of Rajasthan Vs. M/S Nav Bharat Construction Co
 Insc 196 (28
D.M. Dharmadhikari & P. K. Balasubramanyan
CA No.8053/2001, CA No.8054/2001, CA No.8055/2001 And CIVIL APPEAL NO. 1400 OF
2002 M/s Nav Bharat Construction Co. Appellant Thr. Partner State of Rajasthan Respondent Dharmadhikari J.
appeals arise out of an award dated 29.9.1997 passed by the sole Arbitrator
viz. S.S. Mathur, retired Additional Chief Engineer, Public Works Department,
on a reference of dispute concerning civil construction work awarded to the
Contractor by the State of Rajasthan. The arbitration proceedings were
regulated by provisions of the Arbitration Act, 1940 (for short 'the Act'). The
sole Arbitrator awarded a sum of Rs.6,68,058.16 with interest @ 18% per annum
from the date of the award till date of decree or payment, whichever is
State of Rajasthan under Section 30(1) of the Act
filed objections to the Award. The Contractor by application under Section 17
of the Act prayed for passing a decree in terms of the Award. The objections of
the State were rejected by the Court of the District Judge who made the Award
Rule of the Court by passing a decree in terms thereof on 5.10.1999. In the
order making award Rule of the Court and passing a decree thereon, there was
omission of not mentioning the interest payable on the amount awarded. On the
application under Section 152 of the Code of Civil Procedure (CPC) filed by the
Contractor for rectification of the decree, the court passed the order on
29.4.2000 and granted a decree of interest @ 12% p.a. on the awarded sum of Rs.
6,68,058.16 from the date of award i.e. 29.9.1997 till the date of payment.
Pursuant to the above order a modified decree for the above-mentioned amount
with 12% future interest was passed.
shall first dispose of the appeals preferred by the State against the revisional
and appellate orders of the High Court arising out of orders passed by the
civil court during proceedings of the arbitration.
Appeal No. 8052 of 2001 Civil Appeal No.8052 of 2001 arises from of an order of
the High Court passed in appeal confirming the order of the civil court dated
24.8.1992 whereby, in exercise of powers under Section 8B read with Section
41(b) of the Act, in place of the arbitrator initially appointed, new
arbitrator was substituted on the suggestions and proposals of the parties.
counsel appearing for the State of Rajasthan invited our attention to the contents of clause 23 of the Agreement on
the basis of which the arbitration proceedings were initiated. Clause 23 reads
23: Except where otherwise specified in the contract the decision of the Chief
Engineer of the Government of Rajasthan for the time being shall be final
conclusive and binding on all parties to the contract upon all questions
relating to the meaning of the specifications, decisions, drawings and
instructions here-in-before mentioned and as to the quality of workmanship or
materials used on the work or as to any other question, claim, right, matter or
thing whatsoever in any way arising out of or relating to the contract,
designs, drawings specifications, estimates, instructions, orders or these
conditions, or otherwise concerning the works, or the execution or failure to
execute the same, whether arising during the progress of the work or after the
completion or abandonment thereof, of the contract by the contractor shall be
final, conclusive and binding on the contractor." On behalf of the State,
it is argued that the aforesaid clause, making a provision for settlement of
questions relating to specification, design, quality and workmanship and other
technical aspects by the sitting Chief Engineer of the Government, has not been
held to be an arbitration clause in a series of the decisions of this Court.
Reliance is placed on Executive Engineer, REO vs. Suresh Chandra Panda (d)
through LRs. [1999 (9) SCC 92]; State of UP vs. Tipper Chand [1980 (2) SCC
341]; State of Madhya Pradesh vs. KK Shukla [2001 (10) SCC 194]; and Prabartak
Commercial Corporation Ltd. vs. Chief Administrator, Dandakaranya Project [1991
(1) SCC 498].
submission made on behalf of the State that the above- quoted clause 23 of the
Agreement is not an arbitration clause has to be accepted because exactly
similar clause was held to be not an arbitration clause in the case of Bharat Bhushan
Bansal vs. UP Small Industries Corporation Ltd [AIR 1999 SC 899].
counsel for the State then argued that both the award and the decree having
been passed on a reference under clause 23, which is not an arbitration clause,
are liable to be set aside on that short ground.
