Builders Vs. Union of India and Vice-Versa  INSC 159 (24 April 1990)
S. Rangnathan, S.
1990 AIR 1340 1990 SCR (2) 638 1990 SCC (3) 338 JT 1990 (2) 186 1990 SCALE
Award--Error on the face of the award--Clause in the contract open to two
equally plausible interpretations--Legitimate for Arbitrators to accept one or
the other of the available interpretations and even if the court may think that
the other view is preferable, the court will not and should not interfere.
on the face of award Annexure setting out the award as against various items of
claim--Mere fact that statement of claim refers to various items in the
schedule to the contract does not result in the contract itself being
incorporated in the award--No error can be found in the award.
Lite Interest: Power of Arbitrator--Not enti- tled to grant pendente lite
interest unless reference is made in the course of a suit--Same powers to grant
interest pendente lite as the courts when matter is referred by the Court.
disputes having arisen between the Union of India and the Contractors in
respect of the Contract awarded to the letter for the execution of certain
civil works pertaining to the Metro Railway Project in Calcutta, the same were referred for
decision to two Arbitrators appointed by the High Court of Calcutta. The
Contractors filed their itemised claim before the Arbitrators for a total sum
of Rs.2,05,67,554. The Arbitrators awarded a sum of Rs.57.47,198 to the
contractors in full and final settlement of all their claims which included a
sum of Rs.6.76,540 as interest vide item (1). They directed that the award
shall be complied with within sixty days of its publication fail- ing which
simple interest @ 11 percent per annum shall accrue thereon (excluding interest
amount of Rs.6.76,540) till the date of payment or decree upon award which ever
is earlier. On an application being made to the High Court for making the Award
a rule of the Court. the learned single judge confirmed the award except that
the principal sum awarded was reduced by Rs.5,20,000 with the direction that
the amount so awarded will carry interest @ 11% per annum from the date of
reference till the date of the award.
The Union of India preferred an appeal to the Division Bench, which reduced
the amount awarded under item (c)(xii) from Rs.23.96.000 to Rs.2.39,000. Thus
the principal amount to be awarded to the contractors was finally put at
Rs.30.70,798 and this amount was directed to carry interest @ 11% per annum
from the date of the reference till the date of the award.
by the order of the Division Bench reducing the amount awarded under item (c)(xii)
from Rs.23,96,000 to 239,600 the contractors preferred an appeal to this Court.
Union of Indian on the other hand preferred a cross- appeal praying (i) that
interest should not be payable on the amount of Rs.30,70,798 fixed by the High
Court but only on Rs.23,94,258 left after deducting there from the amount of
Rs.6,76,540 awarded by the Arbitrators in respect of item No. (L) and (ii)
that. though the arbitrators had also awarded interest on the principal sum
till the date of payment or decree on award in case payment was not done within
sixty days of the publication of the award. the contractors should be held
entitled to interest upto the date of the award only and not beyond it because
both the learned single judge and the Division Bench have held so and the
contractors have preferred no appeal there from.
up the contractor's appeal first, this Court came to the conclusion that the
Division Bench had exceeded its jurisdiction in interfering with this part of
the award and restored the amount awarded by the arbitrators under item (c)(xii).
with the appeal of the Union of India this Court ruled that there was really no
dispute left about Union of India's first contention as to what was the correct
amount on which interest was payable to the contractors after its findings in
the contractor's appeal and placed the figure at Rs.45,50,658.
with the second contention as to what was the period with reference to which
interest would be payable to the contractors on the above amount it was noticed
that the arbitrators had allowed interest from 5.10.82 (date of termination of
contract) to 26.3.84 (date of award) under item (L) and had also allowed
interest from the date of the award till the date of payment or decree
whichever is earli- er.The learned single judge had deleted the interest for
the period 5.10.82 to 6.5.83 (date of reference) but held that the arbitrators
had jurisdiction to award interest from the date of the reference till the date
of award and also post- award interest. As the objection of the Union of India
640 before the Division Bench in the LPA on the question of interest was only
that the arbitrators had erred in awarding interest from 6.5.1983 to 26.3.1984
the High Court had not decided that the contractors were not entitled to
interest beyond the date of award and therefore this contention of the Union of
India failed and was rejected. The Court.
The grant of pendente lite interest would be justified only when reference to
arbitration is made in the course of a suit. The principle indicated is that
since a court has. under S. 34 of power to grant pendente lite interest in a
suit. an arbitra- tor to Whom a reference to arbitration is made in the course
of the suit would be clothed with all the powers of the court including one to
grant such interest. Generally speak- ing. it would only seem reasonable that
the power to grant interest pendente lite should be treated as ancillary to the
award of damages or compensation which. but for the delay in the litigation
(Whether in court or by way of arbitration).
should have received much earlier. However.
pendente interest has been made available in court proceedings. its extension
to arbitration law appears to have acquired some technical limitations
resulting in denial of pendente lite interest in most arbitration cases.
