Gujarat High Court
National Buildings Construction … vs U P State Bridge Corporation Ltd on 27 February, 2026
Author: Sunita Agarwal
Bench: Sunita Agarwal
NEUTRAL CITATION
C/FA/2359/2010 CAV JUDGMENT DATED: 27/02/2026
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Reserved On : 17/12/2025
Pronounced On : 27/02/2026
IN THE HIGH COURT OF GUJARAT AT AHMEDABAD
R/FIRST APPEAL NO. 2359 of 2010
With
CIVIL APPLICATION (FOR ORDERS) NO. 1 of 2025
In R/FIRST APPEAL NO. 2359 of 2010
FOR APPROVAL AND SIGNATURE:
HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE SUNITA
AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
=============================================
Approved for Reporting Yes No
✔
=============================================
NATIONAL BUILDINGS CONSTRUCTION CORPORATION
LIMITED
Versus
U P STATE BRIDGE CORPORATION LTD
=============================================
Appearance:
MR.NITIN MEHTA WITH MR.RAHUL K. PRAJAPATI FOR MR
CHETAN K PANDYA(1973) for the Appellant(s) No. 1
MR. PARAS SUKHWANI FOR MR K. G. SUKHWANI(871) for the
Defendant(s) No. 1
=============================================
CORAM:HONOURABLE THE CHIEF JUSTICE MRS. JUSTICE
SUNITA AGARWAL
and
HONOURABLE MR.JUSTICE D.N.RAY
CAV JUDGMENT
(PER : HONOURABLE THE CHIEF JUSTICE
MRS. JUSTICE SUNITA AGARWAL)
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1. For the convenience of readers, the judgment is divided
into parts as indicated in the table of contents, given
hereinbelow :-
Table of contents
Sr. Subject Page
No. Nos.
I. INTRODUCTION 2
II. FACTUAL MATRIX 3
III. APPELLANT’S CASE 11
IV. RESPONDENT’S CASE 22
V. ARBITRATOR’S AWARD 25
VI. AWARD MADE RULE OF COURT 32
VII. STATUTORY SCHEME 33
VIII. JUDICIAL PRONOUNCEMENTS 36
I. INTRODUCTION
2. This is an appeal under Section 39 (vii) of the old
Arbitration Act‘ 1940 against the judgment and decree dated
22.04.2009 passed by the Second Additional Senior Civil
Judge, Vadodara in Civil Misc. Application No.110 of 2005 and
Civil Misc.Application No.111 of 2005.
3. By means of the judgment impugned, the trial court,
while dismissing the objections filed by the appellant herein
under Sections 30 and 33 of the Arbitration Act’ 1940 seeking
for setting aside of the arbitral award, has allowed the
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application filed by the respondent herein under Section 17 of
the Arbitration Act’ 1940 and made the award rule of Court
and directed that decree in terms of the award be drawn. The
decree on the award dated 30.11.2000 had, thus, been
prepared by the Civil Court on 25.05.2009.
4. To appreciate the arguments made by the learned
counsel for the appellant challenging the order of the Civil
Court, as also the correctness or validity of the arbitral award,
certain facts of the case, in brief, are relevant to be noted at
this stage.
5. The appellant herein was awarded the contract of
Design and Construction of Bridges on the Ahmedabad –
Vadodara Expressway (Contract – III) by the State of Gujarat
vide agreement dated 18.11.1986, hereinafter referred to as
the “main contract”.
II. FACTUAL MATRIX:-
6. Some of the relevant clauses of the main contract are to be noted
hereinunder:-
“Definition
1. (1). In the Contract, as hereinafter defined, the following words
and expressions shall have the meanings hereby assigned to them,
except where the context otherwise requires:-
(a) ***
(b)***
(c)***
(d)***
(e)***
(f). Contract” means the Conditions of Contract, Specification,
Drawings, priced Bill of Quantities, Schedule of Rates and Prices, if
any. Tender, Letter of Acceptance and the contract agreement, if
completed.
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AGREEMENT AND SUB-LETTING
3. The Contractor shall not assign the Contract or any part thereof,
of any benefit or interest therein or thereunder, otherwise than by
a charge in favour of the Contractor’s bankers of any monies due
or to become due under this Contract, without the prior written
consent of the Employer.
4. The contractor shall not sub-let the whole of the works. Except
where otherwise provided by the contract, the Contractor shall not
sub-let any part of the Works without the prior written Consent of
the Engineer, which shall not be unreasonably withheld, and such
consent, if given, shall not relieve the Contractor from any liability
or obligation under the Contract and he shall be responsible for the
acts, defaults and neglects of any sub-contractor, his agents,
servants or workmen as fully as if they were the acts, defaults or
neglects of the Contractor, his agents, servants or workmen.
Provided always that the provision of labour on a piecework basis
shall not be deemed to be a sub-letting under this Clause.
10. If, for the due performance of the Contract, the Tender shall
contain an undertaking by the Contractor to obtain, when required,
a bond or guarantee of an insurance company or bank, or other
approved sureties to be jointly and severally bound with the
Contractor to the Employer. in a sum not exceeding that stated in
the Letter of Acceptance for such bond or guarantee, the said
insurance company or bank or sureties and the terms of the said
bond or guarantee shall be such as shall be approved by the
Employer. The obtaining of such bond or guarantee or the
provision of such sureties and the cost of the bond or guarantee to
be so entered into shall be at the expense in all respects of the
Contractor, unless the Contract otherwise provides.
15. The contractor shall give or provide all necessary
superintendence during the execution of the works and as long
thereafter as the Engineer may consider necessary for the proper
fulfilling of the Contractor’s obligations under the Contract. The
Contractor, or a competent and authorised agent or representative
approved of in writing by the Engineer, which approval may at any
time be withdrawn, is to be constantly on the Works and shall give
his whole time to the superintendence of the same. If such
approval shall be withdrawn by the Engineer, the Contractor shall,
as soon as is practicable, having regard to the requirement of
replacing him as hereinafter mentioned, after receiving written
notice of such withdrawal, remove the agent from the Works and
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shall not thereafter employ him again on the Works in any
capacity and shall replace him by another agent approved by the
Engineer. Such authorised agent or representative shall receive, on
behalf of the Contractor, directions and instructions from the
Engineer or, subject to the limitations of Clause 2 hereof, the
Engineer’s Representative.
NOMINATED SUB-CONTRACTORS
59. (1) “All specialists, merchants, tradesmen and others executing
any work or supplying any goods, materials or services for which
Provisional Sums are included in the Contract, who may have been
or be nominated or whom by virtue of the provisions of the
Contract the Contractor is required to sub-let any work shall, in the
execution of such work or the supply of such goods, materials or
services, be deemed to be sub-contractors employed by the
Contractor and are referred to in this Contract as “nominated Sub-
Contractors”.
