Agreement rates. According to the claimant, for many items, it executed quantities
far more than 25% limit for which the Railway administration ought to have negotiated fresh rates with the contractor. Insofar as optional item No.
19 of the schedule of works, appended to the Agreement dated 06.11.1995, unit of measurement is spelt out in the tender documents as well as in
the Agreement as ""one metre length"" whereas the Field officials, after completion of work had interpreted it differently converting the work done
into ""tonnes"" which the contractor did not agree and the Contractor has recorded their protest in the measurement book for all items of dispute.
The contractor made claims under various heads.
The Railway refuted the aforesaid claim contending that there was no lapse or delay on their part either in providing materials or in arranging
blocks. Delay in completing the work entirely was with the contractor. The delay on the side of the contractor from the very inception has actually
upset the programme of work, which was planned to be done. With the clear consent from the Contractor, as envisaged under Clause 17 of the
General Conditions of Contract [in short, GCC], extension of time was granted for completion of work and the Contractor would not be eligible
for any compensation as per the agreed terms. According to the Railway, the unit shown in item No. 19 of the Agreement as ""metres"" was purely
an oversight and a typographical error, and when there was a dispute, the contractor should have pointed out the error while executing the
Agreement or at least at the time of billing. According to the Railway, the claim of the Contractor is unlawful and against various clauses of
Agreement governing the contract and GCC.
Since dispute arose between the parties, the contractor filed O.P. No. 589/1998 u/s 11 of the Act, seeking appointment of Arbitrators. By
order dated 01.04.1998, High Court has directed the General Manager, Southern Railway to appoint Arbitrators as provided under GCC.
Contractor made claim statements under various heads. Railway filed counter statement of facts. Under letter dated 31.07.1998, respondents 2 to
4 were appointed as Arbitrators to go into the dispute. By award dated 14.05.1999, respondents 2 to 4 passed an award for payment of Rs.
27,24,796.40. The contractor challenged the said award in O.P. No. 915/1999. By order dated 09.01.2001, the High Court set aside the said
award on the ground that the award was a non-speaking one and contrary to Clause 64(3)(b)(i) of the GCC. The matter was again remitted back
to the Arbitral Tribunal for fresh consideration and for giving a detailed award. After the matter was remitted back to the Arbitral Tribunal, parties
adduced evidence on various items. The Tribunal considered the various claims made by the Contractor and the Railway and passed the impugned
award. The breakup of the amounts awarded, as against individual claims are as noted below:
No. NATURE OF CLAIM/CLAIM HEAD CLAIM AWARD IN RS.
1 Escalation of cost of labour 3,93,750 Nil
2 Abnormal increase in value of work 10339 Nil
3 Labour rendered idle by the
Railway Administration 17,81,200 12,81,000
4 Erroneous billing by the Dept. 39,92,435 39,92,455
5 Losses suffered owning to over-
stayal of work. 1,26,750 1,04,250
6 Refund of Security Deposit 94100 94100
7 Damages to be paid for withholding
money due to the Contractor by way
of interest at the rate of 24%
which continues to accrue at 24% Not quantified 10% Post award
Total 54,71,805
Filing Petitions u/s 34 of the Act, both parties challenged the award before the learned Single Judge. The learned Single Judge rejected the
contention raised by both parties holding that the conclusions of the Arbitrators cannot be interfered with. The learned Single Judge held that there
was no erroneous billing in respect of claim No. 4. The learned Single Judge held that the rate quoted is only on ""Metre basis"" and not on ""Tonne
Basis"". In respect of claim for interest, the learned Single Judge declined to interfere with the rate, passed award interest and the learned Single
Judge held that the Contractor cannot claim pendente lite interest.
Challenging the amount awarded and the Judgment of the learned Single Judge, the learned Counsel for the Railway interalia contended that the
award passed by the Arbitrators is per-se illegal, since the Arbitrators travelled beyond the jurisdiction in awarding the amount. In respect of claim
Nos. 3 and 5, i.e. ""Labour rendered idle by the Railway Administration and Losses suffered owing to overstayal of work"", it was contended that
by awarding the amount on those heads, the Arbitrators have exceeded their jurisdiction. It was also submitted that the Arbitrators overlooked the
fact that in respect of the Claim No. 4, unit shown in Agreement as per ''each metre'' in ''metres'' was purely an oversight and a typographical error
and the award is liable to be set aside as it is contrary to terms of contract and patently illegal.
Supporting the award, learned Counsel for the Contractor/claimant submitted that the award passed is well considered, supported by reasoning
and cannot be held to be without jurisdiction or that the Arbitrators travelled beyond the jurisdiction. Insofar as the appeal filed by the Contractor
[O.S.A. No. 109/2005], on the aspect of interest, it was contended that when the Arbitrators had gone into all the facts and issues, the Tribunal
ought to have ordered interest since the amount remained unpaid for a long time in spite of efforts by the Arbitrators and interest cannot be denied
invoking Clause 16(2) of GCC.
Before we advert to various heads of claims, for proper appreciation of contentious points, it is necessary to bear in mind the well settled
principles for setting aside the award of the Arbitrator. The award can be set aside only on the one or more of the seven grounds set forth in
Section 34 of the Arbitration Act. It is not open to the Court to re-assess the evidence to find out whether the Arbitrator has committed any error
or to decide the question of adequacy of evidence. The award of the Arbitrator is ordinarily final and conclusive, as long as Arbitrator has acted
within his authority and according to the principles of fair play. The Arbitrator''s adjudication is generally considered binding between the parties,
for he is a Tribunal selected by the parties and the power of the Court to set aside the award is restricted to the instances set out in Section 34 of
the Arbitration Act.
Section 34 of the Arbitration and Conciliation Act, 1996 makes provisions for setting aside as well as for remission of arbitral awards. Section
34 adopts the substance of Article 34 of United Nations Commission on International Trade Law [UNCITRAL] model with minor contextual
variations. The Arbitral award may be set aside by the Court only on one or more of the seven grounds set forth in it. The scope of interference in
Arbitral Award has been considered in great detail by the Supreme Court in Oil and Natural Gas Corporation Ltd. Vs. SAW Pipes Ltd., .
