India Vs. Saraswat Trading Agency & Ors.  INSC 1236 (16 July 2009)
IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO.
4427 OF 2009 [Arising out of SLP (C) No.3501/2007] Union of India ... Appellant
Versus Saraswat Trading Agency & Ors. ... Respondents
2 This appeal, at the instance of Union of India, arises from an
arbitration award dated September 9, 2000 made in favour of the respondent.
appellant challenged the award before the Calcutta High Court by filing an
application under section 34 of the Arbitration and Conciliation Act, 1996. A
learned Single Judge of the High Court upheld the challenge substantially and
by judgment and order dated November 20, 2001 passed in G.A.No.87/01, arising
out of AP No.325/98, sustained the award only on one issue and set it aside on
two of the three issues under reference. Against the judgment of the Single
Judge the respondent preferred an internal court appeal and the Division Bench
of the High Court by its judgment and order dated July 4, 2006 passed in G.A.No.87/01:
APOT No.792/01 with APO No.362/01 allowed the appeal, set aside the judgment of
the Single Judge and fully restored the arbitrator's award in favour of the
respondent on all the three issues in dispute. Against the judgment of the
Division Bench of the High Court the appellant has come in appeal to this
of the case are brief and simple and may be stated thus. For the work of
"handling of goods, parcels and booked luggage" at a group of six
stations falling in its Nagpur Division, the South Eastern Railway, Calcutta,
invited tenders that were opened on May 16, 1990. The tender submitted by the
respondent was the lowest. Hence, after some negotiations 3 and extension of
the validity of offer the respondent's tender was accepted on August 2, 1991
and it was given the work for a period of three years commencing from August 3,
1991. The grant of the contract was formalized in an agreement executed by the
parties on December 3, 1991. The agreement was deemed to have come into force
with effect from August 3, 1991 and it was to remain in force for a period of
three years, till August 2, 1994 unless determined by either of the parties in
terms of clause 1(1) (authorizing the appellant to determine the contract by
giving three months notice) and its proviso (giving the same right to the
contractor, after expiry of the period of one year of the contract). Clause 2
of the agreement dealt with the nature of the work the contractor was required
to do. Clause 4 of the agreement along with a detailed schedule mentioned fixed
rates for every piece of work covered by the contract. Clause 7 stated that the
contractor would not be entitled to any increase in the accepted rates of
remuneration or compensation due to fluctuations in the traffic (increase or decrease)
due to any reason. Under clause 13 the contractor indemnified the Railway
Administration against all claims that might be made under the Workmen's
Compensation Act, 1923 in consequence of any accident or injury sustained by
any labourer/servant or person in his employment and engaged in the performance
of the contract. Clause 14 bound the contractor to pay to the 4 laborers
engaged by him not less than the fair wage. It further provided that `fair
wage' would be the wage including the allowances, notified at the time of
inviting tenders for the work. Clause 15 made the contractor responsible for
compliance with the provisions of the payment of wages act, 1936, and the rules made there under in respect of the staff
employed by him. Clause 16 similarly made the contractor responsible for
compliance with the provisions of the Contract Labour (Regulation and
Abolition) Act, 1970 and the rules made there under
and required him to obtain the statutory license from the licensing authority.
Clause 18 made the contractor responsible for compliance with the provision of
the Hours of Employment Regulations in respect of the staff employed by him in
the manner decided upon by the appropriate authorities. Clause 19 stipulated
that no laborer would be unfairly treated or removed from work except for valid
reasons and further provided that the porters engaged in the handling of goods,
parcels and booked luggage under the terms of the agreement would be deemed as
employees of the contractor within the meaning of the Industrial Disputes Act,
1947 or any other enactment that might be applicable. This clause further
stated that the contractor would comply with all the laws, regulations and
rules for the benefit of labour that were in force or might come into force and
he would indemnify and keep the Railway Administration 5 indemnified against
all loss, damage, claims and costs arising in any manner whatsoever. Clause 20
reserved the right of the Railway Administration to deduct from the moneys due
to the contractor or from his security deposit any sum required or estimated to
be required for making good the loss suffered by the labour or labourers or any
other person in his employment for the reasons of non-fulfillment of the
conditions for the benefit of the labourers, non-payment of wages or deductions
made from him or their wages which were unjustified or illegal. Clause 31
stipulated that no interest or damage would be paid to the contractor for delay
in payment of the bill `for any reason whatsoever'. Clause 32 with its various
sub-clauses contained the provision for arbitration and provided that the
General Manager of the South Eastern Railway or a person appointed by him would
be the sole arbitrator in respect of any dispute as to the respective rights,
duties and obligations of the parties to the agreement or as to the
construction or interpretation of any of the terms and conditions of this
agreement or as to its applications.