Pendent lite interest cannot still be awarded by an Arbitrator appointed by the
parties under a private agreement for which there may be no justification in
equity. Anomalies have arisen because formerly an Arbitrator could not be
treated as a court to which the code of civil procedure applied and because now
the Interest act, 1978, while including arbitration proceed- ings within its
ambit, has, apart from a reference to S. 34 omitted to provide specifically for
pendente lite interest.
has been clearly brought out by Chinnappa Reddy, J., in Abhaduta Jena which outline
the principle the learned judge had in mind for permitting pendente lite
interest by arbi- trator. Abhaduta Jena has been followed in later cases also
and its scope has been recently explained in Sharma's Case (1988-4 SCC 353),
and the Gujarat Water Supply case (1989-1 SCC 532) where pendente lite interest
was denied. [655H; 656A-F] Gujarat Water Supply & Sewage Board v. Unique
Erectors,  1 S.C.C. 532; Firm Madan Lal Roshan Lal Mahajan v. Hukumchand
Mills Ltd., lndore,  1 S.C.R. 105; Allen Berry & Co. Pvt. Ltd v.
Union of India,  3 S.C.R. 287; N. Chellappan v. Secretary, Kerala State
Electricity Board & Anr.,  1 S.C.C. 289; Hindustan Tea Co. v.K. Shashi
Kant Co. & Anr.,  Suppl. S.C.C. 506; Hindustan Steel Works
Construction Ltd. v. C. Rajasekhar Rao,  4 S.C.C. 93; Sudarsan Trading
Co. v. Government off Kerala & Anr..  2 S.C.C. 38: M/s. Alppi Prashad
& Sons, Ltd. v. 641 Union of India,  2 S.C.R. 793; Bhagat Trading Co. v. Union of India, AIR 1984 Delhi 358; Union of
India v. Bakshi Ram,  LIX P.L.R. 572; Executive Engineer v. Abhaduta
Jena,  1 S.C.C. 418; Nachiappa v. Subramaniam,  2 S.C.R. 290; Satinder
v. Amrao,  3 S.C.R. 676; Union v. Bungo Steel Furniture P. Ltd.,  1
S.C.R. 324; Ashok Construction Co. Ltd. v. Union,  3 S.C.C. 66; State v. Saith
& Skelton P. Ltd.,  3 S.C.R. 233; Food Corpora- tion of India v. Surendra, Devendra & Mohendra
Tansport Co.,  1 S.C.C. 547 and State of Rajasthan v. Sharma & Co.,  4 S.C.C. 353, referred to.
APPELLATE JURISDICTION: Civil Appeal No. 1280 & 1281 of 1988.
the Judgment and Order dated 21.4.1987 of the Calcutta High Court in Appeal
from Original Order No. 128 of 1985, Award Case No. 151 of 1987.
Dr. Shankar Ghosh, Ajay K. Jain, Praveen Kumar and Pramod Dayal for the
and G.S. Chatterjee for the Respondent.
Judgment of the Court was delivered by RANGANATHAN, J. These are cross appeals
by M/s. Hind Builders (hereinafter referred to as 'the contractors') and the
Union of India. from an order of Division Bench of the Calcutta High Court in an arbitration
contractors had been awarded a contract for the execution of certain civil
works in connection with the Metro Railway Project in Calcutta. Certain disputes arose between the
Union and the contractors. These disputes
were referred for decision to two arbitrators appointed by the High Court of
Calcutta. The arbitrators entered upon the reference on 27th June. 1983. The
contractors had filed a claim before the arbitrators for a sum of Rs.2,05,67,554.
On 26.3.1984 the arbitrators awarded a sum of Rs.57,47,198 to the contractors.
claim of the contractors filed before the arbitra- tors was an itemised claim
in respect of various items of works executed by them. The body of the award
made by the arbitrators reads as follows:
..... make and publish our Award, as below:
That the Respondent .......... shall pay .....
Contractors a sum of Rs.57,47,198 .....
in full and final settlement of all their claims and dues under the above
mentioned contract agreement. In addi- tion, the three Bank Guarantees ..........
issued by Vijaya Bank, Cuttack, on behalf of the contractors, in favour of
Metro Railway, Cuttack, shall be released by the Respondent Railway, as
detailed in the Annexure to this Award.
XXX The Award shall be complied with within 60 (Sixty) days from the date of
publication of this Award, failing which simple interest @ 11 per cent per
annum on the amount of the Award (excluding interest vide item (1) of the
Annexure i.e. Rs.6,76,540) shall accrue till the date of payment or decree upon
Award whichever is earlier." In the annexure to the award, the arbitrators
tabulated the various items of the claim before them, the amount claimed
against each item and the amount awarded against each item.
item (1) in the annexure, the arbitrators had awarded an interest of Rs.6,76,540
and that is why the direction regarding interest by the arbitrators excluded
this amount from the principal amount which was to bear interest. As stated
earlier, the total amount awarded was Rs.57,47,198 in respect of items (a) to
(q) of the award as against the claim of Rs.2,05,67,554 made by the
application being made to the High Court of Cal- cutta on the Original Side for
making the award a rule of court, the learned single Judge sitting on the Original
Side confirmed the award except to the extent of Rs.5,20,000.
is no longer in issue. The learned Judge. however, concluded his judgment with
the following words:
principal sum awarded stands reduced by Rs.5,20,000 as mentioned above. The respondent
will be entitled to interest at the rate of 11 per cent per annum from the date
of refer- ence till the date of the award." The Union of India preferred
an appeal from the order of the learned single Judge. The Division Bench was of
the opinion that the arbitrators were not justified in awarding a sum of Rs.23,96,000
to the contractors (as against a claim of Rs.42,65,957 made by them) in respect
of item (c)(xii) viz. "cost towards consolidation of earth by ramming and
rolling" and that they could have awarded under the 643 contract only a
sum of Rs.2,39,600 in respect of this item.