In ONGC''s case, the Supreme Court summed up the grounds on which the award could be set aside. The grounds are as follows:
In the result, it is held that:
(A)(1) The court can set aside the arbitral award u/s 34(2) of the Act if the party making the application furnishes proof that:
(i) a party was under some incapacity, or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the
time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an Arbitrator or of the arbitral proceedings or was
otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains
decisions on matters beyond the scope of the submission to arbitration.
(2) The court may set aside the award:
(i)(a) if the composition of the Arbitral Tribunal was not in accordance with the agreement of the parties.
(b) failing such agreement, the composition of the Arbitral Tribunal was not in accordance with Part I of the Act.
(ii) if the arbitral procedure was not in accordance with:
(a) the agreement of the parties, or
(b) failing such agreement, the arbitral procedure was not in accordance with Part I of the Act.
However, exception for setting aside the award on the ground of composition of Arbitral Tribunal or illegality of arbitral procedure is that the
agreement should not be in conflict with the provisions of Part I of the Act from which parties cannot derogate.
(c) If the award passed by the Arbitral Tribunal is in contravention of the provisions of the Act or any other substantive law governing the parties or
is against the terms of the contract.
(3) The award could be set aside if it is against the public policy of India, that is to say, if it is contrary to:
(a) fundamental policy of Indian law; or
(b) the interest of India; or
(c) justice or morality; or
(d) if it is patently illegal.
(4) It could be challenged:
(a) as provided u/s 13(5); and
(b) Section 16(6) of the Act.
Ultimately, the Supreme Court set aside the award as it was inconsistent with the terms of the Agreement.
In State of Orissa Vs. Dandasi Sahu, , the Supreme Court has held as follows:
It is well settled that when the parties choose their own Arbitrator to be the judge in dispute between them, they cannot, when the award is good
on the face of it, object to the decision, either upon law or on facts. Therefore, when Arbitrator commits a mistake either in law or on fact in
determining the matters referred to him where such mistake does not appear on the face of the award and the documents appended to or
incorporated so as to form part of it, the award will neither be remitted nor set aside.
In Hindustan Tea Co. Vs. K. Sashikant Co. and Another, , the Supreme Court has held as follows:
The award is reasoned one. The objections which have been raised against the award are such that they cannot indeed be taken into consideration
within the limited ambit of challenge admissible under the scheme of the Arbitration Act. Under the law, the Arbitrator is made the final arbiter of
the dispute between the parties. The award is not open to challenge on the ground that the Arbitrator has reached a wrong conclusion or has failed
to appreciate facts.
Referring to New India Civil Erectors (P.) Ltd. Vs. Oil and Natural Gas Corporation, and Associated Engineering Co. Vs. Government of
Andhra Pradesh and another, and other cases, in Grid Corporation of Orissa Ltd. and Another Vs. Balasore Technical School, , the Supreme
Court has held:
The principle of law stated in N. Chellappan Vs. Secretary, Kerala State Electricity Board and Another, on which a strong reliance has been
placed by the learned Counsel for the respondent would make it clear that except in cases of jurisdictional errors it is not open to the Court to
interfere with an award. That proposition is unexceptionable. However, from a reading of the decisions of this Court referred to earlier it is clear
that when an award is made plainly contrary to the terms of the contract not by misinterpretation but which are plainly contrary to the terms of the
contract would certainly lead to an inference that there is an error apparent (sic) the award results in jurisdictional error in the award. In such a
case the Courts can certainly interfere with the award made by the Arbitrator.
In the light of the well settled position of law and the facts stated above we may now consider the various claims of the contractor.
Claim No. 1 :- ESCALATION IN THE COST OF LABOUR - RS.3,93,750/- & Claim No. 2 :- ABNORMAL INCREASE IN VALUE
OF WORK - RS.10,339/
Tribunal took the view that no proof was adduced in support of Claim No. 1 and hence the suit claim was rejected. Claim No. 2 was withdrawn
by the Contractor. Claims No. 1 and 2 are not subject matter of challenge.
Claim No. 3 - LABOUR RENDERED IDLE BY THE Railway ADMINSITRATION - Rs. 17,01,200/
The work was awarded to the claimant vide letter of acceptance dated 25.10.1995 stipulating that work should be completed within a period of
three months i.e. on or before 25.01.1996 but was extended. The contractor has averred that owing to various delays and defaults on the part of
the Railway, work got prolonged up to eight months. The main causes alleged are : non-availability of caution orders, delayed supply of PSC
sleepers and rail panels, failure to provide requisite traffic and power blocks, delayed supply of grease and other materials, failure to supply in time
adequate fittings for check rails. To substantiate the plea of Railway''s failure to provide necessary traffic and power blocks, the claimant relied
upon the records of the railway.
The Contractor further averred that level of employment of labour was at the rate of about 150 men every day, except on Sundays and other
holidays and that certain minimum labour force was required for doing Sleeper renewal work and that the required level of labour was always
maintained at the work spot. The Contractor/claimant has averred that due to delays and defaults on the part of the Railways, Claimant''s labour
was rendered idle and that the claimant paid the labour full wages for such wasted days and they suffered severe losses on account of idling of their
labour.
The Railways refuted the claim stating that sufficient permanent way materials were made available before calling for tenders and no
contractor''s labourers were made idle. Railway took the stand that the contractor has expressed its willingness to start PQRS work only during
January, 1996, after lapse of two months from the date of acceptance and the caution for the work was arranged only on 03.01.1996; but the
Contractor had turned up only on 11.03.1996. It was the further case of the Railways that despite the Department''s readiness to supply necessary
blocks of adequate duration and deputing officials to work spot, the Contractor has failed to deploy men for PQRS work and thus the Railway
was forced to extend currency Agreement up to 31.03.1996. According to Railway, Administration was forced to extend currency up to
31.08.1996 due to slow progress and the contractor''s inability to deputy sufficient labourers and thus PQRS works was delayed due to their
failure and the same was completed by 12.06.1996 only. As per item No. 8 of the Special Conditions of Contract, for Track Works, the
Contractor is not entitled for any compensation, for wastage of labour due to non-availability of traffic block. After extracting the contentions of
both parties and referring to documents adduced by the parties, the arbitral Tribunal held that the claimant/Contractor is entitled to compensation
on account of wastage of labour supplied after the original period of completion in respect of Item No. 8 of the Special Conditions of Contract.
Towards the labour rendered idle, the Tribunal has computed the compensation at Rs. 7,56,000/-, as against the claim of Rs. 17,01,200/-.
