State of Gujarat and Another vs Rajesh Builders

J.N. Bhatt, J.—In the group of these five appeals, purported to have been filed u/s 39 of the Arbitration Act, 1940 (''the Act'' for short),

following interesting questions have been raised.

Whether order of the trial Court, directing to remit the question of grant of pendente lite interest to the arbitrator for reconsideration could be

challenged by filing an appeal u/s 39 of the Act and that whether the proceedings pending before the trial Court on the date of 12th December,

1991, the day on which the Supreme Court delivered the judgment in the case of Secretary, Irrigation Department, Government of Orissa and

others Vs. G.C. Roy, , could be said to be pending proceedings under the Act?

In order to appreciate the merits of the aforesaid two questions which have surfaced in this group of appeals, it would be necessary to set out

the relevant resume of facts giving rise to the present appeals.

The appellants herein are the original respondents and the respondent herein is the original applicant in all these five appeals and they are

hereinafter referred to as ''the applicant'' and ''the respondents'' for the sake of convenience and brevity.

There were tender agreements for the construction of Government buildings, at Gandhinagar, between the applicant and the original respondents.

As there were disputes and differences, the matters were referred to the sole arbitrator appointed by the Court, namely, Mr. M.S. Iyenger, to

resolve the same, in all the matters.

The following table ''A'' enumerates various informations and relevant dates pertaining to the disputes between the parties. They are articulated

incorporating several important material facts and informations so as to appreciate the merits of the appeals and challenge against them.

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Sr. Name of work CE/ARB/12 CE/ARB/14 CE/ARB/17

No. Constructing Constructing The work of

Assembly Bldg. Assembly Bldg. providing a coustical

in Sector No. 10 in Sector No. 10 arrangements with

at Gandhinagar at Gandhinagar wood Paneling

and flooring in

Assembly Hall in

Assembly Bldg.

in Sector 10 at

Gandhinagar

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1 2 3 4 5

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Agreement No. B-2/3 of 1978-79 B-2/3 of 1978-79 B-2/40 of 81

Last date 6-4-78 6-4-78 1-7-80

for the issue

of Blank

tender form

Last date for 13-4-78 13-4-78 9-7-80

submission of

tender

Tender Accept- 26-4-78 26-4-78 6-11-80

ance date

Date of work 11-5-78 11-5-78 6-11-80

order

Estimated cost Rs. 19009765 Rs. 19009765 Rs. 1616882

Tendered cost Rs. 19420526.43 Rs. 19420526.43 Rs. 1772152.40

Percentage 2.16% above 2.16% above 9.60% above

above or below

Final Cost Rs. 24891663 Rs. 24891663 Rs. 1330182

Time limit 18 months 18 months 3 months

Stipulated date 10-11-79 10-11-79 5-2-81

of completion

Actual date of 10-10-82 10-10-82 28-2-82

completion (8-7-82)

Total Period 52.5 months 52.5 months 15 months

(20 months)

Extended period 34.5 months 3 34.5 months 12 months

(17 months)

Work done Rs. 8959338 Rs. 8959338 Rs. 952169

during time limit

Work done Rs. 15932325 Rs. 15932325 Rs. 378013

in extended period

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CE/ARB/26 CE/ARB/27 CE/ARB/28 CE/ARB/29

The work of provi- Construction Construction of Providing Chairs,

ding accoustical of Town Hall Conference and accoustical treatment

arrangements with in Sector No. Committee Hall etc. in Town Hall

wooden paneling 17 at Canteen Bldg. & in Sector 17 at

and flooring in Gandhinagar connecting corridor Gandhinagar

Assembly Hall in in Town Hall

Assembly Bldg. in Campus in Sector

Sector No. 10 at No. 17 at

Gandhinagar Gandhinagar

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6 7 8 9

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B-2/40 of 80-81 B-2/62 of 77-78 B-2/12 of 79-80 B-2/2 of 1980-81

