State of U.P. vs Hindustan Construction Co.Ltd.Bombay

Brijesh Kumar, J.—This First Appeal from order has been preferred by the State of Uttar Pradesh against the judgment and order dated 2441980 passed by Civil Judge, Lucknow, dismissing the objections of the appellant under Section 30 of the Arbitration Act, preferred against the award dated 23rd July, 1979 given by the Arbitrators.

Facts, in very brief, necessary to appreciate the controversy involved, are that the appellant and the respondent entered into a contract for the construction of Aqueduct on River Gomti. According to the terms of the contract, Cement, M.S. Bars and structural and Sheet Piles, as required for the job, were to be supplied by the appellant to the RespondentContractor. The rates to be charged for the above items were also indicated in the agreement. The Structurals were to be made available at the rate of Rs. 1350/ per M.T. The cost of the material supplied was to be recovered from the running account bills. According to the respondent''s claim, the recoveries from the running bills for the plates supplied were being made at the rate of Rs. 1350/ per M.T. but from 55th Running Accounts Bill onwards, recovery was made at the rate of Rs. 4000/ per M.T. The case of the appellant seems to have been that the plates supplied by it was not covered by �structurals�. Hence, the rate provided for supply of structurals at the rate of Rs. 1350/ per M.T. could not be applied.

In connection with recoveries at a higher rate, the contractorrespondent protested through letter dated October 13/15, 1976 addressed to the Superintending Engineer, XII Circle, Irrigation Works, 12, Mall Avenue, Lucknow, Paper No. C13 The Superintending Engineer in turn gave his reply through letter dated November 3, 1976, Paper No. C14, saying that the plates were not covered by the item �structurals�. Hence, recoveries on higher rates have been made according to the other provisions of the contract. This, however, does not seem to have satisfied the contractorrespondent who again wrote in this connection. The Superintending Engineer again sent his reply dated February 1, 1977, which is Paper No. C17, after reviewing the issue, informing that the decision conveyed by his earlier letter dated November 3, 1976 was final and no change was possible. The ContractorRespondent wrote a letter dated February 3/4, 1977, Paper No. C18, addressed to the Superintending Engineer, with a request to refer the dispute to arbitration as per clause No. 14012 of the contract. The terms of the reference were also sent therewith. The Superintending Engineer replied to the letter vide his letter dated 17277, Paper No. C19, informing that the matter relating to appointment of Arbitrator had been taken up with the Government and that the contractor would be advised further in the due course and ultimately, through a teleprinted message, Paper No. C23, it was informed that on behalf of the Government, one Joint Secretary/Joint Legal Remembrancer, U.P. Government was appointed as Arbitrator in dispute relating to Agreement No. 4/SE/7374. This also seems to have been confirmed through letter dated May 24, 1977 written by the Superintending Engineer, XII Circle, Irrigation Works, Paper No. C24.

Ultimately, it transpires that Sri N.K. Dwivadi and Sri K.C. Goyal acted as Joint Arbitrators, who gave their award on July 23, 1979, requiring the State to pay to the claimant a sum of Rs. 15,71,461.48 with interest at the rate of 12 per cent per annum from 421977 till the date of the award and Rs. 15,400/ as costs of the arbitration proceedings. An interest at the rate of 6 per cent was awarded on the sum awarded from the date of award till the date of payment or the date of decree whichever be earlier. The main dispute before the Joint Arbitrators was about recovery of cost of M.S. Plates by the State on the higher rates.

The State Government, being aggrieved against the award, filed objections in the Court of the Civil Judge, Lucknow, under Section 30 of the Arbitration Act. The learned Civil Judge, Lucknow, rejected the objections, by order dated 2441980. The order of the learned Civil Judge has bean challenged in this Appeal mainly on the ground that there is no joint reference of the dispute to the Arbitrators. Hence, the entire arbitration proceedings are null and void. Mere participation by the parties would not make the proceedings valid. The award of costs and interest was also challenged.

The learned counsel appearing on behalf of the State has, vehemently urged that the arbitration proceedings are illegal since there was no joint reference by the parties to the Arbitrators. In support of his submission, he has placed reliance upon a Division Bench decision of this Court reported in AIR 1963 Allahabad 242, Om Prakash v. Union of India. We, however, find that the above noted decision is on a different point. According to the Agreement, the disputes were to be resolved by Director of Farms, General Head Quarters, Simla, which post was later abolished after the war. Hence application were moved under Section 8 of the Indian Arbitration Act for appointment of an Arbitrator. It was simply an application for appointment of Arbitrator and there was no prayer requesting the Court to refer the dispute to such an Arbitrator. The Court, however, while appointing Arbitrator further directed that all the papers be sent to Arbitrator who was to give his award within the time specified. The court, however, could only appoint an Arbitrator under Section 8 of the Act and the rest was to be left to the parties to refer their dispute to the Arbitrator. Admittedly, there was no reference jointly made by the parties to their Arbitrators. The decision in the above noted case was upheld in AIR 1976 SC 1745, The Union of India v. Shri Om Prakash holding that after appointment of an Arbitrator under Section 8(2) of the Arbitration Act, the Court has no jurisdiction to proceed to pass an order referring the dispute to the Arbitrator. It was further held the award given on such a reference was liable to be set aside under Section 30 clause (c) of the Arbitration Act. In the present case the factual position is entirely different.