Assailing the award on this claim, learned Counsel for the Railways contended that as per item No. 8 of Special Conditions of Contract, the
claimant is not entitled to compensation on account of the wastage of labour and therefore the award is against the terms of the Contract and is
liable to be set aside applying the Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation, .
The learned Counsel for the claimant has contended that extensions were sanctioned by railway for the reasons due to non-availability of
caution for the works and due to delay in supply of PSC Sleepers and rail panels. Drawing our attention to contractor''s letter dated 10.07.1996,
the learned Counsel further submitted that the Contractor has mainly stated three reasons for extending the contract i.e. delayed block by railways;
delayed supply of grease by railways; and non-supply of check rail fittings by railways. Therefore it was urged that even if Clause 8 of Special
Conditions is to be upheld, the claimant is always entitled for the cost of labour idling/suffered on account of railway''s primordial failures.
Placing reliance upon the decisions, learned Counsel for the claimant further argued that the Supreme Court and various other Courts have
consistently upheld the grant of damages in railway contracts in spite of such deleterious clauses like Clause 8 of the Special Conditions of the
Contract. In support of his contention, the learned Counsel has placed reliance upon Ambica Construction Vs. Union of India (UOI), . In the said
case before the Supreme Court, there was delay in payment of bills. Referring to Clause 43(2) GCC, the Supreme Court has held that Clause
43(2) has been included in the GCC and the same is meant to be a safeguard as against the frivolous claims after final measurement and
notwithstanding Clause 43(2) of GCC, the appellant was entitled to claim a reference under the contract and the Supreme Court held that the
Division Bench of the Calcutta High Court was wrong in holding otherwise. Facts of the said case and the ratio thereon is not applicable to the
case on hand.
The learned Counsel has also relied upon Union of India (UOI) Vs. Pam Development Pvt. Ltd., in which the interpretation of Clause 16(2) of
GCC was in question. In the said case before the Calcutta High Court, the Arbitrator has proceeded on the reasoning that on expiry of the
Contract, Clause 16(2) of the Agreement does not survive and in the light of such findings, Calcutta High Court held that the Arbitrator''s power to
award interest and Section 31(7)(a) is not excluded. The Calcutta decision also has no relevance to claim No. 3.
As per Clause 8 of the Special Conditions of Contract for Track works, Contractor is bound to deploy sufficient labourers whenever line
block is permitted. If there is any wastage due to non availability of traffic block, the same would not be paid since convenience of travelling public
would be the prime consideration of the Railway administration. Item No. 8 of Special conditions of contract reads as under:
8.Traffic blocks as required to carry out certain track works will be arranged by the Railways. Actual availability of block would depend on flow
of traffic and there may be variations in availability of block vis-a-vis those planned. The wastage of labour, if any, occurring on account of non-
availability of block would not be paid for. No claim on such account shall be considered.
By considering the conditions of Agreement, in our view, the Arbitral Tribunal acted beyond its jurisdiction. As per Section 28(3) of the Act, in
all cases, the Arbitral Tribunal shall decide in accordance with the terms of the Contract and shall take into account the usage of the Trade
applicable to the Transaction.
In ONGC''s case, the Supreme Court has held that the award contrary to substantive provisions of law or provision of Law 1996 or against
the terms of the Contract would be patently illegal and if it affects the rights of the parties open to interference by the Court u/s 34(2). Noticing
Hindustan Zinc Ltd. Vs. Friends Coal Carbonisation, , the Supreme Court has set aside the award observing that the award is contrary to the
terms of the contract and such award would be open to interference by Court u/s 34(2)(b)(ii) as being patently illegal and being opposed to the
public policy of India.
Holding that deliberate departure from contract amounts to manifest disregard of the authority or misconduct and award also amounts to
malafide action, in Rajasthan State Mines and Minerals Limited Vs. Eastern Engineering Enterprises and Another, in para45, the Supreme Court
has held:
...It is apparent that the award passed by the Arbitrator is against the stipulations and prohibitions contained in the contract between the parties. In
the present case, there is no question of interpretation of Clauses 17 and 18 as the language of the said clauses is absolutely clear and
unambiguous. Even the contractor has admitted in his letter demanding such claims that the contract was signed with the clear understanding that
the rate under the contract was firm and final and no escalation in rates except in case of diesel would be granted. Hence, by ignoring the same, the
Arbitrator has travelled beyond his jurisdiction. It amounts to a deliberate departure from the contract. Hence, the award passed by the Arbitrator
is, on the face of it, illegal and in excess of his jurisdiction which requires to be quashed and set aside.
By awarding compensation under Claim No. 3, in our view, the Arbitral Tribunal committed jurisdictional error in overlooking the specific
conditions of contract.
Dealing with the non-speaking award and also for the claims on the ground of escalation of price, due to various reasons including payment of
minimum rates of wages payable to various categories of workers, the Supreme Court in Associated Engineering Co. Vs. Government of Andhra
Pradesh and another, , referred to the contract clauses and set aside the award by holding:
This conclusion is reached not by construction of the contract by by merely looking at the contract. The umpire travelled totally outside the
permissible territory and thus exceeded his jurisdiction in making the award under those claims. This is an error going to the root of his jurisdiction.
The Supreme Court has further held:
An Arbitrator who acts in manifest disregard of the contract acts without jurisdiction. His authority is derived from the contract and is governed by
the Arbitration Act which embodies principles derived from a specialized branch of the law of agency. He commits misconduct if by his award he
decides matters excluded by the Agreement see Halsbury''s Laws of England, Vol.II, 4th Edn. Para 622. A deliberate departure from contract
amounts to not only manifest disregard of his authority or a misconduct on his part, but it may tantamount to a malafide action. A conscious
disregard of the law or the provisions of the contract from which he has derived his authority vitiates the award.
In Tamil Nadu Electricity Board Vs. M/s. Bridge Tunnel Constructions and others, , the contractor had set up the claims raised at rates higher
than the contracted rates and twice the rate for the work done after the expiry of the contract period. For those claims, dispute was raised and the
matter was referred to the Arbitrator. The civil Court made the award the rule of the Court. The High Court confirmed the same. In appeal, the
Supreme Court set aside the award and while discussing various contentions, observed as under:
If the Arbitrator decides a dispute which is beyond the scope of the reference or beyond the subject-matter of the reference or he makes the
award disregarding the terms of reference or the arbitration Agreement or terms of the contract, it would be a jurisdictional error beyond the scope
of reference; he cannot clothe himself to decide conclusively that dispute as it is an error of jurisdiction which requires to be ultimately decided by
the Court.