(2) The Contractor shall not be required by the Employer or the
Engineer or be deemed to be under any obligation to employ any
nominated Sub-Contractor against whom the Contractor may raise
reasonable objection, or who shall decline to enter into a sub-
contract with the Contractor containing provisions:-
(a) that in respect of the work, goods, materials or services the
subject of the sub-contract, the nominated Sub-Contractor will
undertake towards the Contractor the like obligations and
liabilities as are imposed on the Contractor towards the
Employer by the terms of the Contract and will save harmless
and indemnify the Contractor from and against the same and
from all claims, proceedings, damages, costs, charges and
expenses whatsoever arising out of or in connection therewith,
or arising out of or in connection with any failure to perform
such obligations or to fulfil such liabilities, and
(b) that the nominated Sub-Contractor will save harmless and
indemnify the Contractor from and against any negligence by
the nominated Sub-Contractor, his agents, workmen and
servants and from and against any misuse by him or them of
any Constructional Plant or Temporary Works proposed by the
Contractor for the purpose of the Contract and from all claims
as aforesaid.
(3) If in connection with any Provisional Sum the services to be
provided include any matter of design or specification of any partPage 5 of 65
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of the Permanent Works or of any equipment of plant to be
incorporated therein, such requirement shall be expressly stated in
the Contract and shall be included in any nominated Sub-Contract.
The nominated Sub-Contract shall specify that the nominated Sub
Contractor providing such services will save harmless and
indemnify the Contractor from and against the same and from all
claims, proceedings, damages, costs, charges and expenses
whatsoever arising out of or in connection with any failure to
perform such obligations to fulfil such liabilities.
(4) For all work executed or goods, materials, or services supplied
by any nominated Sub-Contractor, there shall be included in the
Contract Price:
(a) the actual price paid or due to be paid by the Contractor, on
the direction of the Engineer, and in accordance with the Sub-
Contract;
(b) the sum, if any, entered in the Bill of Quantities for labour
supplied by the Contractor in connection therewith, or if
ordered by the Engineer pursuant to Clause 58 (2) (b) hereof, as
may be determined in accordance with Clause 52 hereof,
(c) in respect of all other charges and profit, a sum being a
percentage rate of the actual price paid or due to be paid
calculated, where provision has been made in the Bill of
Quantities for a rate to be set against the relevant Provisional
Sum, at the rate inserted by the Contractor against that Item or,
where no such provision has been made, at the rate inserted by
the Contractor in the Appendix to the Tender and repeated
where provision for such is made in a special item provided in
the Bill of Quantities for such purpose.
(5) Before issuing, under Clause 60 hereof, any certificate, which
includes any payment in respect of work done or goods, materials
or services supplied by any nominated Sub-Contractor, the
Engineer shall be entitled to demand from the Contractor
reasonable proof that all payments, less retentions, included in
previous certificates in respect of the work or goods, materials or
services of such nominated Sub-Contractor have been paid or
discharged by the Contractor, in default whereof unless the
Contractor shall
(a) Inform the Engineer in writing that he has reasonable cause
for withholding or refusing to make such payments and
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(b) produce to the Engineer reasonable proof that he has so
informed such nominated Sub-Contractor in writing.
the Employer shall be entitled to pay to such nominated Sub-
Contractor direct, upon the certificate of the Engineer, all
payments, less retentions, provided for in the Sub-Contract, which
the Contractor has failed to make to such nominated Sub-
Contractor and to deduct by way of set-off the amount so paid by
the Employer from any sums due or which may become due from
the Employer to the Contractor.
Provided always that, where the Engineer has certified and the
Employer has paid direct at aforesaid, the Engineer shall in issuing
any further certificate in favour of the Contractor deduct from the
amount thereof the amount so paid, direct as aforesaid, but shall
not withhold or delay the issue of the certificate itself when due to
be issued under the terms of the Contract.
(6) In the event of a nominated Sub-Contractor, as hereinbefore
defined, having undertaken towards the Contractor in respect of
the work executed, or the goods, materials or services supplied by
such nominated Sub-Contractor, any continuing obligation
extending for a period exceeding that of the Period of Maintenance
under the Contract, the Contractor shall at any time, after the
expiration of the Period of Maintenance, assign tot he Employer, at
the Employer’s request and cost, the benefit of such obligation for
the unexpired duration thereof.
REMEDIES AND POWERS
63. (1) If the Contractor shall become bankrupt, or have a
receiving order made against him, or shall present his petition in
bankruptcy, or shall make an arrangement with or assignment in
favour of his creditors, or shall agree to carry out the Contract
under a committee of inspection of his creditors or, being a
corporation, shall go into liquidation (other than a voluntary
liquidation for the purposes of amalgamation or reconstruction), or
if the Contractor shall assign the Contract, without the consent in
writing of the Employer first obtained, or shall have an execution
levied on his goods, or if the Engineer shall certify in writing to the
Employer that in his opinion the Contractor:-
(a) has abandoned the Contract, or
(b) without reasonable excuse has failed in commence the
Works or has suspended the progress of the Works for twenty-
eight days after receiving from the Engineer, written notice to
proceed, or
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(c) has failed to remove materials from the Site or to pull down
and replace work for twenty eight days after receiving from the
Engineer written notice that the said materials or work had
been condemned and rejected by the Engineer under these
conditions, or
(d) despite previous warnings by the Engineer, in writing, is not
executing the Works in accordance with the Contract, or is
persistently or flagrantly neglecting to carry out his obligations
under the Contract or
(e) has, to the detriment of good workmanship, of in defiance of
the Engineer’s instructions to the contrary, sub-let any part of
the Contract
then the Employer may, alter giving fourteen days’ notice in
writing to the Contractor, enter upon the Site and the Works
and expel the Contractor therefrom without thereby voiding the
Contract, or releasing the Contractor from any of his obligations
or liabilities under the Contract, of affecting the rights and
powers conferred on the Employer or the Engineer by the
Contract, and may himself complete the Works or may employ
any other contractor to complete the Works. The Employer or
such other contractor may use for such completion so much of
the Constructional Plans, Temporary Works and materials,
which have been deemed to be reserved exclusively for the
execution of the Works, under the provisions of the contractor,
as he or they may think proper, and the Employer may, at any
time, sell any of the said Constructional Plant, Temporary
Works and unused materials and apply the proceeds of sale in
or towards the satisfaction of any sums due or which may
become due to him from the contractor under the Contract.
(2) The Engineer shall, as soon may be practicable after any such
entry and expulsion by the Employer, fix and determine ex parte or
by or after reference to the parties, or after such investigation or
enquiries as he may think fit to make or institute, and shall certify
what amount, if any. had at the time of such entry and expulsion
been reasonably earned by or would reasonably accrue to the
Contractor in respect of work then actually done by him under the
Contract and the value of any of the said unused or partially used
materials, any Constructional Plant and any Temporary Works.