amount awarded to the contractors was thus further reduced by the Division
Bench by a sum of Rs.21,56,400 (Rs.23,96,000--Rs.2.39,600). The Bench then
observed that the principal sum to be awarded to the contractors would now
stand at Rs.30,70,798 and directed that the respondent contractor should be
entitled to interest at the rate of 11 per cent per annum on the said amount
from the date of the reference till the date of the award.
contractors have appealed from the order of the Division Bench being aggrieved
by the reduction of the amount awarded under item (c)(xii) to Rs.2,39,600 from
Rs.23,96,000. The Union of India has preferred an appeal contending principally
that, since the principal amount on which the arbitrator awarded interest was
not Rs.57,47,198 but only Rs.50,70,658 (i.e. Rs.57,47,198--Rs.6,76,540), the
contractors would be entitled to interest, after the judg- ment of the Division
Bench, not on Rs.30,70,798 as held by the Division Bench but only on
Rs.23,94,258. In addition, at the tune of the hearing before us, counsel for
the Union of India raised two further points:
the Division Bench erred in awarding inter- est to the contractors from the
date of the reference till the date of the award.
That though the arbitrators had also awarded interest on the principal sum till
the date of payment, the contractors should now be held entitled to interest
only upto the date of the award because the learned single Judge and the
Division Bench have held so and the contractors have preferred no appeal therefrom.
up the contractor's appeal first, the point raised falls within a very narrow
compass and turns on the interpretation of item No. -.09 of the annexure to the
contract containing the schedule of rates. This item reads as follows.
Brief description Approx- Unit of Rate of No. of work imate payment payment in
Qty. "words" & "figures" Rs. P. 1 2 3 4 5 644 4.09
(a)Earthwork in open excava 235000 10 Rs.180 tion for forming garbage cubic cubic
(Rupees tanks in all kinds and metres metres one conditions of soils upto
hundred depth varying from 0 to 3 eighty 3 metres from the existing only)
ground level and disposing of the spoils so as to raise land required for
piling work, to fill up the existing low lying areas and ponds, to form embank-
ments for roads, etc of the Car Depot complex includ- ing spreading in layers,
breaking clods, levelling, dressing, all lifts/descents and all leads etc.
extra payments will be made if wet excavation is met with or for baling/
pumping out of water of all sorts including rain water.
Extra over item (a) above, 135000 10 Rs.20 for consolidation of the Cubic Cubic
(Rupees filled up areas or some of metres metres Twenty the top layers of the
areas or road embank- ment portions by watering and ramming/rolling as
respect of these items the statement of claim filed on behalf of the contractor
was in the following terms:
Earthwork in excavation measured but not paid in full:
under agreement item No. 4.09 (a) the claimants as per instructions,
specifications and agreement excavated 645 earthwork in open excavation for
forming garbage tanks in all kinds of soil for a quantity of 2, 15,000 Cum and
there- after the contract was rescinded against which reduced quantity has been
measured provisionally upto 17th CC bill for 2,09,523 Cum measured on 24.5.82
and as per the said measurements the claimants are yet to be paid for a
quantity of 5,477 Cum over and above the payments already made upto 17th CC.
The claimants claim payment for 5,477 Cum of exca- vation @ Rs. 18 per each
Cum. amounting to Rs.98,586.00.
AMOUNT... Rs. 98,586.00 (c)(xii) Cost towards consolidation of earth by ramming
as per agreement item No. 4.09(b) the claimants are required to fill up the low
lying areas etc., as specified under General Conditions of the Contract at para
3.05 with the excavated spoils obtained out of earthwork in excavation under
agreement item No. 4.09(a). The payment for earthwork in open excavation for
work executed under agreement item No. 4.09(a) is to be made on sectional
measurements calcu- lated by level sections. The excavated earth obtained from
garbage excavation, a quantity of 2, 15,000 Cum as per provisions made in
agreement item No. 4.09(b) was consoli- dated in different areas as per
instructions and approved plan. The claimants claim payment for this quantity
of consolidation at Rs.20 per Cum i.e. Rs.2 extra over Rs. 18 per Cum as
specified in agreement item No. 4.09(a) & (b), amounting to Rs.43,00,000.00
against which payment has been made in CC bills for reduced quantity and amount
of Rs.34,043.00. The claimants claim payment for the balance amount of Rs.42,65,957.00
not paid for.
AMOUNT Rs.42,65,957.00 In other words, the contractors claimed payment at the
rate of Rs.18 per cubic metre in respect of the excavation work done by them
under item No. 409(a). Again, in respect of the same quantity. of 2,15,000
cubic metres, the contractors made a claim at Rs.20 per cubic metre as the
amount payable to them in respect of the consolidation of 646 excavated earth
by ramming and rolling. The Division Bench was of the view that under item No.