In New India Civil Erectors (P.) Ltd. Vs. Oil and Natural Gas Corporation, , the Supreme Court considered the contention wherein the
Arbitrator has passed an award contrary to the specific stipulation/condition contained in the Agreement between the parties. The Supreme Court
observed thus:
It is axiomatic that the Arbitrator being a creature of the Agreement, must operate within the four corners of the Agreement and cannot travel
beyond it. More particularly, he cannot award any amount which is ruled out or prohibited by the terms of the Agreement. In this case, the
Agreement between the parties clearly says that in measuring the built-up area, the balcony areas should be excluded. The Arbitrators could not
have acted contrary to the said stipulation and awarded any amount to the appellant on that account.
Item No. 8 clearly stipulates that no claim for wastage of labour shall be considered. In spite of such specific conditions of contract, the
Arbitrators awarded Rs. 7,56,000/- as compensation towards ""Labour Rendered Idle"". When there is specific term in contract i.e. for Item No. 8
no claim on account of wastage of labour shall be considered, in our view, the Arbitrators have exceeded their jurisdiction. By catena of decisions,
it is well settled that where fundamental terms of Agreement of the parties is ignored by the Arbitrator, the Arbitrator was held to have exceeded
his jurisdiction, even where the jurisdiction clause itself is widely worded. That apart, the contract was for a fixed value and the cash value was of
Rs. 17,32,010/-. As per Item No. 8, the Contractor is not eligible for any amount on account of wastage of labour. In our considered view, award
of Rs. 7,56,000/- on claim No. 4 cannot be sustained and is liable to be set aside.
CLAIM No. 5 :- LOSSES SUFFERED OWING TO OVERSTAYAL OF WORK
This claim is almost similar to claim No. 3. Though the Tribunal was of the view that claim No. 5 is different from claim No. 3, as it is exclusively
for Supervisory Staff and other establishment. Case of Contractor/ Claimant is that work was awarded on 25.10.1995 with anticipated date of
completion of 25.01.1996 but there were delays on the part of the Railway Administration which hampered the progress of work. The
Contractor/Claimant contended that due to delays on the part of Railway, work got prolonged and the Contractor had to keep the Supervisory
Staff at site, duly paying their wages and due to idlying and under utilization of the mobilised infrastructure the contractor suffered losses for a value
of Rs. 1,26,350/-.
Railways denied that there was any delay on their part and contended that sufficient sleepers were arranged and the Contractors have not
taken any effort for trucking out of sleepers despite the availability of enough sleepers at Bommidi Sleeper Factory. The Railway mainly contended
that necessary rider Agreements have been executed and the claimant has not raised any objection at that point of time. Referring to pleadings and
documents, Tribunal arrived at the conclusion that work prolonged beyond the original currency of contract and such time overrun has resulted in
maintaining the Supervisory Staff and non-utilization of infrastructure, the Tribunal computed Rs. 1,04,250 payable to the claimant.
Assailing the award under Claim No. 5, the learned Counsel for the Railway submitted that there is no explanation as to how the amount has
been computed as Rs. 1,04,250/-. It was submitted that when rider Agreement had been executed which provides that the same rate clause and
condition, as found in the original Agreement, shall apply to the extended period also, under such circumstances, the award under Claim No. 5 is
patently illegal, warranting interference by the Court.
Supporting the award for losses owing to overstayal of work, the learned Counsel for the claimant contended that the works could not be
completed within ninety days period only due to railway''s failure and defaults and the contract was extended from time to time, finally upto
31.03.1997, which resulted in enormous loss to the claimant due to idling of under utilization of the mobilized infrastructure and establishment. The
learned Counsel further urged that such losses to the claimant is to be compensated on the universally accepted principle of computing damages,
which is termed as ""The Hudson''s Law of Damages"" and adopting that formula in his Written Submissions, the learned Counsel for the claimant
has calculated damages payable under this head as Rs. 7,50,537/- as pe the following calculation,
H.O. Percentage x Contract sum x Delay period
---------------- -------------
100 Contract period
= 10 x Rs. 17,32,010 x 13 months = Rs. 7,50,537/-
---- -------------
100 3 months
Though the aforesaid formula adopted and the arguments advanced onbehalf of the claimant appear to be attractive, on a close scrutiny, in our
view, this submission lacks substance.
Though the work was time bound programme, it was extended and necessary rider Agreements have been executed by the Railway with the
claimant, vide rider Agreements dated 05.01.1996, 06.05.1996, 12.07.1996 and 12.03.1997. As per the rider Agreements, the Contractor and
the Railway Administration have mutually agreed that the Agreement shall be varied or added in minor manner i.e. to say ""the currency of the
Agreement is extended up to 31.03.1996"" [and other dates respectively] under 17(3) of GCC. It was further mutually agreed that ''the Agreement
and every rate clause and conditions in the Agreement shall continue of full effect and be binding on the respective parties''. As per the rider
Agreement, the Contractor and Railway administration have thus mutually agreed with every rate clause and condition shall continue of full effect
and binding on respective parties. It was also stated that that extension of time will not result in any financial loss to the administration.
There was mutual Agreement between the parties that the same terms and conditions would apply and extension of time will not result in any
financial loss to the administration. When there was such express terms, Arbitrators erred in ignoring such clauses in rider Agreements. Holding that
Arbitrator being creatures of the Agreement between the parties and that he has to operate within the four corners of the Agreement and if he
ignores the specific terms of the contract, it would be a question of jurisdictional error on the face of the award, in 2007 (4) MLJ 73 Food
Corporation of India v. Chandu Construction and Anr. the Supreme Court has held thus:
It is trite to say that the Arbitrator being a creature of the Agreement between the parties, he has to act within the four corners of the
Agreement and if he ignores the specific terms of the contract, it would be a question of jurisdictional error on the face of the award, falling within
the ambit of legal misconduct which could be corrected by the Court. We may however, hasten to add that if the Arbitrator commits an error in the
construction of the contract, that is an error within his jurisdiction. But, if he wanders outside the contract and deals with matters not allotted to him,
he commits a jurisdictional error. Associated Engineering Co. Vs. Government of Andhra Pradesh and another, : and Rajasthan State Mines and
Minerals Limited Vs. Eastern Engineering Enterprises and Another, .