(3) If the Employer shall enter and expel the Contractor under this
Clause, he shall not be liable to pay to the Contractor any money
on account of the Contract until the expiration of the Period of
Maintenance and thereafter until the costs of execution and
maintenance, damages for delay in completion, if any, and all other
expenses incurred by the Employer have been ascertained and the
amount thereof certified by the Engineer. The Contractor shall
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then be entitled to receive only such sum or sums, if any, as the
Engineer may certify would have been payable to him upon due
completion by him after deducting the said amount. If such amount
shall exceed the sum which would have been payable to the
Contractor on due completion by him, then the Contractor shall,
upon demand, pay to the Employer the amount of such excess and
is shall be deemed a debt due by the Contractor to the Employer
and shall be recoverable accordingly.”
7. Vide another agreement dated 28.09.1989, (hereinafter
referred to as the ‘sub-contract’) the appellant namely
National Buildings Construction Corporation Ltd. (for short,
“NBCC Ltd.”) sub-contracted to entrust the responsibility of
design and execution of the bridge across river Mahi on
Ahmedabad – Vadodara Expressway, included in the main
contract No.II, to the respondent herein, namely UP State
Bridge Corporation (for short, “UPSBC). The relevant clauses
of the sub-contract executed between the parties are to be
noted hereinunder:-
“1. The work as awarded by the ‘Contractor’ to the ‘Associate’ shall
be for Design & Construction of main Bridge portion only and shall
have the same scope of work in respect of main bridge portion
(except soil exploration) with same specifications, terms and
conditions as contained in the main contract of the ‘Contractor’
with the Employer. The work of approaches, pitching of slopes,
apron, any protective work and other allied works etc. shall not be
included in the scope of work of Associate.
2. All the terms and conditions (except as described below in Para-
3 to 19) of the main contract as finally agreed to by the contractor
with employer shall form part of this Agreement and shall be
binding on the Associate.
3. The Contractor has already carried out soil investigation by
drilling bore holes at about 4.78 mtrs. of intervals and prepared
general arrangement drawing (C.A.D.) of bridge. The
superstructure can be of pre-stressed concrete beams system also.
The Associate shall be the designing the execution designs of
foundations: sub-structure and superstructure of the bridge basedPage 9 of 65
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on soil report available with the Contractor/Employer. In case the
‘Associate’ desires to change the concept of design, the same shall
be done with prior written approval of the Employer and Ministry
of Surface Transport (..G.S.T). Any extra cost incurred on soil
investigation and or otherwise as a result of such modifications
carried out on the initiative of the Associate himself, the same shall
be borne exclusively by the Associate.
The design on the basis of Ν.Ι.Ρ. parameters if required shall be
done and got approved from the competent authority by contractor
himself.
4. The Associate shall be exclusively responsible for design,
drawings, supervision of the work, adherence of of work quality as
per main contract and obtaining approval of the Employer’s
Engineer of the above. The Contractor shall only play console of a
coordinator. The Associate shall be bound to comply with the
instruction of the Employer’s Engineer in this regard.
5. The period of completion of work shall be 36 months
commencing from the day on which Mobilization Advance is
received by Associate. Liquidated damages on account of delay if
any incompletion of work due to fault on the part of Associate shall
be payable by the Associate as per main contract with the
Employer.
6. The escalation calculated on the basis of formula given in on the
main contract with Employer would be payable to the ‘Associate’
with affect from 4.4.99 up to the completion period mentioned in
clause-5 above or any extension thereof. The cost indices as on
4.4.99 shall be taken as the base of materiel such as cement, all
types of steel and H.T.S. Strand/wire bitumen for the purpose of
calculation of escalation on these items shall be the same as given
in the agreement between the contractor and the Employer.
8. The work is awarded to Associate for Lump sum price of
Rs.12.30 Crores (Rupees Twelve Crores & Thirty Lakhs) for a total
quantity of 53,500 (Fifty Three Thousand Five Hundred) cubic
meters of concrete on the specifications and provisions of the main
contract. This excludes payment due this agreement) and change
in specifications and other provisions of the main contract shall be
payable to Associate.
11. The contractor shall authorize the associate to repair bills as
per schedule given in the main contract and other claims and
obtain cheques from Gujarat P.W.D. in favour of the contractor and
deposit the same with the bankers of the contractor. The bankers
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shall be authorized to release 95% of the payment received from
Gujarat P.W.D. to Associate immediately after its credit in the
account of the contractor. The difference between the amount
already paid to the Associate and that payable as per the
associate’s bill shall be paid by the contractor within seven days
from the date of aforesaid payment.
13. The Associate shall assist the Contractor in entall the
entitlement quantities, if any.
14. The Associate shall be solely responsible for soundness of the
design and quality of work as per main contract and also for
obtaining approval/acceptance of the Employers, KOST.
15. The Associate shall deploy all construction equipment
including Bathing Plant as and when required on the work at their
own cost.
16. In case the main contractor with the Employer is terminated at
any time due to any reason, then this agreement with the Associate
shall automatically stand terminated and the Associate shall not be
entitled to any compensation on this account whatsoever except as
may be provided in the main contract.
17. The liquidated damages shall be as have been provided in the
main contract only if levied due to the default of the Associate.
18. In case the Contractor or the Associate desires that any of the
matter relating to the main contract should be referred to
arbitration as per relevant clauses of the main contract, then the
Associate will help the Contractor in preparing Documentation,
presenting the case to the Employer without any extra cost.
20. The following documents shall be deemed to form and be read
and construed as part of this agreement.
Main contract with clients in Volume – I, II, III, IV (other than
details of the contractor’s price and rates thereunder) including
Addendum and Corrigendum – 2.”
III. APPELLANT’S CASE:-
8. It is the case of the appellant that the sub-contract dated
28.09.1989, executed between the parties herein, subject
matter of arbitration, was on back-to-back basis and hence, all
the terms and conditions of the main contract were binding on
the respondent.
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9. The State of Gujarat, however, in an illegal and arbitrary
manner, terminated the main contract with the appellant on
06.09.1991. The dispute relating to the said contract between
the parties thereto had been referred to arbitration. The sub-
contract with the respondent herein being a contract on back-
to-back basis was automatically terminated on 07.09.1991.
The State of Gujarat encashed the bank guarantees of the
appellant under the main contract. The respondent fearing
that their bank guarantees would also be encashed, had
moved to the Court in September’ 1991 seeking restraint
order against the appellant restraining them from encashing
the bank guarantees. The matter travelled up to the Apex
Court and only after the dismissal of the Special leave
petition, the respondent had invoked the arbitration clause in
December’ 1995.
10. The Sole Arbitrator vide award dated 30.11.2000
awarded the sum of Rs.2,65,45,000/-in respected of claim No.
‘3’ and Rs.1,42,45,000/- as pre-suit interest thereon @ 14.50%
per annum. A further award of interest pendente lite to the
tune of Rs.1,23,00,000/- from the date of the award, i.e.
30.11.2000 till the date of payment or the date of decree,
whichever is earlier, has further been granted. The counter
claims of the appellant has, however, been rejected.
