International Construction Pvt. Ltd. Vs. State of U.P  INSC 783 (21
V. MANOHAR, D.P. WADHWA
Civil Appeal No 7375 of 1997 [arising out of SLP[c) No. 20055 of 1997 (cc
V. Manohar, J.
in filing S.L.P.(c) No. 20055 /97 (cc 6248) is condoned.
in both the petitions is granted.
cross appeals arise from a common judgment of the Allahabad High Court. For the
sake of convenience, the appellant, M/s. Ram Nath International Construction
in the appeal arising from S.L.P.(C) No. 4328 of 1997 is referred to as the
appellant while the State of U.P. is
referred to as the respondent.
appellant entered into an agreement with the respondent dated 17.2.1989 for the
work o lining of the Upper Ganga Canal from kilometres 189.50 to 197.00 at
Gesupur in Bulandshahr. The total amount payable to the appellant under the
agreement was Rs. 4,81,4,312. Clause 32 of the tender which related to
"Extra Items" stated, "Extra terms of work shall not vitiate the
contract. The contractor shall be bound to execute extra items of work as
directed by the Engineer Incharge. The rates of extra items are to be mutually
agreed". Clause 51 which provides for arbitration is as follows:
the disputes in respect of which the decision has not been final and conclusive
shall be referred for arbitration to a sole arbitrator appointed as follows.
arbitration shall be conducted in accordance with the provisions of the Indian
Arbitration Act, 1940 or any statutory modification thereof. The decision of
the arbitrator shall be final and binding on the parties thereto.
arbitrator shall determine the amount of costs of arbitration to be awarded to
under the contract shall continue during the arbitration proceedings and
payments due to the contractor by the owner shall not be withheld unless they
are the subject matter of the arbitration proceedings.
shall be in writing and in case of awards amounting to Rs. 100 lakhs above,
such awards shall state reasons for the amounts awarded.
party is entitled to bring a claim to arbitration if the arbitrator has not
been appointed before the expiration of thirty days after defect liability
period." Disputes arose between the appellant and the respondent in
connection with the execution of the work specified in the tender as also in
relation to payment for extra items of work. Ultimately by an Office Memorandum
dated October 4, 1992 disputes between the parties were
referred to the sole arbitration of Shri Thakur Das, Chief Engineer, Design and
Research, I.D.U.P., Lucknow. The terms of reference as recorded
in the Office Memorandum are as follows:- "as such Shri Thakur Das, Chief
Engineer, Design and Research, I.D., U.P., Lucknow is hereby appointed as
Arbitrator for the following claims as raised by the contractor vide his letter
dated 13.12.1991 against the agreement No.B2-02A-033 dated 17.2.1989 according
to para 51 of the Agreement.
Rate for extra item of earth work beyond lip cutting in reach km. 189.50 to
Bailing out of standing water.
Earth work beyond lip cutting in reach km.190.70 to km. 197.00.
Claims of idle labour due to non supply of cement." The arbitrator has
given a detailed speaking award dated 23.5.1994 under which, inter alia, in
respect of the extra item of earth work beyond lip cutting in reach km 189.50
to km.190.70. the arbitrator has awarded a sum of Rs.
The arbitrator has also awarded to the appellant interest at the rate of 18%
per annum on the total amount of claim (Rs. 1,71,11,208/-) with effect from
1.1.1991 to the date of the award and further interest at the rate of 6% per
annum of the said amount from the date of the award till the date of the decree
or payment whichever is earlier.
appellant applied for a decree in terms of the award while the respondent filed
objections. The District Judge granted decree in terms of the award. In the
appeal which was filed before the High Court, the High Court has, inter alia. disallowed
the claim for extra earth work beyond lip cutting in the reach 189.50 to 190.70
kms. on the ground that the arbitrator travelled beyond the scope of his
reference in granting the said amount. The appeal of the appellant before us
challenged this finding of the High Court. The respondent in its cross appeal
has challenged the award of interest by the arbitrator at the rate of 18% per
annum for 1.1.1991 to the date of the award.
first item of dispute relates to the work of excavating the canal section from kms.
189,50 to kms. 190.70 in addition to the earth work involved in lip cutting for
this section and lining it. According to the respondent, in the Technical
Specifications annexed to the contract, paragraph 2.09.01 stated that from kms.
190.70 to kms. 197 earth work involved is in lip cutting; and from kms. 189.5
to kms.190.7 whole of the anal section is to be excavated.
pre-bid conference which was held, the minutes of the meeting record that
departmental machines will be working from kms.190.7 to kms.197. The canal
cross section available will be irregular and the contractor will have to
excavate the remaining quantity to the dimensions shown.
kms. 189.5 and kms. 190.7 whole of the canal cross section is to be excavated
below ground level by the contractor. The respondent contends that excavating
the canal is not extra work. But the rate for this work is not specified
anywhere. Bill of Quantity, which is also annexed to the contract specified the
rates for different kinds of work which the contractor has to carry out. Item
at S.No.1 provides for payment at the rate of Rs. 19/- per cubic metre of earth
for "the earth work in lip cutting, transportation in embankment or spoil
bank including all lead lifts mechanical compaction, dressing, dewatering as
per specification". The rate for the work of excavation of the canal does
not appear to be specified. The respondent contended before the arbitrator that
payment at the rate of Rs. 19/- per cubic metre covered every kind of earth
work and not just the earth work involved in lip cutting. While according to
the appellant, this was extra work for which payment had not been specified and
had to be agreed upon.