In this context, a reference can usefully be made to the observations of this Court in Alopi Parshad and Sons Ltd. Vs. Union of India (UOI),
wherein it was observed that the Indian Contract Act does not enable a party to a contract to ignore the express covenants thereof, and to claim
payment of consideration for performance of the contracts at rates different from the stipulated rates, on some vague plea of equity. The Court
went on to say that in India, in the codified law of contracts, there is nothing which justifies the view that a change of circumstances, ""completely
outside the contemplation of parties"" at the time when the contract was entered into will justify a Court, while holding the parties bound by the
contract, in departing from the express terms thereof. Similarly in The Naihati Jute Mills Ltd. Vs. Khyaliram Jagannath, the Supreme Court had
observed that where there is an express term, the Court cannot find, on construction of the contract, an implied term inconsistent with such express
term.
In Continental Construction Co. Ltd. Vs. State of Madhya Pradesh, it was emphasized that not being a conciliator, an Arbitrator cannot ignore
the law or misapply it in order to do what he thinks is just and reasonable. He is a Tribunal selected by the parties to decide their disputes
according to law and so is bound to follow and apply the law, and if he does not, he can be set right by the Court provided his error appears on
the face of the award.
In Bharat Coking Coal Ltd. Vs. Annapurna Construction, , while interalia, observing that the Arbitrator cannot act arbitrarily, irrationally,
capriciously or independent of the contract, it was observed, thus:
There lies a clear distinction between an error within the jurisdiction and error in excess of jurisdiction. Thus, the role of the Arbitrator is to
arbitrate within the terms of the contract. He has no power apart from what the parties have given him under the contract. If he has travelled
beyond the contract, he would be acting without jurisdiction, whereas if he has remained inside the parametres of the contract, his award cannot be
questioned on the ground that it contains an error apparent on the face of the record.
therefore, it needs little emphasis that an Arbitrator derives his authority from the contract and if he acts in disregard of the contract, he acts
without jurisdiction. A deliberate departure from contract amounts to not only manifest disregard of his authority or a misconduct on his part, but it
may tantamount to a malafide action.
As per the rider Agreements, Contractor and Railway have mutually agreed that every rate clause and the conditions in the Agreement shall
continue of full effect and binding on the respective parties. No provision was made for payment of extra to Technical supervisor. While so,
ignoring the terms of Agreement and the rider Contractual Agreement, Tribunal has exceeded its jurisdiction in awarding Rs. 1,04,250/- towards
overstayal of work. In our considered view, the award of compensation of claim No. 5 is liable to be set aside.
Claim No. 4 - Erroneous billing by Department:
Claim pertains to the work covered under optional item under Item No. 19 of the schedule of works. According to the claimant, they had quoted a
sum of Rs. 225 per metre whereas according to the Railways, rate accepted at Rs. 225/- is only per metric tonne and the typographical error
found therein is now sought to be taken advantage of by the claimant to unjustly enrich themselves to recover money which is not actually due to
them. Upon consideration of contentions of both parties, the Tribunal has noted with concern that normal practice is to quantify the unit as per
metric tonne only. However the Tribunal observed that there are well defined mechanisms available at the disposal of the railway for prescribing
the correct parameters of work which is indicated in the tender at various stages of tender process and the error could have been rectified at any
appropriate time. Tribunal concluded that the contract Agreement between the parties having been materialised after an advertised date, the
provisions of the contract Agreement has to be honoured in letter and spirit by both parties for item No. 19. On those findings, the Tribunal held
that the amount payable to the claimant by the railway is Rs. 38,92,455/- on the following calculation:
Total length of rails removed from track .... 23,000 Metres
Locally auctioned by the Department .... 5,000 metres
Balance quantity actually led by the claimant .... 18,000 metres
The claimant''s rate per metre of rails to be led
to SLY Yard and stacked-vide Agreement schedule
Item 19 .... Rs. 22/- per Mts.
Total Amount to be paid [Rs.225 x 18000] .... Rs. 40,50,000/-
Amount paid to the claimant .... Rs. 1,57,545/-
Balance due to the claimant .... Rs. 38,92,455/-
Much contested item of work and award thereon is only in respect of item No. 19, which was optional. Description of item No. 19 reads as
under:
Loading and leading rails to nearest motorable
spot by Railways dip lorry, loading into contractor''s
own lorry and leading to SLY yard and unloading .... Each metre
and stacking at nominated place as directed by the
Engineer-in-charge with all lead and lift etc. complete.
42.Taking us through materials on record, the learned Counsel for the Railway has submitted that the Arbitrators having considered the material
documents and such non-consideration renders the award liable to be set aside. The learned Counsel for the Railway Mr. Sureshkumar had taken
us through the proceedings of the Tender Committee in respect of item No. 19 where rate quoted by the claimant has been arrived at Rs. 225/-.
By comparing the same with the Agreement dated J355 dated 16.08.1995, which is document No. 15, produced before the Tribunal. The
Agreement J.355 is similar to Item No. 19 of the Subject contract dealing with loading and leading of railways. In Agreement J.355 rate therein
has been arrived at Rs. 200/- per metric tonne. It was submitted that in respect of another Agreement entered on 06.11.1995, claimant has quoted
at Rs. 100 per metric tonne for similar item of work. Drawing our attention to those earlier Agreements, learned Counsel for the railways submitted
that the normal practice to quantify the unit in respect of loading and leading of rails is only per metric tonne. It was also urged that Tribunal has
also found that the normal practice is to quantify the unit as per metric tonne only and while so, the Tribunal committed mistake in ignoring the
genuine mistake/typographical error in the tender form.
Value of the subject matter of the Agreement is Rs. 17,32,010/- with a permissible variation of 25%. Item No. 19 is optional. The learned
Counsel for the railways further argued that Item No. 19 being optional and at best it could be calculated at 25% of the Agreement value and that
item of work will not entitle claimant to a sum of Rs. 38,92,455/- which is more than twice the Agreement value itself and since the award is
contrary to the terms of the contract, such award is to be set aside as being patently illegal and opposed to Policy of India.