11. On an application filed by the respondent under Section
17 of the Arbitration Act’ 1940 before the Civil Court to make
the award a rule of Court, the appellant filed objection under
Sections 30 and 33 of the said Act which has been rejected
vide judgment impugned, while making the award rule of
Court.
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12. Amongst various contentions made by the learned
counsel for the appellant to assail the judgment impugned, it
was argued that the learned Arbitrator has failed to consider
the terms of the sub-contract and that the said contract being
the back-to-back contract, will automatically stand terminated
with the termination of the main contract; the learned
Arbitrator has disregarded the terms of the sub-contract,
namely:-
i. Bills under sub-contract will be finalized by the
main contractor;
ii. The funds were to be distributed by the main
contractor;
iii. Clause 20 of the sub-contract (agreement in
question) incorporated the main contract;
iv. Final settlement of the bill will take place after a
particular period of time.
v. Deficit or surplus could not be worked out;
vi. Surplus was to be paid after crystallization of the
contract.
13. Much emphasis has been laid on Clause ’16’ of the sub-
contract to argue that as per the terms and conditions therein,
the sub-contract automatically stood terminated with the
termination of the main contract by the employer, namely the
State of Gujarat and that the Associate, namely the
respondent herein was not entitled to any compensation on
account of termination of the sub-contract.
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14. The submission is that as a result of automatic
termination of the sub-contract with the respondent, the
appellant herein was entitled to encash the bank guarantees
furnished by the respondent. The learned Arbitrator has
committed jurisdictional error in holding that since the
contract between the appellant and the respondent herein
was not terminated because of any alleged defaults on the
part of the claimant and only because of the termination of the
appellant’s contract with the Gujarat Public Works
Department (State of Gujarat), the appellant cannot bind the
respondent with the terms of the agreement between the
appellant and the State of Gujarat, insofar as the encashment
of bank guarantees is concerned.
15. The contention is that the sole reason for holding against
the appellant and granting relief to the respondent – claimant
is that no notice was issued to the respondent – claimant by
the appellant informing and calling upon to show cause as to
why its bank guarantee should not be encashed. The finding
on issue No. ‘3’ that the invocation of bank guarantee by the
appellant is against the principles of natural justice cannot be
sustained.
16. It was vehemently argued by the learned counsel for the
appellant that the learned Arbitrator has implanted the
condition of issuance of notice before invocation of the bank
guarantee, which is not part of the contract nor it was even
pleaded by the claimant before the learned Arbitrator. The
learned Arbitrator has committed a jurisdictional error in
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holding that there is no linkage between the main contract
with the sub-contract and the consequence of the termination
of the main contract will have no bearing on the fate of the
termination of the sub-contract, warranting encashment of
bank guarantee by the appellant.
17. Much emphasis has been laid on Clauses ’11’ and ’20’ of
the sub-contract to assert that the main contract has been
made part of the sub-contract under which the Associate /
respondent – claimant has been authorized by the appellant –
contractor to prepare the bill as per schedule given in the
main contract and even obtained cheques from Gujarat P.W.D.
in the name of the contractor – appellant herein. 95% of the
payment received from the Gujarat P.W.D. (party to the main
contract) was to be released to Associate immediately after its
credit in the account of the contractor, whereas difference, if
any, was to be paid by the contractor.
18. Clause ’16’ of the sub-contract has been read and re-
read to vehemently contend that with the termination of the
main contract, the sub-contract with the Associate /
respondent herein was automatically terminated. The
language in Clause ’20’ has been pressed to contend that the
main contract with the details has been included as
Addendum / Corrigendum – 2 in the sub-contract.
19. The contention, thus, is that the sub-contract cannot be
treated to be as an independent agreement between the
appellant and the Associate, namely the respondent – claimant
herein and the learned Arbitrator has erred in holding that the
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automatic termination of the sub-contract would have no
bearing on the bank guarantees furnished by the respondent
under the agreement-in-question and automatic encashment
of the same by the appellant was not permissible.
20. Further, in order to justify the action of the appellant for
encashment of bank guarantees furnished by the claimant
respondent, referring to Clause ’17’ of the sub-contract, it was
submitted that the bank guarantees was encashed towards
the liquidated damages, leviable due to the default of the
respondent – claimant / Associate. It was contended that
Clause ’17’ of the sub-contract specifically provides that the
liquidated damages as provided in the main contract may be
levied due to the default of the Associate.
21. It was submitted that several communications were sent
to the respondent in the year 1991 itself by the appellant,
namely NBCC Ltd. pointing out the slow progress of the work
by the respondent – claimant. Three of such letters, part of the
paper-book, have been placed before us to submit that the
default of the respondent – claimant in carrying out the work
of construction of bridges over river Mahi, under the sub-
contract, is evident from the record.
22. Besides that, the affidavit in evidence of the witness of
the appellant, namely Mr. T. K. Sengupta, Resident Engineer
(Civil) in NBCC Ltd. attached with the unit office at Vadodara
(at page No. ‘472’ of the paperbook), has been placed before
us to submit that a categorical statement was made therein
that under the main contract dated 23.02.1987 between the
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appellant NBCC Ltd. and Gujarat PWD, the appellant NBCC
Ltd., was required to deploy sophisticated machineries like
batching plant, transit mixers, etc. on 12.02.1988, the NBCC
Ltd. (appellant) had awarded the Mahi Bridge contract to
UPSBC (respondent claimant) on 28.09.1983, wherein the
issue of deployment of above stated machineries was included
in the cost payable to UPSBC, and more particularly, the rates
of concrete given to UPSBC were higher then NBCC Ltd.’s
rates given in the main contract. The said witness had
categorically deposed in the affidavit-in-evidence that UPSBC
did not deploy the batching plant and transit mixers under the
contract and hence, the contract price was to be paid to
UPSBC at the reduced rates.
23. Placing paragraph No. ‘8’ of the affidavit-in-evidence of
the said witness, it was vehemently argued that specific stand
of the appellant before the learned Arbitrator, as deposed by
the said witness, was that UPSBC (claimant – respondent
herein) had delayed the preparation and submission of design,
drawings and the same was not submitted even uptil the
termination of the contract. Inspite of reminders from the
Government of Gujarat, the respondent UPSBC did not submit
materials like cement, steels, aggregate, etc. for testing nor
submitted the concrete mix design.
24. It was argued by the learned counsel for the appellant
that the said witness, who had demonstrated default on the
part of the claimant, had not been cross-examined on the
affidavit in evidence filed before the learned Arbitrator.
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25. The learned Arbitrator has, thus, erred in ignoring the
crucial evidence and, as such, the findings returned by it that
no reason warranting encashment of bank guarantees by the
appellant existed, is in ignorance of the evidence of the
appellant. The award is, thus, to be held patently illegal
having been rendered in ignorance of the cogent evidence
brought on record.