was clearly a dispute on the issue and the reference to arbitration clearly
covers this dispute. The first item of Office Memorandum referring the dispute
to arbitration relates to rate for extra work of earth work beyond lip cutting
in the reach kms. 189.50 to Kms. 190.70. In view of the fact that this dispute
was expressly referred to arbitration, we fail to see how it can be said that
the decision on this dispute by the arbitrator is beyond the scope of the
reference. Both parties argued this question before the arbitrator. The
arbitrator has given a speaking award giving detailed reasons why he considers
this work as extra work for which payment is required to be made to the
contractor. We are not examining the correctness or otherwise of the conclusion
reached by the arbitrator. It is a matter of interpretation of the contract and
was referred by the parties to arbitration. The High Court was not right in
coming to the conclusion that this dispute was beyond the scope of the
reference to arbitration.
other dispute between the parties relates to the award by the arbitrator of
interest for the period 1.1.1991 till the date of the award. The appellant has
very fairly conceded that the arbitrator has no jurisdiction to grant any
interest for the pre-reference period. Clause 1.18 of the Technical Specifications
annexed to the contract provides as follows:
claim for interest or damage will be entertained by the Government with respect
to any money or balance which may be lying with the Government or may become
due owing to any dispute, difference or misunderstanding between the
Engineer-in-Charge on the one hand and the contractor on the other hand or with
respect to any delay on the part of the Engineer-in-Charge in making periodical
or final payment or in any other respect whatsoever." Clause 51 of the
contract which deals with arbitration provides that all the disputes or
differences in respect of which the decision has not been final shall be
referred for arbitration to a Sole arbitrator as specified therein.
Clause 1.18 of the Technical Specification nor clause 51 excludes the
jurisdiction of the arbitrator to ward interest pendente lite. As far back as
in 1992 a constitution Bench of this Court in the case of Secretary, Irrigation
Department, Government of Orissa & Ors. vs. G.C. Roy (1992 1 SCC 508),
considered an arbitrator's power to award interest pendente lite. It held that
when the terms of the arbitration agreement did not exclude the jurisdiction of
the arbitrator to entertain a claim for interest the arbitrator was competent
to award interest pendente lite. His power was analogous to the power of the
court under Section 34 of the Civil Procedure Code to award interest in order
to do complete justice between the parties. In paragraph 43 of the said
judgment, the Constitution Bench has enumerated the principles for grant of
interest pendente lite by the arbitrator. Interest pendente lite is not a
matter of substantive law like interest for the period anterior to reference
(pre-reference period). The power to award interest pendente lite has to e
inferred on the analogy of section 34 of the Civil Procedure Code for doing
complete justice between the parties. This decision has been followed in many
subsequent case. One such decision shown to us is Sudhir Brothers vs. Delhi
Development Authority & Anr. (1996 1 SCC 32), where this court observed
that the decision in G.C. Roy's case (supra) holds the field as far as interest
pendente lite is concerned. The respondent, however, relied upon a decision of
this Court in Durga Ram Parsad vs. Government of Andhra Pradesh (1995 1 SCC
418). The substantial body of the judgment deals with the power of the
arbitrator to grant interest for the pre-reference period. The judgment has
also relied upon G.C. Roy's case (supra) for interest pendente lite. However,
in the last paragraph of the judgment the Court has declined to grant interest
for the pre-reference period as also interest pendente lite.
this is because of clause 69 of the contract which is set out in paragraph 3 of
the judgment although no reasons are given in the judgment for excluding
interest pendente lite. In the present case, however, we have produced clause
1.18 on which the respondent is relying. In our view this clause does not debar
an arbitrator from granting interest during the pendency of the reference if,
in his discretion, he considers it appropriate to award it.
held by the Constitution Bench in the case of G.C. Roy (supra), the power of
the arbitrator to grant interest pendente lite is based on principles analogous
to Section 34 of the Civil Procedure Code. Such interest is granted by the
arbitrator in order to do complete justice between the parties. This is not a
matter of substantive law as is the case regarding the arbitrator's power to
grant interest for the pre-reference period. Whether interest should be awarded
pendente lite or not is a matter of discretion for the court or the arbitrator.
When parties go before an arbitrator, they expect that the disputes will be
decided had the decision been of a court of law. Hence the arbitrator can
exercise a power analogous to the power given to the courts under Section 34 of
the Civil Procedure Code.
appellant is, therefore, entitled to interest on the principal amount awarded
by the arbitrator from the date of the reference till the date of the award.
The appellant is, however, not entitled to any interest for the pre-reference
premises the appeal arising out of S.L.P. (c) No. 4328/1997 is allowed save and
except that the appellant will not be entitled to any interest on the principal
amount awarded prior to the arbitrator entering upon the reference.
appeal of the respondent is dismissed with the above modification. There will,
however, be no order as to costs.