1-7-80 30-12-77 24-7-79 21-6-80

9-7-80 9-1-80 31-7-79 3-7-80

6-11-80 20-3-80 5-12-79 30-12-80

6-11-80 28-3-78 20-12-79 21-1-81

Rs.1616882 Rs.2544313 Rs. 761023 Rs.l 177150

Rs.1772152.40 Rs. 3196988.14 Rs. 921910.46 Rs. 1515480

9.60% above 25.65% above 21.14% above 28.74% above

Rs. 1330182 Rs. 3277953 Rs. 994765 Rs. 1757039

3 months 18 months 10 months 6 months

5-2-81 27-9-79 19-10-80 20-7-81

28-2-82 17-2-83 17-2-83 16-2-83

(8-7-82)

15 months 59 months 38 months 24 months

(20 months)

12 months 41 months 28 months 18 months

(17 months)

Rs. 952169 Rs. 976164 Rs. 236823 Rs. 327230

Rs. 378013 Rs. 2301789 Rs. 757942 Rs. 1429809

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1 2 3 4 5

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Estimate is SOR of 1977-78 SOR of 1977-78

based on

Tender is 1978-79 1978-79 1980-81

received in the

year

Date of Final 4-11-85 4-11-85 22-3-83

Bill

Demand 20-5-83 7-10-83 30-8-83

2-11-83

Govt.,letter 22-6-83 29-11-83 13-9-83

of rejection 18-11-83

Notice under 1-7-83 21-11-83 14-10-83

Clause 30 26-11-83

Notice under 5-8-83 3-1-84 26-10-83

Section 8(1)(c) 31-10-83

Filing C.M.A. 217/83 35/84 290/83

No. & Date dt. 25-8-83 dt. 31-1-84 dt. 22-11-83

Judgment in 28-3-84 7-7-84 28-3-84

CMA (appoint-

ment of arbitrator)

Entering upon 24-7-84 5-6-85 24-7-84

reference

Total Number 12 4 7

of Claims

Interest pend 11(b) 3(b) 6(b)

ente lite Claim

No.

Filing of 30-10-91 30-10-91 30-10-91

Award

New CMA No. 216/91 216/91 217/91

Award Amount Rs. 3567699 Rs. 1298125 Rs. 42989

+ Rs. 5000 + Rs. 5000 + Rs. 5000

Date of decree 13-7-92 13-7-92 13-7-92

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6 7 8 9

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SOR of 1977-78

1980-81 977-78 1979-80 1980-81

22-3-83 27-10-83 30-9-83 1-9-83

2-11-83 31-10-83 31-10-83 31-10-83

2-11-83 2-11-83 2-11-83

14-12-83 30-12-83 7-1-84 3-1-84

26-11-83 26-11-83 26-11-83 26-11-83

3-1-84 3-1-84 3-1-84 3-1-84

33/84 34/84 36/84 37/84

dt. 31-1-84 dt. 31-1-84 dt.31-1-84 dt. 31-1-84

7-7-84 7-7-84 7-7-84 7-7-84

5-6-85 6-6-85 6-6-85 6-6-85

4 14 11 10

3(B) 13(B) 10(B) 9(B)

30-10-91 25-10-91 25-10-91 25-10-91

217/91 209/91 211/91 210/91

Rs. 106329 Rs. 342046 Rs. 54330 Rs. 182565

+ Rs. 5000 + Rs. 5000 + Rs. 5000 + Rs. 5000

13-7-92 13-7-92 13-7-92 13-7-92

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The sole arbitrator, after hearing the parties and considering the facts and circumstances, prepared awards which came to be published, on 30-

10-1991, and the awards were submitted in the Court of the Civil Judge (S.D.), Ahmedabad Rural, at Mirzapur, for passing appropriate orders.

The trial Court registered the awards and issued notices to the parties in Civil Miscellaneous Applications Nos. 209, 210, 211, 216 and 217 of

1991. Pursuant to the notices issued by the trial Court, the learned Assistant District Government Pleader had appeared on behalf of the original

respondents-State and filed written objections disputing only to the extent of rate of interest. The principal amount of award had not been

challenged. It was only objected that the rate of interest awarded by the arbitrator for the pre-suit period at 13% per annum and the post-suit

period at the rate of 15% per annum should be reduced to 9% per annum only. In short, the objection was against the interest rate. According to

the objection of the original respondents, the arbitrator could not have awarded interest at the rate of more than 9% per annum. Reliance was also

placed on a decision of the Supreme Court rendered in the case of Gujarat Water Supply-Sewerage Board v. Unique Erectors (Gujarat) (P.) Ltd,

reported in 1989 (1) GLR 464 (SC).