Learned counsel appearing for the Respondent, submits that in this case the reference has been made in accordance with the provisions of the Agreement relating to decision of a dispute by an Arbitrator under the Agreement. In this connection, he has placed before us clause No. 14.011 of the contract according to which if the contractor considers any ruling of Engineer Incharge in respect of the contract to be, interalia, unfair, he is immediately required to ask in writing for written instruction or decision and within a specified period he has to file written protest to the Engineer Incharge stating clearly and in detail the basis of his objection. The Engineer Incharge is required to give his final decision. The decision of the Engineer Incharge in final. Clause 14.012 provides that within 28 days of receipt of the decision of the Engineer Incharge, the Contractor may give notice in writing to the Engineer Incharge requiring the matter to be submitted to the arbitration alongwith detailed particulars of the dispute or difference specifying clearly the point at issue. The dispute is to be referred under clause 14.013 for arbitration to two Arbitrators, one to be appointed by each of the parties. Their decisions shall be binding on the contracting parties. This clause further provides that the dispute shall be deemed to be a submission to the Arbitration within the meaning of the Indian Arbitration Act. It will be beneficial to peruse the clause 14.013 in connection with the argument raised that reference to arbitration was bad as it was not jointly made. It reads as follows:

�14.013. In the event of a dispute arising between the parties hereto as specified in para 14.012 above, such a dispute shall be referred for arbitration to two arbitrators, one to be appointed by each of the parties hereto and in case of difference of opinion between them to an umpire appointed by the said two arbitrators before entering upon the reference and the decision of such arbitrators, or umpire, as the case may be shall be final and binding on the contracting parties. The dispute shall be deemed to be a submission to the arbitration within the meaning of Indian Arbitration Act of 1940 and the rules thereunder or any statutory modifications or reenactment thereof for the time being in force.�

In this case, we find that the contractor had objected to the recoveries made at a higher rate with effect from the 55th Bill. On consideration of the protest, the State had considered the matter and informed the Contractor that they had taken a final decision in the matter to the effect that plates were not covered within the meaning of �Structurals�, hence higher rate was being charged. The final decision being not acceptable to the Contractor, it requested for the submission of the dispute to the Arbitrators and further requiring the State to nominate its Arbitrator. Both parties, including the State, nominated their Arbitrators. The contractorclaimant had also annexed statement of his claim alongwith his letter requiring the State to appoint its Arbitrator. The matter was thus looked into by the two Arbitrators jointly, who ultimately gave their award. Both the parties proceeded in the matter of submission of the award in accordance with the provisions contained under Clauses 14.011, 14,012 and 14.013. In any case clause 14.013 is very clear that in the above facts and circumstances, the dispute shall be deemed to be a submission to arbitration. The clauses referred to above provide a selfcontained and special mode of raising disputes and on complying with the said clauses, there is no escape from the conclusion that the dispute would be deemed to be a submission to arbitration. The deeming clause seems to have been agreed upon to set at rest any kind of doubt at all about the submission of the dispute to arbitration. It hardly leaves any scope for raising an argument that the arbitration proceedings are invalid or void for want of joint reference.

Learned counsel for the respondent has, however, placed reliance upon a decision of the Hon''ble Supreme Court in Banwari Lal v. P.C. Agarwal, AIR 1985 SC 1003, to submit that it is not necessary that every reference to arbitration must be made jointly by both parties and it will mainly depend upon the terms of the agreement.