4.09(b), the contractors were entitled to an additional payment of Rs.2 only,
since the contractors had already been paid at the rate of Rs.18 per cubic metre
in respect of the excavation done by them.
extra charges for ramming and rolling were payable only at the rate of Rs.2 per
cubic metre instead of Rs.20 per cubic metre. The Division Bench accordingly
scaled down the amount awarded by the arbitrator in this regard to 1/10th of
the amount awarded by him.
submitted on behalf of the contractors that the rate payable for the work under
item 4.09(b) of the contract was not at all in dispute between the parties at
Union had not raised any plea in this regard in its reply to the contractors'
claim, in the objections to the award filed in the High Court or in the
arguments before the learned Single Judge. Clearly, the Division Bench travelled
beyond the limits permissible for the interference with an award by a court of
law in reducing the amount awarded on this account. It is pointed out that the
award itself is a non-speaking award. The award does not refer to the terms of
the contract or incorporate the details of the claims made by the contractors.
Though it is true that the arbitrators awarded a sum of Rs.23,96,000 against
item (c)(xii), they have not given reasons therefore. The award neither shows
that the amount has been worked out at the rate of Rs.20 per cubic metre nor
does it show the quantity in respect of which the amount has been worked out.
There is no reference to the terms of the contract or to item No. 4.09, clause
(a) or (b). No reasons have been given by the arbitrators for determining that
a sum of Rs.23,96,000 has to be paid to the contractors under item (c)(xii). It
is therefore submitted that there was no error apparent on the face of the
counsel vehemently contended that it is now settled law that an award cannot be
said to suffer from a manifest error unless the error appears on the face of
the award or of some document incorporated in the award. Reference is made to
the decisions of this Court in the following cases:
Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore,  1 SCR 105; Allen Berry & Co. Pvt. Ltd. v. Union oflndia,  3 SCR287;N. Chellappan v.
Secretary, Kerala State Electricity Board & Anr.,  1 SCC 289;
Hindustan Tea Co. v. K. Shashi Kant Co. & Ant.,  Suppl. SCC 506;
Hindustan Steel Works Construction Ltd. v.C. Rajasekhar Rao,  4 SCC 93
and Sudarsan Trading Co. v. Government of Kerala & Anr.,  2 SCC 38.
According to the contractors, what the Division Bench has done is to give its
own interpretation to item Nos. 4.09(a) & (b) of the contract, to read an
erroneous interpretation 647 of the said item into the award made by the arbitrators
and to substitute its opinion in the place of that given by the arbitrators.
Thus, it is submitted, runs quite contrary to the principles enunciated in the
above decisions and should, therefore, be set aside.
other hand, Shri Milon Banerjee, learned counsel for the Union of India
submitted that the award is really a speaking award in so far as it does
specify the amount granted in respect of each item of claim. He submitted that
the present case falls within the principle enunciated in M/s Alopi Prashad
& Sons, Ltd. v. Union of India,  2 S.C.R. 793, which has been taken
note of in the case of M/S Sudarsan Trading Co. v. Government of Kerala & Anr.,
 2 SCC 38 at p. 54 that an award which overlooks or ignores the terms of
the contract is bad. He also made a reference to the decision of the Delhi High
Court in Bhagat Trading Co. v. Union, AIR 1984 Delhi 358 in this context. He
also referred to a decision of the Punjab High Court in Union of India v. Bakshi
Ram,  LIX P.L.R. 572, holding that "when there are pleadings in an
arbitration and they are specifically referred to in the award so that it
cannot be understood without reference to them, then those pleadings are
incorporated in the award and they must be included in the consideration
whether there is any error apparent on the face of the award" and that
"if a lump sum is awarded by an arbitrator and it appears on the face of
the award or is proved by extrinsic evidence that in arriving at the lump sum
matters were taken into account which the arbitrator had no jurisdiction to
consider, the award is bad." The conten- tion of Shri Banerjee is that the
annexure to the award clearly incorporates the statement of claim made by the
contractors. Since in turn the statement of claim refers to the clauses of the
contract, the contract should also have been treated as incorporated in the
award. It is also appar- ent on the face of the award, insofar as it relates to
item (c)(xii), that the arbitrators have awarded payment at Rs.20 per cubic metres
under item 4.09(b) whereas it must obvious- ly be at Rs.2 per cubic metre.
According to the learned counsel, the decisions relied upon by him clearly show
that an award which ignores or overlooks the express terms of a contract
suffers from an error apparent on the face of the record and can be set aside
by this Court. He submitted that the award, read with the annexure, brings out
the reasoning of the arbitrators and that an error therein can be recti- fied
by the court. The arbitrators had no power to travel beyond the authority of
the contract and, in order to deter- mine whether they had exceeded their
authority, the contract can be looked into by the court. In support of this conten-
tion, the learned counsel also referred to a passage at p. 42 1 in the Law of
Arbitration by Bachawat (Second Edition).
have considered the respective contentions of the parties and we are of the
opinion that the Division Bench erred in setting aside the award insofar as it
relate to the sum of Rs.25,96,000. Though the annexure sets out the award of
the arbitrators as against various items of claims, the mere enumeration of the
heads of claims cannot be equated to an incorporation of the statement of claim
by the contrac- tors into the award. At any rate, the award does not relate the
claims to the various clauses of the contract and the mere fact that the
statement of claim refers to various items in the schedule to the contract does
not result in the contract itself being incorporated as part of the award. No
error can be found in the award unless one reads into it first the statement of
claim and then the relevant clauses of the contract. But this cannot be done
unless these docu- ments are treated as incorporated in the award. This cannot
be done. That apart even if the contract can be read into the award, we doubt
whether this case can be treated as one of an error on the face of the award.