The trial Court accepted the objections raised by the original respondents and reduced the rate of interest at 9% per annum on pre and post

award period. In other words, all the objections which came to be raised on behalf of the State came to be accepted. We may also mention that

the original applicant, respondent herein, had also agreed by passing a purshis to the effect that it has no Objection to reduce the rate of interest to

the extent of 9%. Accordingly, the trial Court reduced the rate of interest from 13% on the pre-award period and from 15% on the post award-

period to a common level of 9% per annum.

As regards the pendente lite interest, it may be mentioned that the arbitrator had not awarded pendente lite interest in all the matters before him

in view of the decision of the Supreme Court rendered in the case of Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and

Others, . Relying on the said decision, the arbitrator reached to the conclusion that he had no jurisdiction to award interest pendente lite.

The said decision of the Supreme Court was overruled by the Constitutional Bench of the Supreme Court in the case of Secretary, Irrigation

Department, Government of Orissa and others Vs. G.C. Roy, In that case, it was held that the arbitrator has power to award pendente life interest

in absence of any specific agreement not to award interest during the pendency of the proceedings. The earlier view, of the Supreme Court in the

case of Executive Engineer, Irrigation (supra) came to be overruled in this case and the Apex Court held that it must be presumed that the

arbitrator has power to award pendente lite interest by implied term of agreement. In view of the aforesaid recent judgment of the Supreme Court

delivered, on 12-12-1991, the original applicant claimed and contended that they should also be awarded pendente life interest. The attention of

the learned Judge was also drawn to the following observations of the Supreme Court made in paragraph 45 of the above judgment, which read 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 a 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.

Relying on the aforesaid recent decision of the Apex Court and the provisions of Section 16 of the Act, the learned trial Court Judge remitted or

remanded that part of the award pertaining to the grant of pendente lite interest in all the matters to the sole arbitrator and directed the sole

arbitrator to submit his finding or report to the Court within a period of 30 days from the date of receipt of the record. This order came to be

passed on 13-7-1992 in all the matters. It becomes clear from the aforesaid direction that the Court reached to the conclusion that there were

pending proceedings and, therefore, the arbitrator had jurisdiction to exercise the discretion of granting of interest during the pendency of the

proceedings. Therefore, that part of the award only came to be remitted or transmitted to the sole arbitrator for his opinion and finding exercising

his powers under the provisions of Section 16(1) of the Act. We may mention that the decree as per the terms of the award with interest at the rate

of 9% per annum was made rule of the Court in terms of the award. Thus, there was no dispute in respect of the principal amount with interest at

the rate of 9% was concerned. Dispute was raised only about the grant of pendente lite interest, as observed hereinbefore. After hearing the

parties and considering the latest proposition of law, the trial Court was pleased to remit or remand the part of the award relying on the provisions

of Section 16(1) of the Act with regard to pendente lite interest for reconsideration to the sole arbitrator in all the matters and it is the only point

which is questioned before us in all these appeals.

On a pointed query, the learned Assistant Government Pleader, Mr. Mehta, made it very clear that in all these appeals the challenge is restricted

only to the impugned order of remission of the part of the award pertaining to the pendente lite interest and none else. Thus, controversy in all these

appeals has shrunk down to a very narrow dimension.

Learned A.G.P. Mr. Mehta has challenged only that part of the order of remission or remand to the sole arbitrator relating to the pendente lite

interest. He contended that the decision of the Supreme Court in the case of Secretary, Irrigation Department (supra) will not be applicable to the

facts of the present case. In that, he has urged that the said decision shall not be applicable to the proceedings which have become final. Thus,

according to him, the said decision should not have been applied by the trial Court as there were no pending proceedings in all the matters. This

submission is not only not sustainable but is startling. It is crystal-clear that the day when the judgment in the case of Secretary Irrigation