Countering the arguments, the learned Counsel for the claimant submitted that defence of error is not permissible to railway in view of unequal
power of the contracting parties. The learned Counsel for the claimant Mr. Amalraj further urged that the railway administration had not chosen to
produce manuals for standards like Railway Engineering Code, RDSO Specifications, Railway Finance Code to substantiate its contention. It was
further urged that since the unit of ""each metre"" is both permissible and used as unit of payment for transportation works in the railways, it was
urged that railway must not be permitted to take umbrage in its allegation of typographical error in the contract Agreement that was entered into for
and onbehalf of the President of India.
We have perused the original tender documents and the relevant files. On careful analysis of the documents, it is evident from the documents
that insofar as loading and leading of railway, normal parameter/unit adopted is only metric tonne. We are convinced that item No. 19 of the tender
Agreement units stated as ""each metre"" is only a mistake, however the same was mechanically repeated through the tender process.
In fact, Arbitrators have also noted with concern that the normal unit for loading and leading of railways is only ""per metric tonne"" and it was a
mistake. But the Arbitrators had ordered this claim observing that there had been a valid contract and the tender work had gone through various
process. The Arbitrators also observed that there was various checks and measures to correct the mistake/error which has been mechanically
repeated in the entire process. The Tribunal awarded Rs. 38,92,455/- payable to the claimant by making the following concluding observations:
Item No. 19, loading and leading of released rails unit stated as ''per metre'' and the tender process had gone through various levels and that unit
''per metre'' remained as such at all levels.
Item No. 19 an optional item was to be operated at the site of work. The value of the original Agreement Rs. 17,32,010 does not include the value
of the work under item No. 19 as there is no quantity indicated being optional item;
had there been definite quantity provided in the original Agreement, against item No. 19, deviation in quantity arising out of execution of the said
item would have been termed as variation in the Agreement quantity it would have warranted a review. But the respondent has not carried out any
such review.
The Tribunal concluded that despite well defined mechanism available for prescribing correct parameters of work and despite checks and balances
when no such review was made by the railway, it was held that the Tribunal cannot modify the provision of the contract Agreement which has been
mutually agreed between the parties. On those reasonings, the Arbitrators held that the contract Agreement is binding upon the parties. The
Arbitrators are senior officers of the railways having fairly good experience. Such finding of fact recorded by the Arbitrators as to the parameters
of work being a finding of fact, cannot be interfered with. If we do so, we are afraid, we would be exceeding our jurisdiction u/s 34 of the Act.
Assuming for the sake of arguments that parameter of works for item No. 19 is only per metric tonne and the award of the Arbitrator is
incorrect, in our view, it can only be an error within the jurisdiction of the Arbitrators. It is not open to the Court to re-assess the evidence to find if
the arbitral Tribunal has committed any error and re-assess the evidence as if it were a Court of appeal. The Court is precluded from reappraising
the evidence and to examine the controversy as to the unit whether it is ""per metre"" or ""per metric tonne"".
Holding that intervention of Court is envisaged in a few circumstances, like in case of fraud or bias by Arbitrators, violation of natural justice
etc., in 2006 (2) Arb.L.R.498 (SC) Mc Dermott International INC. v. Burn Standard Co. Ltd. and Ors., the Supreme Court has held as follows:
The 1996 Act makes provision for the supervisory role of Courts, for the review of the arbitral award only to ensure fairness. Intervention of
the Court is envisaged in few circumstances only, like, in case of fraud or bias by the Arbitrators, violation of natural justice, etc. The Court cannot
correct errors of Arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, scheme of the
provision aims at keeping the supervisory role of the Court at minimum level and this can be justified as parties to the Agreement makes a
conscious decision to exclude the Court''s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.
In Sudarsan Trading Co. Vs. Government of Kerala and Another, ., the Supreme Court held : ""Appraisement of evidence by the Arbitrator is
never a matter which the Court questions and considers. If the parties have selected their own forum, the deciding forum must be conceded the
power of appraisement to the evidence. The Arbitrator is the sole Judge of the quality as well as the quantity of evidence and it will not be for the
Court to take upon itself the task of being a Judge on the evidence before the Arbitrator"".
In Puri Construction Pvt. Ltd. Vs. Union of India (UOI), , the Court noted that the Arbitrator was a highly qualified engineer, fully conversant
with the nature of the work, and, could be presumed that he had correctly evaluated the additional work done. Therefore, when a Court is called
upon to decide the objections raised by a party against an arbitration award, the jurisdiction of the Court is limited only to the grounds set out in
Section 30 of the Arbitration Act (old Act) and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits. It is not
necessary to examine the merits of the award with reference to materials produced before the Arbitrator for upholding the same. This is because
the reviewing Court cannot sit in appeal over the view of the Arbitrator by re-examining and re-assessing the materials.
In Food Corporation of India Vs. Joginderpal Mohinderpal, , the Arbitrator made a speaking award. The Supreme Court held that unless it is
demonstrated to the Court that such reasons are erroneous as such, as propositions of law, or a view which the Arbitrator has taken is one which
could not possibly be sustained on any view of the matter, the challenge to the award of the Arbitrator cannot be sustained. Even if there is some
mistake in the construction of the contract by the Arbitrator, such a mistake is not amenable to correction in respect of the award by the Court.
The conclusion arrived at by the Arbitrator is a plausible conclusion. The Court has no jurisdiction to interfere or modify the award in the manner
sought for by the appellant and in the manner done by the subordinate Judge.
In M/s. Ispat Engineering and Foundry Works, B.S. City, Bokaro Vs. M/s. steel Authority of India Ltd., B.S. City, Bokaro, , Their Lordships
of the Apex Court observed that needless to record that there exists a long catena of cases through which the law seems to be rather well settled
that the reappraisal of evidence by the Courts is not permissible, basing on various other judgments of the Apex Court including Union of India
(UOI) Vs. Bungo Steel Furniture Pvt. Ltd., , wherein it was held that the effect that ""the Court had no jurisdiction to investigate into the merits of
the case or to examine the documentary and oral evidence in the record for the purposes of finding out whether or not the Arbitrator has
committed an error of law. The Court as a matter of fact, cannot substitute its own evaluation and come to the conclusion that the Arbitrator had
acted contrary to the bargain between the parties.
The same principle was reiterated in various other decisions cited by the learned Counsel for the claimant U.P. State Electricity Board Vs.