All that the award has stated is that for the extra work involved in ramming
and rolling, the contractors were to be paid a sum of Rs.23,96,000. The award
does not mention how this amount is arrived at. There is no mention of the
quantity in respect of which this is awarded nor the rate at which the payment
has been calculated. It is, however, pointed out that con- tractors had claimed
payment at the rate of Rs.20 per cubic metres in respect of 2,15,000 cubic metres
and that, even if it is assumed that the ramming and rolling had been done in
respect of the entire volume of 2,15,000 cubic metres, the contractors could have,
on a proper construction of the contract, been awarded only a sum of
Rs.4,30,000 and nothing more. Obviously, the award is calculated at Rs.20 per
cubic metres in respect of 1,19,800 cubic metre. It is clear, says counsel for
the Union, that the volume of the item for which payment has to be made has
been cut down but the amount has been calculated at Rs.20 per cubic metre which
exceeds the amount of Rs.2 stipulated in the contract and this is erro- neous
on the face of it.
afraid that, in putting forward this contention, the respondents are really
trying to analyse the reasons of the arbitrator for making the award under this
head when no such reasons have been stated in this award. In fact, it does not
necessarily follow that the payment has been di- rected at the rate of Rs.20
per cubic metre in respect of 1, 19,800 cubic metre. Theoretically, it could
have been award- ed, in respect of the entire volume of 2, 15,000 cubic metre,
at the rate of Rs.11 and odd per cubic metre. It is, however, clear that the
payment has been granted at a rate in excess of Rs.2 per cubic metre. We shall,
however, take it that the arbitrators have awarded at the rate 649 of Rs.20 per
cubic metre in respect of this item of work for, as pointed out by Dr. Ghosh,
the Union of India had never put forward the case either before the arbitrator
or before the learned single Judge that the contractors were not entitled to
payment at the rate of Rs.20 per cubic metre as claimed and it was before the
Division Bench for the first time that a question arose that the payment for
the item should be at Rs.2 and not Rs.20 per cubic metre. Wheth- er the payment
should be made at the rate of Rs.20 per cubic metre or at Rs.2 per cubic metre
will depend upon a proper interpretation of the contract. It is argued that the
main item of work viz. excavation and distribution of the exca- vated work has
been paid for under item No. 4.09(a) and that item 4.09(b) envisages an
additional payment of Rs.2 per cubic metre if the excavated soil, instead of
being loosely distributed, is rammed and rolled by applying some pressure.
seems, prima facie, a plausible interpretation of clause 4.09(b). But we cannot
assume, in the absence of any evidence or expert knowledge, that the ramming
and rolling was not an independent, heavy or cumbersome piece of work and
merely involved a minor addition to the work under item 4.09(a). On the other
hand, in the grounds of appeal filed by the contractors it is contended:
High Court failed to appreciate that the process of ramming and rolling is a
very expensive specialised process as it has to be done layer by layer not
exceeding six inches at a time and requires watering, breaking of clods and use
of specialised road rollers, bulldozers and other equipment.
work of ramming and rolling is much more expensive than that of earth
excavation provided for in item 4.09 (a). The High Court further failed to
appreciate that in its reply to the statement of claim of the petitioner, the
not disputed that the rate applicable for ramming and rolling was Rs.20 per
cubic metre. The respondent No. 1 had only raised a dispute with regard to the
quantity of the ramming and rolling done by the petitioner. The High Court
misinterpreted the contract and erred in reducing the award for ramming and
rolling by erroneously applying the rate of Rs.2 per cubic metre." This
may be fight or wrong but this is also a plausible view. Unfortunately, this
was an aspect not urged before, or considered by, the arbitrators. There was no
evidence before the arbitrators or material adduced before the Court as to the
nature of these operations. It is difficult to say, by merely reading the terms
of contract that the 650 arbitrators have erroneously interpreted the terms of the
contract. It is not without significance that the departmen- tal officers did
not dispute the rate of the claim. Equally, the arbitrators were experienced
engineers and would not have passed, what is now said to be, an astounding
claim without thought. It is difficult to assume that all these persons have
overlooked that the contractor had already been paid at Rs.18 under item
4.09(a) especially when it is so stated on the face of the claim. This,
therefore. is not a case where tile arbitrators can be said to have ignored or
overlooked a term of the contract; on the contrary, they have acted upon a
particular interpretation of certain clauses of the contract on which two views
case certainly cannot be brought under the principle that the arbitrators have
ex facie exceeded the authority or jurisdiction conferred on them by the
Contract. At worst, what can be said is that they may have committed an error
in deciding the issue referred to them but the error is not apparent on the
face of the award even if the contract is read as part of it both because the
arbitrators have not given their reasoning and because the view taken by them
of the relevant terms of the contract cannot be said to be clearly erroneous.