Learned counsel for the respondent has submitted that the appellant is not legally justified in raising the argument that all the arbitration proceedings were illegal and void also for the reason that the appellant had been participating in the proceedings throughout without any objection at any stage about the jurisdiction of the Arbitrators in entertaining the dispute. The contention of the State Counsel is that no amount of consent can confer jurisdiction upon an authority if the authority inherently lacks such jurisdiction. It is submitted that the reference being invalid as not jointly made, merely the fact that the appellant participated in the arbitration proceedings will be without any consequence. We have already seen the different clauses of the Agreement providing for appointment of Arbitrators and submission of dispute to Arbitration in the event a dispute arises. A dispute arose and the respondent asked the appellant in accordance with the terms of the Agreement to appoint its Arbitrator and had also sent the specific claim constituting the dispute. In turn the State Government did appoint its arbitrator and the parties submitted to the jurisdiction of the Arbitrator by attending to the proceedings. It was only after the award went against the State, it raised the question of jurisdiction of the Arbitrator. Learned counsel for the respondent submits that the appellant has acquiesced to the jurisdiction of the Arbitrator and in this connection he has placed reliance upon a decision of the Hon''ble Supreme Court in AIR 1988 SC 205, Prasun Roy v. The Calcutta Metropolitian Development Authority and another. Considering similar situation and the argument that a party should not be allowed to blow hot and cold simultaneously and that long participation in the proceedings precludes such party from contending that the proceedings were without jurisdiction, their Lordships quoted from Russel on Arbitration:

�If the parties to the reference either agree, beforehand to the method of appointment, or afterwards acquiesce in the appointment made, with full knowledge of all the circumstances, they will be precluded from objecting to such appointment as invalidating subsequent proceedings. Attending and taking part in the proceedings with full knowledge of the relevant fact will amount to such acquiescence.�

Hon''ble the Supreme Court also took into consideration its own earlier judgment reported in AIR 1975 SC 230, N. Chellappan v. Kerala State Electricity Board, holding that acquiescence defeats the right of party to challenge the proceedings at later stage. Hon''ble the Supreme Court also took into consideration, in the case of Prasun Roy (Supra), the fact that, in grounds of appeal, no prejudice has been indicated by appointment of second Arbitrator. The contention was ultimately upheld that the party was not justified in challenging the proceedings after its long participation as it amounted to the acquiescence. In the present case also, we find that both parties had submitted to the jurisdiction of the Arbitrator appointed by them. No effort has been made on behalf of the appellant to show any kind of prejudice which could be said to have been caused to the appellant. The position as indicated earlier also cannot be ignored that both parties proceeded in accordance with the provisions as contained in clauses 14.011, 14.012 and 14.013 of the contract and accordingly appointed their arbitrators and through out participated in the proceedings contesting even without a whisper that the reference was incompetent in any manner. It dawned upon the appellant to challenge arbitration proceedings and the award, on the ground of invalid reference, only after award given by two Arbitrators jointly, one appointed by each of the party, had gone against the State Government. In our view, for this reason also the ground raised by the appellant challenging the award being based on invalid reference deserves to be repelled.

The next contention raised on behalf of the appellant is about the award of the interest by the Arbitrator First of all, it has been submitted that since no interest was demanded nor any such claim was raised by the respondent before the Superintending Engineer, there was no decision on the point. Hence, it cannot be said that there arose any dispute in regard to payment of interest. That being the position, the Arbitrator did not get the jurisdiction to give any award awarding interest to the respondent. We, however, feel that the plea now sought to be raised cannot be entertained. We find that an issue was framed by the court below on the question of award of interest. It is issue No. 1 which reads as follows:

�1. Whether the arbitrators misconducted themselves as alleged in para 10 of the objection?�

Para 10 of the objection filed by the appellant before the court below reads as under:

�10. That the arbitrators misconducted themselves in awarding interest after the date of the award.�

It also appears that yet another question raised in the objection was relating to rate of interest. Para 9 of the objection containing the said objection reads as under:

�9. That the rate of interest awarded is excessive.�

This, however, does not find place in the issue framed as indicated above.

From a reading of the order passed by the learned Civil Judge dealing with issue No. 4, he had taken into account the question of rate of interest and also award of interest after the date of award and no plea was ever taken in the objections that the Arbitrator had acquired no jurisdiction to award interest for the reason that there existed no dispute on the question of payment of interest as no such demand for interest was made before the Superintending Engineer. A perusal of the grounds of appeal filed in this court also indicates that no such plea was raised except that the award of interest is manifestly erroneous and the court below erred in holding to the contrary. We have already indicated that before the Civil Judge, the appellant had raised only the question regarding rate of interest and the award of interest after the date of the award. Award of interest was not challenged on any other ground. It was very well open to raise the plea now raised, before the court below. It has not even been taken as a ground in the memo of First Appeal. In our view, the appellant is, therefore, not entitled to raise a new ground and that too during the course of the arguments. Had this ground been raised at the appropriate stage and before the appropriate forum, may be that the respondent may have brought on record some other material. It is simply difficult to guess about it. We, therefore, decline to entertain this plea as raised by the learned counsel for the appellant during the course of the arguments.