M/s. Searsole Chemicals Ltd., ; 2006 [2] Arb.LR 130 Prathyusha Associates Vizag v. Rashtriya Ispat Nigam Ltd. and Ors.; and 2006 [4]
Arb.L.R. 444 Union of India [Railway] v. Deccan Enterprises.
When the Arbitrators have applied their mind to the pleadings, the evidence adduced before them and the terms of contract and held that the
terms of contract materials between the parties has to be honoured. The view taken by the Arbitrators has to be sustained. There is no scope for
the Court to reappraise the matter as if it were an appeal to substitute our views. In such view of the matter, we find no scope for interference in
the award rendered and confirmed by the learned Single Judge.
Claim No. 6 : Refund of Security Deposit of Rs. 94,100/-:
The claimant has prayed for refund of security deposit of Rs. 94,100/- contending that they have completed the work and maintained satisfactorily
through the maintenance period. The claimant further contended that item No. 19 being optional and no quantity has been specified in the
Agreement, and since there was dispute in basic unit of item No. 19, Railway cannot retain the security deposit any longer and it should be
refunded to them. The contention of Railway is that the security deposit relating to the work could be released only after recording of final
measurements and preparation of final bill and also the Contractors are required to submit their ""No Claim Certificate"". In consideration of the
contentions and documents filed by the parties, Arbitrators have directed security deposit of Rs. 94,100/- to be refunded to the Claimant
Contractor. Order of refund of security deposit is accepted by both parties and not a subject matter of challenge.
Claim No. 7 - Damages for withholding money/by way of interest @ 24% p.a. accrued interest - Rs. 15,41,890/-
The Contractor claimed damages by way of interest on the money due, contending that huge money is withheld by railway and that he is unable to
utilize the same on other works in progress and that he should be paid damages at 24% p.a. on the withheld amount or @ Rs. 1,27,972 p.m. from
the date of completion of work to the date of final payment. Railway refuted the claim for damages/interest contending that as per Clause 16(2) of
GCC, the Contractor is not eligible for any interest on amount due to them.
Referring to Clause 16(2) of GCC, the Arbitrators held that the Contractor is not eligible for any interest on amounts due to them. Referring to
Clause 64(5), Arbitrators further held that no interest shall be payable on whole or any part of money for any period till the date on which the
award is made and rejected the claim for damages and interest pendente lite. However the arbitrators awarded Simple Interest at the rate of 10%
p.a. on the awarded amount from 05.01.2002 till the date of payment by the railway.
The learned Counsel for the Claimant argued at length urging that in the first award, Tribunal has awarded a sum of Rs. 4,38,464.40 towards
pre-award interest and awarded compound interest @ 15% for the post- award and while so the present award denied interest on all amounts
from 31.03.1997 [demand for arbitration] to 05.12.1997 [Award date] and also reduced 15% compound interest to a mere 10% simple interest,
which according to the learned Counsel is unreasonable, causing loss and serious prejudice to the claimant. It was further submitted that claimant
being a partnership firm is in severe debts having huge debts with State Bank of India, in addition to debts to a few private money lenders and
interest payable accumulating and since the arbitral Tribunal has denied interest, claimant is made to suffer increased burden for the said period
whilst the railway administration enjoys commensurate benefits of the interest element.
Laying emphasis upon Clause 16(2) GCC, the learned Counsel for the Railway submitted that since no interest shall be payable on the amount
payable to the claimant under the contract and since there is prohibition in the contract as per the Judgment of the Supreme Court reported in
2001(2) SCC 721 Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and Ors. v. N.C. Budharaj [deceased] by Legal
Representatives and Anr., the claimant is not entitled to claim interest. It was further submitted that u/s 31(7)(a) of the Act, the Tribunal is
competent to award interest unless otherwise provided by the contract.
The interest consists of three components : interest on pre-reference period; post reference period - interest pendente lite; post award interest.
Interest on pre-reference period:
The question of competency of the Arbitrators to award interest for the period before he entertains reference was examined by the Supreme Court
in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, . Referring to Abhaduta Jena''s case and Constitutional
Bench in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , overruled the decision in Abhaduta Jena''s case.
Referring to the various case laws on the subject in 2001(2) SCC 721 Executive Engineer, Dhankanal Minor Irrigation Division, Orissa and Ors.
v. N.C. Bhudharaj (deceased) by lrs., the Supreme Court observing that the forum of arbitration created by consent of parties with or without
intervention of Court being only a substitute for conventional civil Courts, held as follows:
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.
Thus interest could be awarded only in the absence of any specific stipulation or prohibition in the contract. In the absence of an Agreement by
the parties to contract, Section 31(7)(a) provides that the Arbitral Tribunal may award interest, at such rate as it deems reasonable, on the whole
or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date of which award
was made - pre-award period. Section 31(7)(a) underlines the discretion of the Arbitral Tribunal to award interest it deems reasonable.
Learned Counsel for Railway has vehemently contended that as per Clause 16(2) of GCC no interest is payable to the contractor and the
Arbitrators have rightly declined interest and the same cannot be interfered with. Clause 16(2) of the Standard General Conditions of Contract
reads as follows:
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 Sub-clause (1) of this clause will be repayable (with) interest accrued thereon.
The above provision makes it clear that no interest as per the terms of Agreement between the parties and no interest on the amount is due and
payable by the railways. Referring to Clause 16(2), express terms of the agreement between the parties, Arbitrators declined to grant interest for
pre-reference period.
The learned Counsel for the claimant/contractor has submitted that N.C. Budharaj''s case relates to the Arbitration Act, 1940 and under the
Act 1996, power of the Arbitrators to award interest is not fettered by the contract to award interest. In support of his contention, learned Counsel
placed reliance upon AIR 2005 Calcutta 332 Union of India (Railways) v. Pam Development and N.G. Gunani Vs. The Union of India (UOI) and
Another, . In the Calcutta case, which arose out of railway contract, applicability of Clause 16(2) of GCC was in question. In the said case, while
construing the applicability of Clause 16(2), the Arbitrator has proceeded on the reasoning that on the expiry of contract, Clause 16(2) of the
Agreement does not survive and in view of such finding of the Arbitrator, Calcutta High Court held that such finding leaves with the Arbitrator the
power conferred u/s 31(7)(a), sans exclusion provision by Agreement that prohibits payment of interest and the Calcutta High Court has held thus:
In view of such express provisions of Section 31(7)(a), in our opinion the Arbitrator has wide discretion to award interest. We are also of the
view that interest can be awarded by the Arbitrator for unliquidated amount also. Provided of course, the parties have not agreed otherwise. The
statute confers power on the Arbitrator to include interest in the sum for which award is made. All it requires under the ACA 1996 is that arbitral
award is for payment of money, to empower the Arbitrator to grant interest. The distinction between unliquidated amount and liquidated sum for
the purpose of determining the Arbitrator''s power to award interest thus no more survives in view of such express provisions of Section 31(7)(a)
of the ACA, 1996.