Department (supra) was delivered, on 12-12-1991, the proceedings were pending before the trial Court. After having examined the said decision,

it cannot be contended even for a moment that the finality of the proceedings would mean only before the arbitrator and not before the higher

forum. The interpretation which is sought to be made by the learned A.G.P. Mr. Mehta is not only unsustainable but is also illogical. While

examining the entire scheme of the Act, it can safely, be concluded that the finality is obtained or achieved only when the awards are culminated

into rule or decree of the Court or decree is passed by the Court pursuant to the award. So finality can be achieved only after completion of the

proceedings before the arbitrator and only after the award becomes the rule of the Court or decree is passed pursuant to the award. Therefore the

declaration or pronouncement of award by the arbitrator does not bring ''ipso-facfo'' an end to the proceedings. What is directed in the aforesaid

Supreme Court decision is that decision shall only be prospective in operation which means that that decision shall not entitle any party nor shall it

empower any Court to reopen the proceedings which have already become final. It becomes crystal clear that the law declared therein in that

judgment by the Apex Court shall apply only to pending proceedings. In our opinion, the proceedings were pending in all these appeals and it

cannot be contended even for a moment that the proceedings had been concluded. It is an admitted fact that the matters were pending before the

Court of law for making the awards as the rule of the Court and that aspect ''ipso-facto'' is suggestive of the fact that the proceedings were pending

and there was no finality. Despite this, a startling proposition is advanced on behalf of the respondents by the learned A.G.P. Mr. Mehta that the

said decision is inapplicable to the present appeals as the proceedings were not pending at the relevant time, that is, on 12-12-1991, the date of

the decision of the Supreme Court. Such a contention is, totally, Merisel and deserves to be rejected.

Learned Counsel Mr. Shah for the respondent in all these appeals has, seriously, challenged the maintainability of the appeals under the Act.

On a pointed query, learned A.G.P. Mr. Mehta indicated to us that the appeal is filed under the provisions of Section 39 of the Act. Having

examined the facts and circumstances and the rival submissions of the Counsels, we find no substance in this contention raised by the learned

A.G.P., Mr. Mehta. In our opinion, the impugned order, directing to remit the part of the award relating to the pendente lite interest in the aforesaid

latest pronouncement of the Supreme Court exercising powers u/s 16(1) of the Act, for reconsideration does not fall in any one of the clauses

enumerated in Section 39 of the Act. It will, therefore, be appropriate to refer to the provisions of Section 39 of the Act, which read as under:

Appealable orders(1) An appeal shall lie from the following orders passed under this Act (and from no others) to the Court authorised by law

to hear appeals from original decrees of the Court passing the order:

An order-

(i) superseding an arbitration;

(ii) on an award stated in the form of a special case;

(iii) modifying or correcting an award;

(iv) filing or refusing to file an arbitration agreement;

(v) staying or refusing to stay legal proceedings where there is an arbitration agreement;

(vi) setting aside or refusing to set aside an award:

Provided that the provisions of this section shall not apply to any order passed by Small Cause Court.

(2) No second appeal shall lie from an order passed in appeal under this section, but nothing in this section shall affect or take away any right to

appeal to the Supreme Court.

Faintly it was contended on behalf of the State that it will fall u/s 39(1)(iii) of the Act. In that it was contended that remitting a part of the award to

the sole arbitrator for reconsideration on the question of pendente lite interest and making the rest of the terms of the award as rule of the Court,

would tantamount to modifying it or modification. We cannot resist the temptation of saying again that this contention is also startling. There is no

question of modifying the award. The word ''modify'' means, ''change, addition, alteration or signifying some change more than what was thought

of. Nothing such matter has been mentioned in the impugned award directing the sole arbitrator to reconsider the issue of pendente lite interest.

Needless to reiterate that the pendente lite interest issue could not be decided by the sole arbitrator in all the matters holding that he had no

jurisdiction to award pendente lite interest in view of the decision of the Supreme Court in the case of Executive Engineer, Irrigation (supra), which

came to be overruled by the Constitutional Bench in the case of Secretary, Irrigation Department (supra). Therefore, it cannot be said that there

was any modification or correction in the award. What is directed by the trial Court is to reconsider the issue of pendente lite interest which could

not be decided in the light of earlier decision of the Supreme Court which came to be reversed or overruled and, admittedly, rest of the terms of

the award were ordered to be decreed and decree as such has been passed. Thus, it is explicit that the impugned part of the award pertaining to

pendente life interest is not yet given finality or adjudication by the Court on merits. In these circumstances, we are extremely unable to uphold the

contention that the impugned direction to remit the issue of pendente lite interest to the sole arbitrator would amount to modifying the award and

falling within the provisions of Section 39(1)(iii) of the Act.