come to what is at the root of the dispute between the parties.
to be noted that at the time of submission of tender by the respondent the base
fair rate of wages for the casual labour was Rs.31=15 paise as per the Circular
dated January 17, 1990. During the period of the 6 contract the Railway
authorities are said to have issued circulars/guidelines revising the rates of
casual labourers from retrospective dates. The manner in which rates were
revised by the circulars/guidelines issued by the Railway authorities is noted
in the arbitrator's award as follows:
Circular No. Circular Effect Average dated from rate of unskilled labour
P/EN/C- 17.1.90 1.7.89 Rs.31.15 RAT/1/90 P/EN/NGP/ P/EN/NGP/ 16.4.92 1.7.91
Rs.42.40 Casual Labour 90-91 P/EN/NGP 10.2.93 1.1.92 Rs.47.45 Casual
Labour/MS/92 10.2.93 1.7.92 Rs.50.50 P/EN/NGP 15.2.94 1.1.93 Rs.51.10 Casual
Labour 93 15.2.94 1.7.93 Rs.53.50 P/EN/NGP/MS 16.3.95 1.1.94 Rs.57.45 /94
1.7.94 Rs.62.0 7 On August 25, 1992, the respondent wrote a letter to the
Railway authorities demanding enhancement of rates under the contract on the
ground that the rates stated in the agreement were based on the circular dated
January 17, 1990 that had undergone a number of revisions and as a result the
contract rates had become unrealistic and unviable. The Railway authorities
rejected the respondent's demand for enhancement and/or revision of rates
taking the stand that the contract was a "fixed price contract" and
it had no clause for enhancement of rates. Faced with the authorities' refusal
to revise the contract rates the respondent terminated the contract by giving
three months notice as provided under the proviso to clause 1(1) of the
agreement. The Railway authorities accepted the termination of the contract
with effect from December 31, 1992 but in order to avoid any dislocation
requested the respondent to carry on the work on the same terms and conditions,
promising that its claim would receive due consideration. On the appellant's
request the respondent continued with the work under the contract, though under
protest, till august 1994.
time of the final settlement of the respondent's claims the Railway authorities
offered to it a sum of Rs.6,848=00 as additional payment for the period January
1993 to August 1994. The respondent 8 naturally declined to accept the paltry
amount offered by the authorities and requested for a proper consideration of
its claim as earlier promised.
the Railway authorities appointed a high level committee to consider the
respondent's claim for enhanced payment for the period January 1, 1993 to
August 31, 1994. The committee fixed the respondent's claim at Rs.3, 61,058=00
but it was not acceptable to the respondent.
departmental arbitrator was then appointed in order to resolve the disputes and
differences arising between the parties. The departmental arbitrator gave his
award on June 4, 1998. Not being satisfied with the award the respondent
challenged it by filing an application under section 34 of the Act before the
High Court. The High Court by its order dated February 12, 1999 upheld the
award on items 1 & 2 but set it aside in respect of items 3, 4 & 5 and
appointed a certain advocate, a member of the bar to decide afresh in regard to
the respondent's claim under those three items. On an application made under
section 11, the Acting Chief Justice of the High Court, by order dated July 1,
1999, substituted another advocate as arbitrator in place of the one appointed
by the Court on the application under section 34 of the Act.
three issues/claims that came up before the arbitrator appointed by the High
Court were as follows:
No.3: Claim for increase in rates from 3.8.91 to 31.12.92 during the Contractual
period being sum of Rs.10,74,408/- Claim No.4: Claim for increase in rates from
1.1.93 to 31.8.94 during the extended period being sum of Rs.14, 454,581/-
Claim No.5: Payment of 18% interest on Claim of contractor claim No.3 and 4 on
the (sic and) from 1.11.94 till the (sic)date."
arbitrator appointed vide order dated July 1, 1999 passed by the Court took up
the proceedings on August 3, 1999 and made and published his award on September
9, 2000. The award held the respondent entitled to 1 0 receive from the
appellant the sum of Rs. 32, 71,774=00 along with interest on that amount @ 18%
per annum from the date of the award till the date of payment.
appellant challenged the award by filing an application under section 34 of the
Act before the High Court on January 2, 2001. As noted above, a learned Single
Judge of the High Court substantially upheld the appellant's challenge and set
aside the award on items 1 and 3, upholding it only insofar as the respondent's
claim under item 4 was concerned. Against the judgment and order passed by the
learned Singe Judge the respondent preferred an appeal before the Division
Bench of the High Court. Here it is significant to note that the appellant did
not prefer any appeal against the judgment of the Single Judge insofar as it
upheld the arbitrator's award on item no.4. Thus before the Division Bench of
the High Court there was no challenge to the arbitrator's award in regard to
the respondent's claim for enhanced payment from January 1, 1993 to August 31,
1994, that is to say, for the period after the parties had agreed on the
cancellation of the agreement.