In a matter on which the contract is open to two equally plausible
interpretations, it is legitimate for the arbitrators to accept' one or the
other of the available interpretations and, even if the Court may think that
the other view is preferable, the Court will not and should not interfere. This
view is too well settled to need any reference to any precedent other than Sudershan
Trading Co's case referred to earlier. That is why we think that this case does
not fall within the principle referred to by Shri Banerjee and that Dr. Ghosh is
right in his submission that the Division Bench exceeded its jurisdiction in
inter- fering with this part of the award.
now to the appeal of the Union of India, there is really no dispute about the
first contention regarding the amount on which interest is payable to the
correct computation should stand as follows in the light of our findings in the
awarded 57,47,198 by arbitrator Less: Interest element therein [item (1)]
6,76,540 Net principal amount awarded 50,70,658 651 Less:Amount deleted by
learned Single Judge 5,20,000 --------------- 45,50,650 ---------------
--------------- The contractors will be entitled to interest on this amount.
is the period with reference to which interest would be payable on the above
amount? The arbitrators had allowed interest on the amount awarded by them from
5.10.82 to 26.3.84 under item (1) and had also allowed interest from the date
of the award till the date of payment or decree, whichever is earlier. Of this,
the learned Single Judge had deleted the interest for the period 5.10.82 to
6.5.83 and what remains is the award of interest from 6.5.83 till the date of
payment. There are two disputes as to this. The first objection raised on
behalf of the Union is that the contractors will not be entitled to any
interest for the period from the date of reference to arbitration (6.5.1983)
till the date of the award (26.3.1984). On behalf of the contractors, Dr Ghosh
refutes this contention. He relies upon the decision of this Court in Executive
Jena.  1 SCC 418 and contends that, in all cases where, as in this case,
arbitrators are appointed by Court and disputes referred to them for
arbitration, pen- dente lite interest can and should be awarded by the arbi- trator.
He points out that, though initially in Seth Thawar- das' case  2 SCR 48
some doubts were raised about the competence of the arbitrator to award
interest, this Court has subsequently consistently held that an arbitrator can
do this: vide, Nachiappa v. Subramaniam,  2 SCR 209; Satinder v. Arnrao,
 3 SCR 676; Firm Madanlal v. Hukamchand Mills Ltd.,  1 SCR 105; Union v. Bungo Steel Furniture P. Ltd.,  1 SCR 324; Ashok
Construc- tion Co. Ltd. v. Union,  3
SCC 66 and State v. Saith & Skelton P. Ltd.,  3 SCR 233. After
referring to these and other cases, Chinnappa Reddy, J. in Abhaduta Jena,
(supra) summed up the position thus:
As a result of the discussion of the various cases, we see that Bengal Nagpur
Railway Co. Ltd. v. Ruttanji Ranjit, 65 IA 66; Union of India v. West Punjab
Factories,  1 SCR 580 and Union of India v. Watkins & Co., AIR 1966
SC 275 were cases of award of interest not by an arbitrator, but by the court.
It was laid down in those three cases that 652 interest could not be awarded
for the period prior to the suit in the absence of an agreement for the payment
of interest or any usage of trade having the force of law or any provision of
the substantive law entitling the plaintiff to recover interest. Interest
could-also be awarded by the court under the Interest Act if the amount claimed
was a sum certain payable at a certain time by virtue of a written instrument.
In regard to pendente lite interest, the provi- sions of the Civil Procedure
Code governed the same.
The question of award of interest by an arbitrator was considered in the
remaining cases to which we have referred earlier. Nachiappa Chettiar v. Subramaniam
Chettiar,  2 SCR 209; Satinder Singh v. Amrao Singh,  3 SCR 676;
Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd.,  1 SCR 105; Union of India v. Bungo
Steel Furniture Pvt. Ltd.,  I SCR 324; Ashok Construction Co. v. Union of India, 
3 S.C.C. 66 and State of Madhya
Pradesh v. M/s. Saith
& Skelton Pvt. Ltd.,  3 SCR 233 were all cases in which the reference
to arbitration was made by the court, of all the disputes in the suit. It was
held that the arbitrator must be assumed in those circumstances to have the
same power to award interest as the court. It was on that basis that the award
of pendente lite interest was made on the principle of Section 34 Civil
Procedure Code in Nachiappa Chettiar v. Subramaniam Mills Ltd., (supra); Firm Madanlal
Roshanlal Mahajan v. Hukumchand Mills Ltd., (supra); Union of India v. Bungo
Furniture Pvt. Ltd., (supra) and State of Madhya Pradesh v. M/s Saith &
Skelton Pvt. Ltd., (supra). In regard to interest prior to the suit, it was
held in these cases that since the Interest Act, 1839, was not applicable,
interest could be awarded if there was an agreement to pay interest or a usage
of trade having the force of law or any other provision of substantive law
entitling the claimant to recover interest. Illustrations of the provisions of
substantive law under which the arbitrator could award interest were also given
in some of the cases.
said, for instance, where an owner was deprived of his property, the right to
receive interest took the place of the right to retain possession, and the
owner of immova- ble property who lost possession of it was, therefore,
entitled to claim interest in the place of right to retain possession. It was
further said 653 that it would be so whether possession of immovable property
was taken away by private treaty or by compulsory acquisi- tion. Another
instance where interest could be awarded was under Section 61(2) of the Sale of
Goods Act which provided for the award of interest to the seller or the buyer,
as the case may be, under the circumstances specified in that section.
