Union of India (UOI) vs P. Krishnan

M. Ramachandran, J.—Union of India, represented by the Divisional Railway Manager (Works), Southern Railway, Palakkad has come up with this appeal being aggrieved by the order passed by the Subordinate Judge, Palakkad dated 27-11-1998. There was considerable delay in filing the appeal, but after hearing the parties the delay had been condoned. But, it does not mean that the claims and contentions, which had been raised in the appeal, should be automatically accepted.

The respondent is an Engineering Contractor and after entering into an agreement in 1993, specified works had been carried out by him. In respect of certain matters, however, the issue was left for decision of an Arbitrator, and it is not disputed that an award has ultimately come to be passed, whereby the contractor was to be paid some amounts as claimed by him. However, the Railway administration had filed O.P. (Arbitration) No. 6 of 1997 under the Arbitration Act, challenging the award on various grounds. Reading of the present order would indicate that the Railway Administration had confined their attack about the issue of jurisdiction of the Arbitrator in the matter of awarding interest during the pre-reference period as well as the rate of interest. The Arbitrator had awarded interest from the date of completion of work till the date of payment, of course at different rates.

It had been contended by the Railway Administration that even if there was justification for grant of interest, unless there was specific terms of reference with regard to the pre- reference period, it was beyond the jurisdiction of the Arbitrator to grant any reliefs in such region.

Taking notice of the contentions that had been raised by the parties, the learned Subordinate Judge had looked into the matter in some detail. Our attention had been invited to the decision of the Supreme Court in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, . In the said decision, the Supreme Court, which is a decision of three Judges Bench, considering the question of competence of the arbitrator on reference made without intervention of the court came to the conclusion that in cases, which arose prior to the commencement of the Interest Act 1978, the Arbitrator did not have power to grant interest either pendente lite or for the period prior to the reference. Reliance has been placed by the appellant on the above decision as also the general conditions of the contract, which according to them do not provide for payment of interest. It is highlighted that no interest is payable for the amount due to the contractor under the contract and such payment is prohibited by a Circular, which was in force, as regards the works. However, the lower court found that it was a case where the Arbitrator had granted interest in respect of the cost of materials used by the contractor for the works and in the absence of any specific contract, equity also favours payment of interest. The court had found that the issue had received adequate attention of the Arbitrator and since he had not misconducted himself, the award was fair and was not liable to be varied. The lower court also relied on the decision of the Supreme Court in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, .

We find that the question as to whether the Arbitrator has power to grant interest pendente lite and for the pre-reference period has been finally concluded by a Constitution Bench decision of the Supreme Court in Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v. N.C. Budharaj AIR 2001 SCW 255. In both G.C. Roy''s case (supra), which is also a Constitution Bench decision, as also in Budharaj''s case (supra), the decision in Abnaduta Jena''s case (supra) has been overruled. In G.C. Roy''s case (supra), the Supreme Court held that if the arbitration agreement is silent about grant of interest, Arbitrator has power to grant interest pendente lite. But in Budharaj''s Case (supra), the Supreme Court went further and held that as long as there is nothing in the arbitration agreement to exclude the jurisdiction of the Arbitrator to entertain a claim for interest on the amounts due and become payable under the contract, the jurisdiction of the Arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 has to be upheld. In paragraphs 47 and 48 of Budharaj''s case (supra), the Supreme Court held as follows:

If that be the position, Courts which of late encourage litigants to opt for and avail of the alternative method of resolution of disputes, would be penalising or placing those who avail of the same in a serious disadvantage. Both logic and reason should counsel Courts to lean more in favour of the arbitrator holding to possess all the powers as are necessary to do complete and full justice between the parties in the same manner in which the Civil Court seized of the same dispute could have done. By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to Civil Court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise he could have successfully asserted before Courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of his substantive rights under the various laws in force, according to which only even the arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the Court thereunder, has to be upheld. The submission that the arbitrator cannot have jurisdiction to award interest for the period prior to the date of his appointment or entering into reference which alone confers him power is too stale and technical to be countenanced in our hands, for the simple reason that in every case the appointment of an arbitrator or even resort to Court to vindicate rights could be only after disputes have cropped up between the parties and continue to subsist unresolved and that if the arbitrator has the power to deal with and decide disputes which cropped up at a point of time and for the period prior to the appointment of an arbitrator, it is beyond comprehension as to why and for what reason and with what justification the arbitrator should be denied only the power to award interest for the pre-reference period when such interest becomes payable and has to be awarded as an accessory or incidental to the sum awarded as due and payable, taking into account the deprivation of the use of such sum to the person lawfully entitled to the same.

For all the reasons stated above, we answer the reference by holding that 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. The decision in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, taking a contra view does not lay down the correct position and stands overruled, prospectively, which means that this decision shall not entitle any party nor shall it empower any Court to reopen proceedings which have already become final, and apply only to any pending proceedings. No costs.

Of course in this case the appellant points out that Clause 16(2) of the contract between the parties specifically excludes payment of interest to any amounts payable to the contractor. However, we find that, as admitted in the appeal memorandum, the Arbitrator had awarded interest for the value of own materials used by the contractor. When the contractor had used his own materials, the value of which has to be reimbursed by the appellant, that amount cannot be regarded as an amount coming within the purview of the prohibition against payment of interest under Clause 16(2) of the contract. Also it is gatherable that such a contention had not been raised before the Arbitrator, for him to consider. In that view, we do not find any infirmity in the finding of the lower court upholding the award of the Arbitrator.

In the aforesaid circumstances, the appeal is dismissed. There will be no order as to costs.