Division Bench of the High Court after an elaborate consideration of the matter
and after referring to a host of decisions of this Court and the Calcutta High
Court allowed the appeal, set aside the judgment and order 1 1 passed by the
learned Single Judge and restored the arbitrator's award fully on all the three
Wasim Qadri, learned counsel appearing on behalf of the appellant, submitted
that in the absence of any escalation clause in the agreement the respondent's
claim for enhanced payments for the period August 3, 1991 to December 31, 1992
during which the agreement was in force was quite unfounded and both the
arbitrator and the Division Bench of the High Court were in error in granting
the claim for that period. The submission made by Mr. Qadri is fully answered
by the decision of this Court in Tarapore & Co. vs. State of M.P., (1994) 3
SCC 521, (noticed both by the arbitrator and the Division Bench of the High
Court). In paragraph 27 of the judgment this Court observed as follows:
But then, the terms at hand did require the appellant (who is the contractor)
not to pay less than fair wages as would appear from what has been stated in
Para 2.10 and Para 1 of Annexure-B.
Explanation to latter Para states that where fair wages have not been notified
these wages would be the one "prescribed by the PWD (Irrigation
Department) for the division in which the work is done". Now these wages
were being increased from time to time as would appear from the decisions of
the wage committee referred to above;
the appellant was being required to pay wages as per these decisions, we do
read a meeting of mind insofar as the claim of escalated payment on account of
increase of fair wages is concerned.
1 2 It
has to be assumed that when the appellant was required to pay fair wages at
increased rates, the authorities did visualize that the appellant would not do
so by cutting down its profit. By asking the appellant to give tender by taking
into account the fair wages notified at the time of inviting tenders, the
authorities did give an impression that fair wages to be paid would be the one
then notified/prescribed, a 1a the explanation to para 1.
In such a
situation, if rates of fair wages were raised afterwards, the tendered sum
cannot be taken to be agreed amount for completing the contract, in the face of
the directions of the authorities requiring the appellant to pay wages at rates
higher than those prescribed or notified at the time of inviting tenders. On
this fact situation, we hold that the State had by necessary implication agreed
to reimburse this increased payment."
In a more
recent decision in Food Corporation of India vs. M/s. A. M. Ahmed & Co.
& Anr., AIR 2007 SC 829, the Court reiterated the same view and in
paragraph 32 of the judgment observed as follows:
in our view, is normal and routine incident arising out of gap of time in this
inflationary age in performing any contract of any type. In this case, the
arbitrator has found that there was escalation by way of statutory wage
revision and, therefore, he came to the conclusion that it was reasonable to
allow escalation under the claim. Once it was found that the arbitrator had
jurisdiction to find that there was delay in execution of the contract due to
the conduct of the FCI, the Corporation was liable for the consequences of the
delay, namely, increase in statutory wages. Therefore, the arbitrator, in our
opinion, had jurisdiction to go into this question.
1 3 He
has gone into that question and has awarded as he did. The Arbitrator by
awarding wage revision has not mis-conducted himself. The award was, therefore,
made rule of the High Court, rightly so in our opinion."
next questioned the grant of interest on the amounts arrived at by allowing the
respondent's claim for higher rates for the work done by it.
counsel submitted that clause 31 of the agreement expressly barred the claim of
any interest by the contractor and hence, the award was clearly unsustainable
insofar as the grant of interest was concerned.
arbitrator gave to the respondent pre-reference, pendente lite and post-award
interest on both its claims under items 3 & 4 as would be evident from the
following passages from the award:
I am allowing interest to the claimant at the rate of 16% per annum on and from
1st November, 1994 till 9th September, 2000 the date of award amounting to
Rs.15, 85,359.85 on the following basis.
calculated from 1.11.94 to 9.9.2000 as per demand notice dated 19th September,
1994 till the date of award on Rs.16, 85,234.14 being the total amount of claim
item Nos.3 and 4."