26. Challenging the rejection of the counter claim of the
appellant being barred by time, it was argued that the
occasion for filing the counter claim arose only on the award
being published by the Arbitral Tribunal in the dispute
between the appellant and the employer / State of Gujarat
under the main contract.
27. It was argued that the counter claim of the appellant
was on account of sum overpaid to the claimant towards the
work done by it to the tune of Rs.13,43,405.00. The appellant
had filed their counter claim on 11.11.2000, based on the
findings of the Arbitral Tribunal in the proceedings under the
main contract. The contention is that only after the liability of
the appellant was fixed by the Arbitral Tribunal under the
main contract, the factum of overpayment having been made
to the respondent came to the knowledge of the appellant and
hence, the counter claim could not have been rejected by the
learned Arbitrator simply on the ground of delay.
28. The learned Arbitrator has, thus, committed a grave
error in denying the claim of the appellant against the
respondent – claimant for the sum overpaid towards the work
done.
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29. Reliance is placed on the decision of the Apex Court in
the case of Rajasthan State Mines & Minerals Ltd. v.
Eastern Engg. Enterprises1,; State of Rajasthan v. Ferro
Concrete Construction (P) Ltd.2,; Associate Builders v.
DDA3, to substantiate the above noted arguments that the
award under challenge is to be held a non-speaking award,
based on no evidence or ignorance of material evidence, thus,
having suffered from patent illegality.
30. Reading the law laid down of the Apex Court in
Associate Builders3, it was argued that if an Arbitrator
passes an award in ignorance of material evidence and
decides the matter not in accordance with the terms of the
contract or construes the contract in unreasonable manner,
the flaws will provide ground to the Court to set aside the
Arbitral Award.
31. It was argued that under the Arbitration Act‘ 1940, it
was incumbent upon the Court to examine as to whether the
Arbitrator had acted in excess of his jurisdiction, by
disregarding the terms of reference or the arbitration
agreement or the terms of contract, which would indeed be a
jurisdictional error in rendering the award.
32. A deliberate departure or conscious disregard of the
contract would have resulted in not only manifesting the
disregarding of his authority by the Arbitrator or misconduct
on his part, but also tantamount to mala fide action. The
1 (1999) 9 SCC 283
2 (2009) 12 SCC 1
3 (2015) 3 SCC 49
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Arbitrator could not have acted arbitrarily, irrationally,
independently or capriciously of the contract even under the
old regime of Arbitration Act. In a case where the Arbitrator
acted beyond his jurisdiction, interference by the Court in
setting aside the award was permissible. [Emphasis was laid
to paragraph No. ’44’ in Rajasthan State Mines & Minerals
Ltd.1].
33. Mr.Nitin Mehta, the learned advocate appearing for the
appellant also made extensive arguments to challenge the
award on the ground of the award of interest while submitting
that the learned Arbitrator has erred in awarding pre-suit
interest (simple) @ 14.79% per annum till 31.03.2000 and
14.50% per annum thereafter, on the bank guarantee w.e.f.
01.04.2000, by relying on the Prime Lending Rates on a letter
of the Central Bank of India filed by the claimant.
34. Placing the decision of the Apex Court in the case of
Rajendra Construction Co. v. Maharashtra Housing &
Area Development Authority 4, it was vehemently argued
that though the learned Arbitrator had power to award
interest under Sections 29 and 31 of the Arbitration Act’1940,
however, the learned Arbitrator was required to apply his
mind and ought to have recorded reasons to justify his opinion
to award interest. It was submited that there are instances
where on equity, the Apex Court, even while confirming the
award rendered under the Arbitration Act‘ 1940 had reduced
the interest awarded by the learned Arbitrator.
4 (2005) 6 SCC 678
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35. The decisions in the following cases, have been placed
before us to vehemently argue that the Apex Court and the
High Courts have consistently interfered in the excessive
award of interest and modified the awards, accordingly, in the
challenges brought before them:-
i. Oriental Structural Engineers (P) Ltd. v. State of Kerala 5;
ii. Vedanta Ltd. v. Shenzhen Shandong Nuclear Power
Construction Co. Ltd.6;
iii. Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra
Reddy7;
v. Rajendra Construction Co. v. Maharashtra Housing &
Area Development Authority4;
vii. Swadeshi Construction Co. v. Executive Engineer,
DTTDC Ltd.10;
viii. Eastern Trading Company v. Kalpana Lamps &
Components Ltd.11;
ix. the decision of the Rajasthan High Court in the case of
Union of India v. M/s Maheshwari Enterprises & Anr. 12
and;
5 (2021) 6 SCC 150
6 (2019) 11 SCC 465
7 (2007) 2 SCC 720
8 2015 SCC OnLine MP 7703
9 (2002) 1 SCC 659
10 2009 SCC OnLine Del 3325
11 2007 SCC OnLine Mad 963
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x. Chief Engineer (Construction), South Central Railway v.
M.V.V. Satyanarayana13.
36. Much reliance has been placed on the decision of the
Apex Court in Oriental Structural Engineers (P) Ltd.5 to
submit that the underlying principle guiding award of interest
is that the interest payment is essentially compensatory in
nature. When the agreement is silent on the point of rate of
interest, the Tribunal’s exercise of fixing of rate should have
been guided by the principles laid down in paragraph No.
’43(i)’ of Irrigation Deptt., Govt. of Orissa v. G.C. Roy14.
37. It was submitted that in view of the law laid down by the
Apex Court, interference in the arbitral award by modification
of the rate of interest, which is highly excessive, is
permissible.
IV. RESPONDENT’S CASE:-
38. The learned counsel for the respondent submitted that
the award under challenge is not prone to interference on
merits of the claims that the appellants could not have
encashed the bank guarantee merely on the premise of
automatic termination of the sub-contract when the said
termination was not on account of any default on the part of
the claimant / respondent herein. The appellant could not
establish its case before the learned Arbitrator that the
claimant did not proceed with the work with due diligence.
13 2009 SCC OnLine AP 883
14 (1992) 1 SCC 508
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39. The learned Arbitrator has categorically recorded that
no show cause notice prior to encashment of the bank
guarantee was given to the claimant. The opinion drawn by
the learned Arbitrator on evaluation of the material on record
cannot be interfered by substituting the same on
reappreciation of the evidence on record within the limited
scope of inquiry under Section 39 of the Arbitration Act’ 1940.
40. The submission is that even under the old regime, the
scope of appeal under Section 39 of the Arbitration Act’ 1940
was limited to the inquiry into the correctness or validity of
the award, which was bereft of any evidence on record or
where the learned Arbitrator had acted mala fide in
transacting beyond the contract. In the matter of
interpretation of the contract, however, ultimate authority was
the arbitrator. Mere error of fact or law, even if committed by
the Arbitrator in reaching at his conclusion on the disputed
questions submitted for his adjudication, the Court cannot
interfere. Reliance is placed on the decision in Rajasthan
State Mines and Minerals Ltd.1 placed by the learned
counsel for the appellant in support of the said submission.