It has next been submitted that in view of the clause No. 13.100 of the contract no interest could be awarded. The relevant clause reads as follows:

�13.100. INTEREST ON MONEY DUE TO CONTRACTOR:

No omission by the Engineerincharge to pay the amount due on measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest on any payments in arrears nor on amounts due to him.�

The above clause can also not come to the rescue of the appellant. The Arbitrators have awarded interest at the rate of 12 per cent per annum from 421977 to the date of the award on the principal amount awarded and a simple interest of 6 per cent per annum has also been awarded on the principal amount from the date of the award to the date of payment or the date of decree whichever be earlier. Thus, it is for two distinct periods, one during which the proceedings seem to have been pending before the Arbitrator. Therefore, till the date of award interest was awarded at the rate of 12 per cent per annum and the other part of the interest was awarded at the rate of 6 per cent from the date of award to the date of payment or the date of decree whichever be earlier. It is to be noted that no interest has been awarded prior to the date of commencement of the proceedings. It is only pendentelite and future interest on the payment or decree whichever be earlier. Substantive interest has not been awarded.

We have already seen the objections raised by the appellant before the Civil Court in relation to the award of interest. It was challenged only on two grounds. One, that rate of interest was excessive and the other that the interest has been illegally awarded by the Arbitrator after the date of the award. The appellant has to confine its case within the limits of the objections preferred. We may, therefore, first see whether or not the Arbitrator acted illegally in awarding the interest after the date of the award. In this connection learned counsel for the respondent has placed reliance upon a decision of the Hon''ble Supreme Court reported in AIR 1992 SC 2192, Hindustan Construction Co. Ltd. v. State of Jammu and Kashmir. Para 5 of the judgment reads as follows:

�5. The question of interest can be easily disposed of as it is covered by recent decisions of this Court. It is sufficient to refer to the latest decision of a fiveJudge Bench of this Court in Secretary, Irrigation Department of Orissa v. G.C. Roy, (1991) 6 JT 349; (AIR 1992 SC 732).Though the said decision deals with the power of the Arbitrator to award interest pendente lite, the principle of the decision makes it clear that the arbitrator is competent to award interest for the period commencing with the date of award to the date of decree or date of realisation, whichever is earlier. This is also quite logical for, while award of interest for the period prior to a arbitrator entering upon the reference is a matter of substantive law, the grant of interest for the postaward period is a matter of procedure. Section 34 of Code of Civil Procedure provides both for awarding of interest pendente lite as well as for the postdecree period and the principle of Section 34 has been held applicable to proceedings before the arbitrator, though the section as such may not apply. In this connection, the decision in Union of India v. Bango Steel Furniture (P) Ltd., (1967) 1 SCR 324/329 : (AIR 1967 SC 1032 at p. 1035) may be seen as also the decision in Gujarat Water Supply & Sewage Board v. Unique Erectors, (1989) 1 SCR 318 : (AIR 1989 SC 973) which upholds the said power though on a somewhat different reasoning. We, therefore, think that the award on item No. 8 should have been upheld.�

It is clear from what has been observed in the above noted case that award of interest prior to the reference of dispute to the Arbitrator is a matter of substantive law but the grant of interest for the postaward period is a matter of procedure. The power of the Arbitrator to award interest for the postaward period has been upheld. Reference has also been made to a decision of this court reported in AIR 1985 Alld. 93. The Hindustan Construction Company Ltd. Bombay v. State of Uttar Pradesh on the question of award of interest for postaward period. It was held after considering a similar clause in the agreement in question which provided that the contractor would not be entitled for interest in respect of any money or balance which may be lying with the Government owing to any dispute etc. between the parties or for any delay or omission in payment or in any other respect whatsoever.

As indicated earlier, in the objections, the appellant had only objected to the award of interest after the date of the award. However, so far other part of the award of interest is concerned, namely, pendente lite, from the date of reference till the date of arbitration, respondent has placed before us a decision of Calcutta High Court reported in AIR 1981 Calcutta 101, Jiwani Engineering Works (P) Ltd. v. Union of India wherein it was held that in spite of such clause disentitling the contractor of any interest still it was permissible to grant pendente lite interest. Nothing has been shown to us in support of the contention that the rate of interest is in any manner excessive.

Lastly, it was urged that award of cost by the Arbitrator is bad in law since no basis has been indicated on which the costs have been awarded. It is already indicated that it is bald award without giving reasons. Award of cost has always been considered a matter in the discretion of the authority deciding a dispute. Once the Arbitrators, in exercise of their discretion awarded a sum as cost which we also find not excessive, we hardly find any good reason to interfere in the matter of award of costs.

No other point has been pressed before us.

We find no merit in the appeal. It is accordingly dismissed with costs.