Having given anxious thought to the rival versions and considering the facts and circumstances, we have no hesitation in holding that the

impugned order of direction of the trial Court cannot be said to be an order appeable u/s 39 of the Act. Consequently, we have no hesitation in

finding that the appeals are incompetent and hence not maintainable. Since no appeal against remitted u/s 16 of the Act is provided such a

contention also must fail. It was also contended by the learned A.G.P. Mr. Mehta that the trial Court has committed serious error in remitting a

part of the award. This submission is, seriously, countenanced by the Learned Counsel for the respondent, Mr. Shah. Having regard to the facts

and circumstances and the relevant proposition of law, the contention on this score raised by the learned A.G.P. Mr. Mehta is devoid of any force.

It cannot be contended that remission of a part of award for reconsideration is in any way illegal or unjust, la our opinion, therefore, the order

remitting a part of the term of the award could not be said to be in any way affected or tainted with any infirmity requiring interference of This

Court. Our attention is also drawn by die Learned Counsel for the respondent Mr. Shah in this connection to a decision of the Delhi High Court

rendered in the case of Mehta Teja Singh and Co. Vs. Fertilizer Corporation of India, Ltd. and Another, This decision is also supporting the view

which we are taking.

The order u/s 16(1) of the Act could be made on such terms the Court thinks fit. The Court may, therefore, give directions to the arbitrator as

to the form of the fresh award. The arbitrator is bound to abide by and carry out the directions of the Court in this behalf. In the absence of any

such direction, the arbitrator acting under an order referring back some of the matters for reconsideration, must make a fresh award, confirming

and repeating the first award as to matters not sent back which he would not alter. Thus, the fresh award would embrace all matters originally

referred, and in the result the first award would become null and void. But in the present case, the trial Court has specifically remitted the issue of

pendente lite interest for reconsideration only and rest of the terms of the award have been made rule of the Court. In these circumstances, mere

remission of a part of die award for reconsideration cannot be said to be illegal requiring interference of This Court.

We would also like to reproduce the observations of the Apex Court in para 25 of the decision rendered in the case of The Upper Ganges

Valley Electricity Supply Company Ltd. Vs. The U.P. Electricity Board, which read as under:

We are not disposed to hold as contended by the respondent, that if a part of the award be found to be invalid, the entire award should be set

aside and remitted back for a fresh decision. The error which has occurred in the award of the Umpire relates to a matter which is distinct and

separate from the rest of the award. The part which is invalid being severable from that which is valid, there is no justification for setting aside the

entire award.

Thus, the said observations also support the view which we are taking.

Considering all these facts and circumstances, in our opinion, the said submission is also, totally, meritless and deserves to be rejected.

Assuming that the appeals were maintainable then alternatively also we find no substance in the present appeals in view of the aforesaid

decision of the Supreme Court in the case of Secretary, Irrigation Department (supra). The pendente lite interest could not be awarded in view of

the decision of the Supreme Court in the case of Executive Engineer Irrigation (supra), which came to be overruled by the Constitutional Bench of

the Supreme Court in the case of Secretary, Irrigation Department (supra). Again, it will be also interesting to note that the trial Court has simply

remitted the issue of pendente lite interest to the sole arbitrator for reconsideration in view of the decision of the Supreme Court in the case of

Secretary Irrigation Department (supra), and it will be open for the arbitrator to consider the question of the grant of interest pendente lite afresh

after hearing the parties and needless to mention that the decision of the arbitrator on the point of fixing, if any, quantum of rate of interest for the

purpose of pendente lite interest shall be subject to challenge permissible under the law.

In the aforesaid appeals are dismissed at the threshold, In the circumstances, there shall be no order as to costs in all these appeals.