41. On the question of interest, the decision of the Apex
Court in the case of Reliance Cellulose Products Ltd. v.
ONGC Ltd.15, has been placed before us to submit that the
Apex Court has held therein that under the 1940 Act, the
Arbitrator was clothed with the power to award pre-reference
interest even before the Interest Act‘ 1978 came into force
15 (2018) 9 SCC 266
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besides pendente lite and future interest. The only constraint
on the power of the Arbitrator is in a case where the
agreement between the parties contains an express bar to the
award of pre-reference and / or pendente lite interest. Even in
such cases, the test of strict construction of such clauses is to
be applied and unless there is a clear and express bar to the
payment of interest, the interest which is compensatory in
nature and is parasitic upon a principal amount not having
paid in time can be no denial.
42. It was held therein that the clauses of the contract,
which did not refer to claims before the Arbitrators or
disputes between the parties and only bar payment of interest
cannot stand in the way of the Arbitrator awarding pre-
reference or pendente lite interest. The clauses which merely
stated that no interest will be payable upon the amounts
payable to the contractor under the contract would not be
sufficient to bar an Arbitrator from awarding pendente lite
interest under the 1940 Act.
43. Further reference has been made to the decision of the
Apex Court in the case of M/s Ferro Concrete Construction
(India) Pvt. Ltd. V. State of Rajasthan 16 and ONGC Ltd. v.
G & T Beckfield Drilling Services (P) Ltd. 17, to
substantiate the said submissions.
16 [2025] 4 S.C.R. 529
17 2025 SCC OnLine SC 1888
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V. ARBITRATOR’S AWARD:-
44. Coming to the Arbitral Award, we may note the Issue
No. ‘3’ framed by the learned Arbitrator as under:-
“ISSUE NO. 3: Whether the claimant is entitled to any relief
against its claim No. 1 on account of the encashment by the
respondent of the bank guarantee in an amount of Rs. 123 lakhs
furnished by the claimant to the respondent towards performance
guarantee, and, if so, to what extent?”
45. The findings on Issue No. ‘3’ in the award are as under:-
“04.06 I have carefully considered the rival contentions of the
parties. Rs. 123 lakhs is a lot of money. The contract between
the respondent and the claimant was not terminated because of
any alleged defaults on the part of the claimant, but because of
the termination of the respondent’s contract with Gujarat PWD.
The material on record does not indicate that any notice was
issued to the claimant by the respondent informing the claimant
that it was proposed to encash the bank guarantee furnished by
the claimant and asking it to show cause as to why its bank
guarantee should not be encashed. The action taken by the
respondent to encash the claimant’s bank guarantee without
hearing the claimant was thus against the principles of natural
justice and cannot be sustained. The respondent cannot also
bind the claimant with the terms of the arrangement arrived at
between the respondent and the state of Gujarat before the
Supreme Court as the claimant had nothing to do with the
evolution of the said arrangement.
04.07 In the hearing held on 11.11.2000, Mr. Dave, learned
counsel for the respondent, stated that the respondent is still to
receive from the state of Gujarat the amount of the performance
guarantee lodged with the PWD by the respondent and that the
claimant becomes entitled to the amount only when the Gujarat
PWD releases the amount to the respondent. I do not agree. In
this proceeding, I am required to adjudicate the disputes that
have arisen in the Mahi bridge work covered by the agreement
dated 28.09.1989 entered into between the parties. I am
required to decide whether or not the bank guarantee towards
performance guarantee lodged with the respondent by the
claimant was encashed by the respondent for good and
sufficient reasons. I am satisfied that no such reasons,Page 25 of 65
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warranting the encashment of the bank guarantee by the
respondent, existed. This matter cannot be linked with the
encashment of the respondent’s bank guarantees by the state of
Gujarat.
04.08 The respondent’s contention that the encashment of the
bank guarantee had received the approval of the Supreme
Court is also incorrect. Neither the Allahabad High Court, nor
the Supreme Court, had gone into the merits of the controversy.
In fact, the Supreme Court said in its order that “the entire
controversy is kept at large”.
04.09 I do not, therefore, see why the claimant should be made
to wait till the conclusion of the arbitration proceeding between
the respondent and the state of Gujarat for getting back the
amount of its bank guarantee in the sum of Rs. 123 lakhs from
the respondent.
04.10. For the foregoing reasons, my answer to Issue No. 3,
namely, “whether the claimant is entitled to any relief against
its claim No. 1, on account of the encashment by the respondent
of the bank guarantee in an amount of Rs. 123 lakhs furnished
by the claimant to the respondent towards performance
guarantee, and, if so, to what extent?” is in the affirmative and
in favour of the claimant. I hold that the claimant is entitled,
immediately, to be paid by the respondent the sum of Rs. 123
lakhs realised by the respondent from the claimant by
encashment of the bank guarantee for that amount lodged by
the claimant with the respondent towards performance
guarantee.”
46. The learned Arbitrator, while arriving at the said
findings, has noted the contention of the claimant that the
appellant wrote a letter dated 12.09.1991 to the claimant –
respondent herein stating that it had served a notice on
Gujarat P.W.D. on 05.09.1991 for termination of its contract
with the Gujarat P.W.D. and the claimant was free to remove
its equipment and other materials on which, no secured
advance had been claimed. The subsequent letter dated
14.09.1991 of the appellant however, stated that “Further to
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our letter….. dated 12.09.1991 we may inform you that our contract
with Gujarat PWD shall stand terminated on 21.09.1991 as per the
notice served by us under clause 69(a) of General Terms and
Conditions of the agreement with them. Accordingly our contract
with you shall also stand terminated on the same date”;
47. The only stand taken by the appellant before the learned
Arbitrator was that the appellant was still to receive from the
Gujarat P.W.D., the amount of performance bank guarantee
lodged with it by the appellant under the main contract, and
the claimant could be held entitled to the amount (encashed
by the appellant) only when the Gujarat P.W.D. releases the
bank guarantee to the appellant. The learned Arbitrator has
refuted the same by observing that the dispute cannot be
linked with the encashment of the appellant’s bank guarantee
by the State of Gujarat.
48. On the counter claim of the appellant, the findings on
Issue No. ‘6’ are as under:-
“07.01. In the written statement filed vide letter dated 12.09.1997,
the respondent had merely stated that “The respondent submits
that claimant is liable to pay large amounts towards counter-claims
to be submitted by the respondent. However, the invocation being
time-barred, the respondent submits that it will submit its counter-
claims after the honourable arbitrator gives his decision on the
preliminary objection to save avoidable time loss and expenses of
the proceedings”
07.02 In its rejoinder, the claimant pointed out that even though
the respondent had taken the plea that the claims of the claimant
are time-barred, the respondent should have preferred its counter-
claims and the respondent’s contention that it reserved its right to
submit its counter-claims after the arbitrator ruled on the issue of
limitation was not tenable in law. The claimant went on to say that
the respondent should not now be permitted to file counter-claims.