While this is the position in cases which arose prior to the coming into force
of the Interest Act, 1978, in cases arising after the coming into force of the
Act, the position now is that though the award of pendente lite interest is
still governed by the same principles, the award of interest prior to the suit
is now governed by the Interest Act, 1978.
the Interest Act, 1978, an arbitrator is by defini- tion, a court and may now
award interest. in all the cases to which the Interest Act applies." Sri Milon
Banerjee, appearing for the Union of India, however, contends that the above
principle is applicable only in cases where an arbitrator is appointed on interven-
tion of count as contemplated in Chapter IV of the Arbitra- tion Act. It is
only in these cases that the arbitration proceedings can be considered to be a
continuation of the court proceedings, empowering the arbitrator to do all that
the court could do. For, even in cases arising after the Interest Act, 1978,
the award of pendente lite interest can only be in terms of the provisions of
s. 34 of the Code of Civil Procedure and this cannot be invoked in cases of
arbitration except in cases falling under Chapter IV merely on the ground that
the appointment of the arbitrator is made under S. 8, 12 or 20 of the said Act.
Counsel submits that Chinnappa Reddy, J. has pointed out in Abhadhuta Jena's
case [  1 SCC at pp. 434-5] that in all cases whether arising before or
after the Interest Act, the claimants would not be entitled to interest from
the date of reference to the date of the award for the simple reason that
"the arbitrator is not a court nor were the references to arbi- tration
made in the course of suits". It is this principle that has been
reiterated in Food Corporation of India v. Surendra, Devendra & Mohendra Transport Co.,  1 SCC 547
(at pp. 554 et seq) and Gujarat Water Supply & Sewage Board v. Unique
Erectors,  1 SCC 532.
is force in the contention urged by Sri Banerjee.
are 654 passages in Abhaduta Jena which indicate that the grant of pendente lite
interest would be justified only when the reference to arbitration is made in
the course of a suit: vide, the last sentence on p. 428, the first sentence on p.
429, the emphasis added in the extracts from earlier judg- ments on pp. 430-1,
and the summings up at p. 433 and 435.
principle indicated in these passages apparently is that since a Court has,
under s. 34, of the C.P.C., power to grant pendente lite interest in a suit, an
arbitrator to whom a reference to arbitration is made in the course of the suit
would be clothed with all the powers of the Court including the one to grant
such interest. This is how this Court has also looked at the matter in a subsequent
case. In State of Rajasthan v. Sharrna & Co.,  4 SCC 353, the parties
had entered into a compromise in certain proceedings in Court agreeing that
their disputes would be settled by arbitration but the arbitrators were
appointed subsequently by the parties themselves and a reference made to them.
A Bench of this Court (of which one of us was a member) re- viewed the earlier
cases and explained the decision in Abhaduta Jena thus:
This was awarding interest pendente lite. This is in violation of the
principles enunciated by this Court in Executive Engineer (Irrigation), Balimela
v. Abhaduta Jena.
attention was drawn by Shri Soli J. Sorabjee, counsel for the respondent, to
the decision of this Court in Food Corporation of India v. M/s Surendra, Devendra
& Mohendra Transport Co., where at pages 555-556 of the report, the Court
referred to certain decisions cited by Chinnappa Reddy, J. in Executive
Engineer (Irrigation) in which he had expressed the view that those were cases
in which the refer- ences to arbitration were made by the court or in court
proceedings of the disputes in the suit. In that context it was held in those
cases that the arbitrator had power to grant interest. It was contended before
us that this was a similar case. There was a court proceeding in this case
regarding the appointment of the arbitrator and, as such, on the same analogy
it should be treated that the arbitrator had power to grant interest. We are
unable to accept this.
What Mr. Justice O. Chinnappa Reddy meant to say by the latter judgment in
Executive Engineer (Irrigation) case, referred to in Food Corporation of India
was where the disputes regarding the merit of the case were pending in the
court and such disputes instead of being decided by the 655 court, adjudication
had been referred to an arbitrator by the court, in such cases the arbitrators
deciding in the place of court, would have the same powers to grant interest pendente
lite as the courts have under Section 34 of the Civil Procedure Code. Instant
case is not such a proceeding." This principle would logically be
applicable, as rightly contended by Shri Banerjee, only to cases where the
refer- ence to arbitration arises in the course of a suit.
however, submits that, except for Nachiappa v. Subramaniam,  2 SCR 209
and Hukumchand Mills,  1 SCR 105, the other cases referred to by Chinnappa
Reddy, J. were all only cases in which an arbitrator had been appointed under
s. 8 or 20 of the Arbitration Act. The principle enunciated, he submits, was
actually a little wider than that contended for by Shri Banerjee. It is this
that where an arbitrator is appointed by the Court and a reference is made to
him, he has all the powers of the Court. He invites attention to the
observations in Hukum- chand Mills, case  1 SCR 105, reiterated (in the
context of post-award interest) in Union v. Bungo Furniture Co.,  1 SCR
324 at p. 329) that it is "an implied term of the reference that the
arbitrator will decide the dispute according to law and would give such relief
with regard to pendente lite interest as a Court could give if it decided the
dispute". He urges that Abhaduta Jena related to a batch of cases, arising
out of references made prior to, and later than, the commencement of the
Interest Act, 1978, but by the parties themselves under the terms of the
contract, without reference to court and so it was held that pendente lite
interest could not be granted. But that is not so in the present case. He says
that this decision was simply followed in State v. Construction India,  Suppl.