**** Therefore, I, hereby award to the claimant (1) a sum of Rs.6,05,777.34 for
the claim item No.3 (ii) a sum of Rs.10,79,456.80 for the claim Item No.4 1 4
and (iii) a sum of Rs.15,86,539.85 towards interest on Item No.3 and 4 for the
claim Item No.5. The aggregate sum of Rs.32, 71,773.99 (Rupees Thirty two lacs
seventy one thousand seven hundred seventy three and ninety nine paise only)
rounded to Rs.32, 71,774/-. I further award an interest @ 18% per annum on the
aforesaid sum till the date of payment."
thus to be seen that the arbitrator allowed interest on the amounts determined
under Items Nos.3 and 4 both for the pre-reference period and pendente lite at
the rate of 16% per annum. He further allowed interest on the consolidated
amount for the post-award period at the rate of 18% per annum till the date of
question of interest for the pre-reference period stands settled by the
Constitution Bench decision in Executive Engineer, Dhenkanal Minor The majority
judgment (3:2) in that case held in paragraph 26 as follows:
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 Jena case
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 employer any court to reopen proceedings 1 5 which have already become
final, and apply only to any pending proceedings. No costs."
added) The legal position in regard to interest for the different periods has
been summed up, with reference to the earlier decisions, in the decision in
paragraphs 38, 39 and 40 of the judgment it was observed as follows:
So far as interest for pre-reference period is concerned, in view of the
conflicting decisions of this Court, the matter was referred to a larger Bench
in Executive Engineer, Dhenkanal Minor Irrigation Division vs. N.C. Budharaj,
2001 (2) SCC 721. The Court, by majority, held that an arbitrator has power to
grant interest for pre- reference period provided there is no prohibition in
the arbitration agreement excluding his jurisdiction to grant interest. The
forum of arbitration is created by the consent of parties and is a substitute
for conventional civil court. It is, therefore, of unavoidable necessity that
the parties be deemed to have agreed by implication that the arbitrator would
have power to award interest in the same way and same manner as a court."
Regarding interest pendent lite also, there was cleavage of opinion. The
question was, therefore, referred to a larger Bench in Secy., Irrigation
Deptt., Govt. of Orissa vs. G. C. Roy, 1992 (1) SCC 508. The Court considered
several cases and laid down the following principles: (pp.532-33, para 43) 1 6
question still remains whether arbitrator has the power to award the interest
pendente lite, and if so on what principle.
reiterate that we are dealing with the situation where the agreement does not
provide for grant of such interest nor does it prohibit such grant. In other
words, we are dealing with a case where the agreement is silent as to award of
interest. On a conspectus of aforementioned decisions, the following principles
person deprived of the use of money to which he is legitimately entitled has a
right to be compensated for the deprivation, call it by any name. It may be
called interest, compensation or damages. This basic consideration is as valid
for the period the dispute is pending before the arbitrator as it is for the
period prior to the arbitrator entering upon the reference. This is the
principle of Section 34, Civil Procedure Code and there is no reason or
principle to hold otherwise in the case of arbitrator.
arbitrator is an alternative forum for resolution of disputes arising between
the parties. If so, he must have the power to decide all the disputes or
differences arising between the parties. If the arbitrator has no power to
award interest pendente lite, the party claiming it would have to approach the
court for that purpose, even though he may have obtained satisfaction in
respect of other claims from the arbitrator.
1 7 This
would lead to multiplicity of proceedings.
arbitrator is the creature of an agreement. It is open to the parties to confer
upon him such powers and prescribe such procedure for him to follow, as they
think fit, so long as they are not opposed to law. (The proviso to Section 41
and Section 3 of the Arbitration Act illustrate this point). All the same, the
agreement must be in conformity with law. The arbitrator must also act and make
his award in accordance with the general law of the land and the agreement.
the years, the English and Indian courts have acted on the assumption that
where the agreement does not prohibit and a party to the reference makes a
claim for interest, the arbitrator must have the power to award interest
has not been followed in the later decisions of this Court. It has been
explained and distinguished on the basis that in that case there was no claim
for interest but only a claim for unliquidated damages. It has been said
repeatedly that observations in the said judgment were not intended to lay down
any such absolute or universal rule as they appear to on first impression.
Until Jena case almost all the courts in the country had upheld the power of
the arbitrator to award interest pendente lite.
and certainty is a highly desirable feature of law.
1 8 (v)
Interest pendente lite is not a matter of substantive law, like interest for
the period anterior to reference (pre- reference period). For doing complete
justice between the parties, such power has always been inferred."