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07.03 The respondent filed its counter-claim only on 11.11.2000.
In this counter-claim, the respondent claimed a sum of Rs.
13,43,405.00 from the claimant, this amount representing the
amount that had been allegedly overpaid by the respondent to the
claimant towards work done. In the hearing held on 12.11.2000,
the claimant, argued that the counter-claim had been filed very
belatedly; that the subject work stood terminated on 21.09.1991;
that there is no acknowledgment of any kind from the claimant in
regard to the counter-claim; and that the counter-claim filed on
11.11.2000 was clearly barred by time.
07.04 The details of this counter-claim will be discussed while
dealing with Issue No. 7 infra, but I feel that the claimant’s
argument that the counter-claim is time-barred is well founded.
Even if one overlooks the fact that the counter-claim was filed only
on 11.11.2000, and assumes that it had been filed on 12.09.1997
along with the respondent’s written statement (where the
respondent had reserved its right to file counter-claims later), the
gap between the said date of 12.09.1997 and 21.09.1991, which is
the date on which the contract between the respondent and the
claimant stood terminated, is almost 6 years. The respondent’s
argument that its arbitration case with the state of Gujarat has not
concluded and the picture of actual dues could not have been
clearly known earlier has no weight, for that case is covered by a
different agreement and is between different parties. This
proceeding, which I am arbitrating, arose as a result of differences
between the claimant and respondent in regard to the agreement
entered into between them on 28.09.1989. As far as this reference
is concerned, I have to decide the case on the basis of matters
pleaded, and the material produced, before me. This award cannot
obviously wait ad infinitum till the conclusion of another case
between the respondent and another party, namely, the state of
Gujarat.
07.05 For the foregoing reasons, the answer to Issue No. 6,
namely, “Whether the respondent’s counter-claim on account of the
sum allegedly overpaid by the respondent to the claimant for work
done is barred by time?” has to be in the affirmative. Accordingly, I
hold that the respondent’s counter-claim is barred by time.”
49. The findings on the issue of interest, namely Issue No.
‘8’ are also to be extracted hereinunder:-
“09.00. Issue No.8: whether the claimant is entitled to any relief
on account of interest on any amounts found due to the claimant
from the respondent, and, if so, to what extent?
09.01 The claimant has claimed presuit, pendente lite and future
interest till the date of payment on all amounts due to it. ThePage 28 of 65
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respondent objected to award of any interest. I have held supra
against Issue No. 3 that the encashment by the respondent of the
bank guarantee in an amount of Rs. 123 lakhs from the bank
guarantee furnished by the claimant to the respondent towards
performance guarantee was unjustified and against the principles
of natural justice. I am satisfied that the claimant was thus
deprived of the use of this amount of Rs. 123 lakhs by the
respondent without good and sufficient reasons. In view thereof, I
overrule the objections of the respondent in regard to award of
interest to the claimant. The claimant is clearly entitled to interest
on this amount. The amount of Rs. 123 lakhs realized through
encashment of the bank guarantee was debited to the account of
the claimant by its bankers on 28.01.1993 and the claimant is
entitled to interest from that date. As regards the rate of interest,
the claimant has claimed interest at the rate of 21% per annum
compounded quarterly. The claimant has produced a letter from its
New Delhi bankers, Central Bank of India giving the prime lending
rates (PLR) from 1994 onwards. The present PLR is stated to be
12.50% with 4% extra on clean advances. The maximum value of
PLR shown in Exh. C-85 is 16.50%, exclusive of extras, in 1995.
The PLR is thus varying from a low of 12.50% to a high of 16.50%
exclusive of interest tax and load which is applicable as per
category of advances. The mean of these two values comes to
14.50%. Though the bank guarantee was issued by UCO Bank and
the encashed amount was debited to the claimant’s account also by
UCO Bank, I have taken into account the Central Bank of India’s
letter as a general guide for determining the rate of interest to be
allowed. C-55 shows that the amount was debited to the current
account of the claimant The claimant did not lead any evidence to
show whether the bank guarantee was financed from borrowed
funds and whether any extra “load” as referred to in Exh. C-85
became applicable. Therefore, I have decided to ignore this extra
element of load. Taking an overall view of the circumstances of this
case, I consider that award of simple interest at the mean PLR
value of 14.50% plus 2% interest tax thereon, or 14.79% per
annum will meet the ends of justice. I am given to understand that
the interest tax stands abolished with effect from 01.04.2000. So,
the interest rate applicable will be 14.50% per annum simple with
effect from 01.04.2000.
09.02 Accordingly, the answer to Issue No. 8, namely, “whether the
claimant is entitled to any relief on account of interest on any
amounts found due to the claimant from the respondent, and, if so,
to what extent?” has to be in the affirmative and the claimant is
entitled to interest on the amounts found due to it. I have awardedPage 29 of 65
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to the claimant a sum of Rs. 123 lakhs against Issue No. 3. against
Issue No. 8, 1 award to the claimant simple interest of 14.79% per
annum till 31.03.2000 and 14.50% per annum thereafter on the
said sum of Rs. 123 lakhs awarded to it against Issue No. 3.
09.03. For the presuit period, the claimant has claimed a total
amount of Rs. 2,83,76,288.00, inclusive of interest from 28.01.1993
till 27.02.1997, calculated at a rate of 21% per annum compounded
quarterly Modifying the rate of interest to 14.79% per annum
simple, presuit interest on Rs. 123 lakhs from the date the amount
of Rs. 123 lakhs was debited to the claimant’s account till the date
I entered on the reference, namely, 28.01.1993 to 27.02.1997 or
1491 days comes to Rs.74,31,184 or say Rs.74,31,000 ignoring the
‘000s.
09.04 Interest pendente lite will be in two parts. Interest pendente
lite on Rs.123 lakhs from the date I entered on the reference till
31.03.2000, till which date interest tax was applicable, or
27.02.1997 to 31.03.2000 or 1128 days @ 14.79% per annum
simple comes to Rs. 56,21,982. Interest pendente lite on Rs.123
lakhs from the date interest tax was abolished till the date of
award, namely, 31.03.2000 to 30.11.2000 or 244 days @ 14.50%
per ammun simple comes to Rs.11,92,257 totalling to Rs.
68,14,239 or say Rs. 68,14,000 ignoring the ‘000s.
09.05 The total amount of interest on Rs.123 lakhs from
28.01.1993 till the date of award, namely, 30.11.2000 thus comes
to Rs.1,42,45,423 or say Rs.1,42,45,000 ignoring the ‘000s in the
amount worked out.
09.06 The claimant will also be entitled to future interest on Rs.
123 lakhs @ 14.50% per annum simple from the date of award,
namely, 30.11.2000 till the date of payment or date of decree
whichever date is earlier.”