In the said case before the Calcutta High Court, the Arbitrator has awarded interest and Calcutta High Court found that there was nothing illegal in
such finding. The Court has observed that if the Court is to embark upon legal enquiry as regards applicability of Clause 16(2) of GCC, Court
would be required to probe into the manner in which the Arbitrator has construed the contract and that would be beyond the scope of jurisdiction
vested in the Court u/s 34 of AC Act.
Similarly while construing Clause 16(2) of GCC, in 1996(4) ALT 1047 cited supra, Andhra Pradesh High Court observing that Clause 16(2)
would be a bar on the departmental officers to allow interest, but such a provision would not restrict the power of the Arbitrator to award interest
and held thus:
A closer analysis of the provision does not show as if the power of the Arbitrator has been taken away to grant interest upon the determination
of the amounts payable to the contractor. What the provision means, in the context, that where certain amounts are payable to the contractor but
are not paid in time by the department and are released after lapse of time, the department would not pay interest for the delayed payment. It is a
restriction on the power of the departmental officers to allow interest because of late payment. But such a provision does not restrict the power of
the adjudicator to determine and direct payment of interest.
In the case before the Calcutta and Andhra Pradesh High Courts, the Arbitrators exercised their discretion in granting interest and the Courts
while confirming the same, took the view that the Arbitrator is not denuded of his power to award interest under Clause 16(2). We are in
agreement with the ratio of the above decisions. But in the said cases before the Calcutta and Andhra Pradesh High Courts, notwithstanding
interest prohibition clause, the Arbitrator awarded interest. In such view of the matter, the Calcutta and Andhra Pradesh High Courts have declined
to interfere with the award on the ground that there is nothing wrong or illegal in such reasoning awarding interest.
In the instant case before us, Arbitrators have found that the claimant is not entitled to interest for the pre-reference period. If we are to
embark upon enquiry as to the applicability of Clause 16(2) GCC, we would be required to probe into the matter in which the Arbitrators have
construed the contract. In our opinion, while the Arbitrators have concluded not to award interest, that conclusion cannot be interfered with. Even
assuming, if such conclusion not awarding interest is erroneous, it could only be an error within the jurisdiction of the Arbitrators and the same
cannot be interfered with. If we do so, we would be exercising jurisdiction beyond that is vested u/s 34 of AC Act, 1996.
Interest pendente lite.
Regarding interest pendente lite, in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , Constitutional Bench of the
Supreme Court has laid down the principle as under:
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 principal 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. This does not
mean that in every case the arbitrator should necessarily award interest pendente lite. It is matter within his discretion to be exercised in the light of
all the facts and circumstances of the case, keeping the ends of justice in view.
Clause 64.5 also stipulates that no interest shall be payable on the whole or any part of the money for any period till the date on which the
award is made. Awarding pendente lite interest is a matter within the discretion of the Arbitrators. Having regard to the facts and circumstances of
the case, the Arbitrators declined to grant interest pendente lite. In our considered view, such discretion cannot be interfered with.
Post award interest:
In the absence of any direction to the contrary in the award, Section 31(7)(b) provides that sum of money directed to be paid by the Arbitrator
shall carry interest @ 18% p.a. from the date of award to the date of payment. To put it differently, the Arbitral tribunal has the discretion to give
directions in the award as to the rate of interest and whether the interest should be paid on the whole or part of the award amount. Having regard
to the nature of dispute between the parties and contentions of parties, the Arbitral Tribunal has awarded interest @ 10% p.a. on awarded amount
from 05.01.2002 till the date of payment. Exercise of discretion by the Arbitral Tribunal in granting interest @ 10% can neither be said to be
arbitrary or unreasonable calling for interference.
Counter claim of the railways:
Railways made a counter claim for Rs. 9,30,000/- against the claimant stating that even though the railway administration provided Traffic Block
on several occasions, the claimant had not utilized the same for want of sufficient labourers for about 62 days. The railway also claimed Rs.
60,000/- for four extra blocks. Rejecting the claim of railway, Arbitrators observed that there was no document produced by railway in support of
its claim. The Arbitrators also pointed out various extensions granted by the railway extending the contract period. The Arbitrators also observed
that the terms of contract provide for penalty against the failure of the claimant to fulfill the contractual obligations and when railway was free to
invoke penal conditions of the contract, in the absence of any documents, the Tribunal held that the counter claim of railway does not stand test of
scrutiny and rejected the counter claim. Both General Conditions of Contract and Special Conditions of Contract contain clauses provide for terms
in case of failure of the contractor to fulfil the contractual obligations. Clause 9 stipulates that the Contractor shall proceed with the work in a
systematic manner so as to ensure that the stretch of work under speed restriction and its duration are kept to a minimum. It also provides for
penalty equal to 2% of the cost of shortfall in the cumulative progress on such account shall be worked out at the end of every month from the date
of running bills and deducted from the Contractor''s running bills. Clause 24 provides for suspension of work in case of persistent non-compliance
with instructions/ directive of Engineer''s representatives. Had there been any non-compliance on the part of the contractor, the railway could have
produced the documents evidencing invoking of such penal provision. No such document seem to have been produced before the Arbitrators. The
Arbitrators dismissed the claim on the ground that counter-claim is unsupported by documents and the railway did not have recourse to the penalty
clauses. In our considered view, the conclusion of the Arbitrators rejecting counter claim does not suffer from error apparent on the face of the
record calling for interference.
To sum up : Claim No. 3 [Labour rendered idle by the Railway Administration] and Claim No. 5 [losses suffered owing to over-stayal of
work] are set aside and O.S.A. No. 247/2005 is partly allowed to that extent. In respect of all other claims, the award of the Arbitrators is
confirmed and O.S.A. No. 109/2005 is dismissed. In the circumstances of the case, both parties are directed to bear their respective costs.