As to post-award interest, the point is covered by the decision of this Court
in Hindustan Construction Co. Ltd. vs. State of J & K , 1992 (4) SCC 217.
It was held there that an arbitrator is competent to award interest for the
period from the date of the award to the date of decree or date of realization,
whichever is earlier."
case in hand, the respondent's claim was in regard to two periods; one from
August 3, 1991 to December 31, 1992 when the agreement was subsisting and the
parties were bound by its terms, and the other from January 1, 1993 to August
31, 1994 when the agreement was admittedly terminated and the respondent was
carrying on the work on the request of the appellant. In our view the fact that
the first period was covered by the agreement while the second fell beyond it
is significant and on that score the two periods must receive different
of the agreement provided as follows:
No interest or damage for delay in payment - No interest or damage shall be
paid to the Contractor for delay in payment of the bill or any other amount due
to the contractor for any reason whatsoever. The Railway Administration will,
however, make every endeavour for payment of 1 9 the bills or other amount due
to the contractor within a reasonable time."
added) The Division Bench of the High Court took the view that Clause 31 of the
agreement operated as a bar only between the parties but it would not affect
the authority of the arbitrator to grant interest for the pre reference period
and pendente lite. In this connection the High Court has referred to the
decisions of this Court in Executive Engineer, Dhenkanal Minor Irrigation
Division, Orissa (supra), Executive Engineer (Irrigation) vs. Abhaduta Jena,
(1988) 1 SCC 418 (which was overruled by Executive Engineer, Dhenkanal) and
Secretary, Irrigation Department, Govt. of Orissa vs. G.C. Roy, (1992) 1 SCC
508, (which was referred to in Executive Engineer, Dhenkanal). But in Executive
Engineer, Dhenkanal it is not even remotely said that a clause in the agreement
like clause 31 (quoted above) would only act as a bar between the parties to
the agreement and would not restrict the powers of the arbitrator to allow
interest for pre-reference period and pendente lite. The High Court has then
relied upon another decision of this court in The Board of Trustees for the
Port of Calcutta vs. Engineers-De-Space-Age, AIR 1996 SC 2853. The High Court
has observed that in this case a similar clause in the agreement was held not
restrictive of the arbitrator's powers to allow interest pendente lite and for
pre reference period. We have closely 2 0 examined the decision in
Engineers-De-Space-Age and we find that the relevant clause in the agreement in
that case was completely differently worded and the view taken by the High
Court cannot be supported on the basis of that decision. In
Engineers-De-Space-Age the court was dealing with a case in regard to award of interest
for the post-reference period and clause 13(g), the relevant clause in the
agreement, was as follows:
claim for interest will be entertained by the Commissioners with respect to any
money or balance which may be in their hands owing to any dispute between
themselves and the Contractor or with respect to any delay on the part of the
Commissioners in making interim or final payment or otherwise."
context this court held that clause 13(g) of the agreement merely prohibited
the Commissioners from entertaining any claim for interest and did not affect
the arbitrator's powers to award interest.
case in hand clause 31 of the agreement is materially different.
payment of any interest or damage to the contractor for any reason whatsoever.
We are, therefore, clearly of the view that no pre-reference or pendente lite
interest was payable to the respondent on the amount under Item No.3 and the
arbitrator's award allowing pre-reference and pendente lite interest on that
amount was plainly in breach of the express term of the agreement. The order of
the High Court insofar as pre-reference and 2 1 pendente lite interest on the
amount under Item No.3 is concerned is, therefore, unsustainable.
position with regard to the claim under Item No.4 is quite different. That
relates to the period after the termination of the agreement and hence, the bar
of clause 31 would not apply to it in the same way as it would apply to Item
No.3. We, therefore, find no infirmity in grant of pre- reference and pendente
lite interest on the amount under Item No.4.
of the discussions made above, the respondent shall be entitled to interest
only on the sum of Rs.10, 79,456=80, the amount determined under Item No.4, at
the rate of 16% per annum for the period November 1, 1994 to September 9, 2000.
The final amount under the award shall be accordingly worked out. The
consolidated amount of the award after being re-calculated shall carry, as
provided in the award, interest at the rate of 18% from the date of the award
till the date of payment. In working out the amount of interest for the
post-award period, the period(s) for which the operation of the award was
stayed by the court would be excluded.
result the appeal is allowed to the limited extent indicated above. There shall
be no order as to costs.
....................................J. [Tarun Chatterjee]
...................................J. [Aftab Alam]
July 16, 2009.