have heard the Contractor appearing in person. It is not disputed that the
sitting Chief Engineer, on reference of dispute in terms of clause 23, failed
to decide the dispute, therefore, an application under Section 8 of the Act was
made to the civil court to substitute him by an arbitrator. The record of the
proceedings before the civil court, (copies of which are before us) show that
on the application seeking substitution of the arbitrator, the Contractor and
the State through their counsel were heard.
of names for new arbitrator were taken from the parties. The court on 14.3.1995
passed a consent order appointing Shri SS Mathur, retired Additional Chief
Engineer as the sole arbitrator to adjudicate upon the disputes and decide the
claims made by the Contractor. The relevant part of the order of the civil
court made on 14.3.1995 reads:
Advocates of the concerned parties have given their consent for appointment of Shri
SS Mathur retired Additional Chief Engineer, Udaipur as Sole Arbitrator. The advocate of the applicant has no
the application of the applicant is accepted. Shri SS Mathur retired Additional
Chief Engineer, Udaipur is appointed Arbitrator for
deciding the dispute in accordance with the agreement No.75 of 77-78 executed
between the parties. The arbitrator shall pass the award after hearing the
parties in accordance with the provisions of the Act and the terms and
conditions of the agreement.
arbitrator be informed accordingly." The sole arbitrator, thus,
substituted on consent of parties conducted and concluded the arbitration
proceedings. The State participated in the arbitration proceedings without any
demur or protest.
asked the learned counsel appearing for the State whether in their objection
petition filed against the award under Section 30 of the Act, any objection on
the competence of the substituted arbitrator to make the award in terms of clause
23 was raised. The copy of the application under Section 30 of the Arbitration
Act raising objection to the award filed by the State has been made part of
record in these appeals. We have gone through the objection petition preferred
under the said Section 30 of the Act. We find that no objection was raised on
the competence of the arbitrator or the validity of the arbitration proceedings
under Clause 23 of the agreement.
23 of the Agreement is undoubtedly not an arbitration clause and the sitting
Chief engineer, to whom earlier reference was made, could not have acted as an
arbitrator and made the award. The sitting Chief Engineer to whom initial
reference was made did not complete the arbitration proceedings. The
substituted arbitrator was a retired Chief Engineer and parties agreed to his
appointment and submitted to his jurisdiction. By consent of parties, he was
chosen sole arbitrator and disputes were referred to him. The State, without
demur or protest, submitted to the jurisdiction of the arbitrator and
participated in the proceedings. The State is estopped on the doctrine of
acquiescence and waiver from raising objection to the competence of the
substituted arbitrator and validity of the arbitration proceedings by taking
recourse to clause 23 of the agreement on the basis of which initial reference
was made to sitting Chief Engineer. See following observations in the case of Prasun
Roy vs. Calcutta Metropolitan Devlopment Authority [1987 (4) SCC 217]:
principle is that a party shall not be allowed to blow hot and cold
simultaneously. Long participation and acquiescence in the proceedings preclude
such a party from contending that the proceedings were without
jurisdiction...Basically the principle of waiver and estoppel is not only applicable
where the award had been made but also where a party challenges the proceedings
in which he participated." Therefore, this appeal i.e. CA No.8052 of 2001,
preferred by the State, also deserves to be dismissed.
Appeal No. 1400 of 2002 CA 1400 of 2002 has been preferred by the Contractor
whereby its civil revision petition against the order granting 12% and not 18%
future interest on the awarded sum under his application under Section 152 CPC,
was dismissed. This court issued notice on the SLP and subsequently granted
leave to appeal on a limited question as to why the decree drawn up in
conformity with the order making award rule of the court should not direct
payment of interest pendente lite and future at the rate of 18% per annum.
During pendency of this appeal, IA No.4 of 2002 has been made by the Contractor
seeking permission to argue the appeal on the additional ground that interest
awarded by the arbitrator on pre reference period, pendente lite, and post
award should in aggregate be deemed as principal amount awarded for the purpose
of awarding future interest on the composite sum at the rate of 18% per annum.
civil court on the application of the Contractor under Section 152 CPC had
modified the decree by directing payment of interest @ 12% on the awarded
principal amount specified to be Rs. 6,68,058.16.
period for which interest has been awarded is from the date of the award
29.9.1997 till the date of payment.