SCC 708, in the Food Corporation case  1 SCC 547 and in State v. Sharma
and Co.,  4 SCC 353. The Gujarat Water Supply case  ISCC 532 was,
he urges, also a similar case (see para 5) though in that case there appear to
have been some proceedings in Court earlier. In short, he virtually submits
that Abhaduta Jena and Sharma's case have unduly restricted the grant of pendente
lite interest and require reconsideration and that pendente lite interest
should be awarded in all cases where the intervention of Court is sought for
the appointment of arbitrators, directly or indirectly, at any stage.
speaking, it would only seem reasonable that the power to grant interest pendente
lite should be treated as ancillary to the award of damages or compensation
which, but for the delay in the 656 litigation (whether in Court or by way of
arbitration), the claimant should have received much earlier. However, though pendente
lite interest has been made available in Court proceedings, its extension to
arbitration law appears to have acquired some technical limitations resulting
in denial of pendente lite interest in most cases of arbitration. Even if we
accept the contention of Dr. Ghosh, pendente lite interest cannot still be
awarded by an arbitrator appointed by the parties under a private agreement for
which there may be no justification in equity. These anomalies have arisen
because formerly an arbitrator could not be treated as a Court to which the
Code of Civil Procedure applied and because now the Interest Act, 1978, while
including arbitra- tion proceedings within its ambit, has, apart from a refer- ence
to s. 34, omitted to provide specifically for pendente lite interest. This has
been clearly brought out by Chinnap- pa Reddy, J. We have earlier referred to
passages from Abhaduta Jena which outline the principle the learned Judge had
in mind for permitting pendente lite interest by an arbitrator. It is
interesting, in fact, to notice that the present contentions of Dr. Ghosh
(based on certain earlier decisions of this Court) appear to have been advanced
by him in the Food Corporation case  1 SCC 547 to support a wider
contention that pendente lite interest should be awarded even in an arbitration
by private agreement (as in that case) so long as the terms of the arbitration
agreement did not exclude the jurisdiction of the arbitrator to enter- tain
such a claim. But the Court did not accept the conten- tion and followed Abhaduta
Jena. Abhaduta Jena has been followed in later cases also and its scope has
been recently explained in Sharma's case  4 SCC 353. We may point out
that in the latter case, a specific point was raised that since the Court had
been concerned with the appointment of the arbitrator at some stage it should
be treated as a reference to arbitration by court warranting the grant of pendente
lite interest but this contention was negatived and the principle confined only
to cases where a reference to arbitration is made in the course of suits. The
position was similar in the Gujarat Water Supply case  1 SCC 532 but pendente
lite interest was denied. In view of Abhaduta Jena and the clarification
specifically set out in para 13 of Shartna's case, we are unable to accede to
the contention of Dr. Ghosh, attractive as it is an equitable proposition.
Division Bench of the High Court had no occasion to consider the above recent
pronouncements of this Court.
it is seen that, before the Division Bench, the Union took an objection that
under clause 16(2) of the general conditions of contract, the contractors could
claim no interest on the amounts that may be determined as 657 payable to them.
The Division Bench met this contention by relying on a circular issued by the
Government of India making the claim for interest entertainable in arbitration
"if notice had been issued in this behalf by the arbitrator". There
is, however, no finding and nothing on record brought to our notice to show
that any specific notice, claiming interest, had been given as contemplated by
the contract. Having regard to all these considerations, we are unable to
uphold the order of the Division Bench on this issue.
takes us to the second point urged on behalf of the Union in regard to interest. The contention is that the
learned Single Judge had restricted it to the date of the award, and that this
has become final as the contractors have preferred no appeal therefrom. The
grounds of appeal before us by the Union are confined only to the mistake in
not taking into account the sum of Rs.6,76,540 and do not raise any question
regarding post-award interest. It is, therefore, not open to Shri Banerjee to
raise this question.
apart, on merits also the contention raised that post- award interest has been
declined by the High Court is not correct. The contention overlooks the course
of pleadings between the parties. The arbitrators had, in the annexure to the
award, computed interest from 5.10.82 to 26.3.84 i.e. from the date of the
termination of the contract till the date of the award and in the award, had
granted interest on the amount awarded from the date of award till the date of
decree or payment. A point had been raised before the High Court in the memo of
objections that the arbitrators had erred in awarding interest in the manner
mentioned in the award but the objection urged by the Union before the learned
Single Judge was a different one viz. that the arbitrators ought not to have
granted interest for the period prior to the date of reference without any
agreement or right in law to claim such interest. It is this conten- tion that
was accepted by the learned Single Judge who deleted the interest award prior
to the date of the refer- ence and held that the arbitrators had jurisdiction
to award interest from the date of the reference till the date of the award.
This did not affect the arbitrator's direction in the main part of the award,
that interest will accrue on the amount of the award (if the said amount was
not paid within 60 days) till the date of payment or decree, whichever is
earlier. This part of the award was not questioned. In fact, the decree drawn
up in consequence of the order of the learned Single Judge, specifically
directs (a) interest on the awarded amount from 6.5.83 (date of reference) to
26.3.84 (date of the award ); (b) "thereafter, interest on the amount'
awarded at 11% from 27.3.84 to 11.12.84" (date of the decree); and (c)
interest thereafter at 658 9% per annum. The objection of the Union in the LPA on the question of interest was only that
the arbitrators had erred in awarding interest from 6.5.1983 to 26.3.1984. It
is this contention that was accepted by the Division Bench. The High Court had,
therefore, not decided that the contractors were not entitled to interest
beyond the date of the award. This contention of the Union, therefore, fails and is rejected.
result C.A. 1280/88 is allowed and C.A. 128 1/88 is allowed in part. There will
be no order as to costs.