Contractor who appeared in person submitted that for carrying out the work
awarded under the contract he had to raise loan and borrow money from banks and
financial institutions at the rate of interest ranging between 18% per annum to
21% per annum The arbitrator has awarded interest at the rate of 18% p.a. from
the date of award till the date of decree or payment. When the award was made
rule of the court, the civil court could not, without assigning any reason,
reduce the rate of future interest from 18% to 12% on the awarded amount of
Rs.6,68,058.16 by treating it to be the total principal sum. Reliance is placed
on the five Judges Bench decision of this Court in the case of Central Bank of India vs. Ravinndra [2002 (1) SCC 367].
submission of the contractor is that on the aggregate amount that is principal
sum plus pendente lite and future interest from date of award to the date of
decree or payment whichever is earlier, he was entitled to grant of decree by
civil court of future interest @ 21% as claimed by him and in any case @ 18% as
awarded by the arbitrator.
behalf of the State, the award of interest on the aggregate sum, that is, the
principal sum plus all interests payable, upto the date of decree or payment
has been questioned on the ground that it would amount to directing payment of
interest on amount of interest which is not permissible under section 29 of the
Act. It empowers the court to award future interest only on the 'principal sum'
excluding the interest amount.
question of rate of future interest from the date of decree to the date of
payment, Section 29 of the Act empowers the Court to order payment of interest
at such rate as the court deems reasonable to be paid on the principal sum as
adjudged by the award and confirmed by the decree. The decision in the case of
Central Bank of India vs. Ravindra (supra) was based on Section 34 of the Code
of Civil Procedure as it stood prior to and after its amendment by Act No.66 of
1956 and has no direct application to the rate of future interest payable on
the principal sum awarded by the arbitrator in the proceedings under the
Arbitration Act. The interest @ 12% awarded on the principal sum by the court
cannot be held to be so low as to treat it as unreasonable. We decline to
interfere under Article 136 of the Constitution in the rate of interest awarded
by the civil court treating it to be a reasonable rate. The appeal, preferred
by the Contractor claiming future interest at higher rate, is dismissed.
Appeal No. 8053 of 2001 Civil Revision Petition filed by the State of Rajasthan
against the order rejecting objection under Section 30 of the Act was dismissed
by the High Court by impugned order dated 21.12.2000 on the ground that
Revision was barred by limitation and there was no sufficient cause to condone
the delay under Section 5 of the Limitation Act.
have perused the impugned order whereby application seeking condonation of
delay was rejected and the Revision Petition was dismissed as barred. The cause
for the delay stated was long strike of government employees. In the
application seeking condonation of delay there was no mention as to when the
strike commenced and terminated. The application was completely vague and the
High Court committed no error in rejecting it. We find no ground to interfere
in the said order. Civil Appeal No.8053 of 2001 is, therefore, dismissed.
Appeal No. 8055 of 2001:
the order of the Civil
objection under Section 30 of the Act and making award rule of the Court, an
appeal was also filed by the State. The said appeal was also barred by time and
the cause shown for seeking condonation of delay was same that there was strike
of government employees. For the same reason on which the connected civil
revision was dismissed by the High Court, the appeal against rejection of
objection under Section 30 of the Act and passing decree in terms thereof was
also dismissed as barred by time. Since we have found no error in the order of
the High Court dismissing the revision petition as barred by time, the
dismissal of appeal as barred by limitation on the same ground also deserves to
be maintained. This appeal stands dismissed.
Appeal No. 8054 of 2001 Civil Appeal 8054 of 2001 has been preferred by the
State of Rajasthan against the order whereby the High Court has upheld the
modification of the decree passed by the civil court in terms of the award
which directs payment of future interest on the awarded amount from the date of
award till the date of payment. The High Court in dismissing the appeal against
the said order has stated that merely an accidental error or an omission in the
initial decree passed, was corrected and that too with the consent of the
parties. This appeal preferred against the order of the High Court passed on
consent of parties cannot be interfered with. It is also, accordingly,
conclusion, all the appeals preferred by the State and the appeal and the
interlocutory application preferred by the Contractor are dismissed. We direct
the parties to bear their own costs in these appeals.