50. The details of sum awarded by the learned Arbitrator in
paragraph No. ‘12.01’ (in a table) and paragraph No. ‘12.02’
are as under:-
“12.01 To sum up, the positions is as depicted in Table No.1 below and at
page 22.
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Table 1: Details of sums awarded against claims and counter-claims
ISSUE NATURE OF THE ISSUE FINDING AWARD Reference to
NO. paragraph and
In favour Amount
page of
of (Rs.)
Award
1. Are claimant’s claim Nos.1 No. Para 02.11 at
and 2 barred by time? page 11
2. Is claimant’s claim No.3 Claim No.3 Para 03.01 at
barred by time? withdrawn. page 11
Issue does not
survive
3. Is claimant entitled to any Yes Claimant 1,23,00,000 Para 04.11 at
relief against claim No.1? page 14
4. Is claimant entitled to any No. Para 05.04 at
relief against claim No.2 page 16
5. Is claimant entitled to any Claim No.3 Para 06.01 at
relief against claim No.3? withdrawn. page 16
6. Is respondent’s counter claim Yes Para 07.05 at
barred by time? page 18
7. Is respondent entitled to any No Para 08.02 at
relief against it counter-claim? page 19
8. Is claimant entitled to interest? Yes Claimant Presuit: Paras 09.02,
74,31,000 09.05, 09.06
Pendente at pages 20
lite: and 21
68,14,000
Total:
1,42,45,000a
9. Is respondent entitled to No Para 10.01 at
interest? page 21
10. Costs Parties to bear Para 11.01 at
their own costs page 21Total 2,65,45,000b
a. The claimant will be entitled also to future simple interest @ 14.50% per
annum on Rs.1,23,00,000 from 30.11.2000 till the date of payment or date of
decree, whichever is earlier.
b. plus future interest as at footnote (a) above
12.02 In the result, the Claimant partly succeeds, and I do hereby
award, in the Claimant’s favour, a sum of Rs.2,65,45,000.00
(Rupees two crores sixty five laths forty five thousand only),
inclusive of interest up to the date of award, namely, 30.11.2000;
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and direct that the said amount of Rs.2,65,45,000.00 be paid by the
Respondent to the Claimant. The Claimant will also be entitled to
future simple interest at the rate of 14.50% per annum on
Rs.1,23,00,000.00 from the date of award, namely, 30.11.2000 to
the date of payment or date of decree whichever date is earlier.
The respondent falls in its counter-claim and is not entitled to any
amount against the said counter-claim.”
VI. AWARD MADE RULE OF COURT:-
51. We also find it profitable to note the findings in the
impugned judgment dated 22.04.2009, whereby the award
dated 30.11.2000 has been made rule of Court.
“11] Opponent relying upon above decisions of Hon’ble Supreme
Court and submitted that the award passed by the arbitrator on 30-
11-2000 i.e. perverse, erroneous and illegal. There are errors
apparently on face of the record and violates the terms of the
agreement. The arbitrator has made incorrect and baseless
assumption and carried out the conclusion which are biased and
against the terms of agreement. So the court cannot take
cognizance on such filing.
I gone through the original award passed by Mr. T.S. Ratnam, Sole
Arbitrator. It appears that he has passed the said award after
taking into consideration the statements of both the persons and
the documentary evidence produced by both the parties and after
hearing both the parties. Thus, looking to the said award, it does
not appear that the sole Arbitrator has misconducted himself or
committed an error of law or fact while passing the said award. So,
the decisions of the Hon’ble Supreme Court relied upon by the
opponent are not helpful to the opponent. Looking to the
authorities cited by the applicant, mere is no misconduct on the
part of arbitrator, hence the objection against the arbitration
award filed by the respondent, it appears that mostly the
respondent has contended that the arbitrator has committed an
error of fact while passing the award but the respondent has not
produced any documentary evidence for the allegations. So, the
objections taken by the opponent against the award cannot be
accepted. It is well established principle of law that the award can
be set aside only if there is an error of law apparent on the face of
record. If there is a mistake of fact, it cannot be corrected by the
Court. So, looking to the facts, the opponent failed to prove thatPage 32 of 65
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the arbitrator committed an error of law apparent on the face of
the record and therefore, all the citations cited by the opponent are
not helpful to the opponent and the award passed by the arbitrator
cannot be set aside u/S, 30 of the Arbitration Act.
[12] Thus, looking to the pleadings and submissions and
arguments by the parties and the award passed by the arbitrator, it
prima facie appears that the arbitrator has not committed any
error of law fact while passing the award. It also appears that the
arbitrator has passed an award after taking into consideration the
agreement between the parties and the documentary evidence
produced by both parties before the Arbitrator. Hence, the award
of the sole Arbitrator is required to be made rule of the Court. I,
therefore, pass the following Order.
ORDER
Civil Miscellaneous Application No. 110/05 and Civil Miscellaneous
Application No. 111/05 are hereby allowed.
The award passed by the Sole Arbitrator Mr. T.S. Ratnam is made
rule of the Court. The applicant is also entitled to get interest @
18% p.a. from the date of the decree till its realization. The
opponent is directed to pay the cost of this application to the
applicant and to bear its own cost.
Decree to be drawn in terms of award passed by the Sole
Arbitrator.”
52. At this stage, we may now refer to the statutory scheme
of the Arbitration Act‘ 1940 and the judicial pronouncements
on the scope of interference by a Court in an arbitral award
while making it Rule of Court under the scheme of the
Arbitration Act‘ 1940
VII. STATUTORY SCHEME:-
53. Sections 15, 16 and 17 conferring power on the Court to
modify, correct, permit the award or pronouncement of decree
on disposal of the objections to the arbitral award, are as
under:-
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“15. The Court may by order modify or correct an award –
(a) where it appears that a part of the award is upon a matter not
referred to arbitration and such, part can be separated from the
other part and does not affect the decision on the matter referred;
or
( b ) where the award is imperfect in form, or contains any obvious
error which can be amended without affecting such decision ; or
(c) where the award contains a clerical mistake or an error arising
from an accidental slip or omission.
16. Power to remit award .-(1) The Court may from time to time
remit the award or any matter referred to arbitration to the
arbitrators or umpire for reconsideration upon such terms as it
thinks fit-
(a) where the award has left undetermined any of the matters
referred to arbitration, or where it determines any matter not
referred to arbitration and such matter cannot be separated
without affecting the determination of the matters referred; or
(b) where the award is so indefinite as to be incapable of execution;
or
(c) where an objection to the legality of the award is apparent upon
the face of it.
(2) Where an award is remitted under sub-section (1), the Court
shall fix the time within which the arbitrator or umpire shall submit
his decision to the Court:
Provided that any time so fixed may be extended by subsequent
order of the Court.
(3) An award remitted under sub-section (1) shall become void on
the failure of the arbitrator or umpire to reconsider it and submit
his decision within the time fixed.
17. Judgment in terms of award .-Where the Court sees no cause to
remit the award or any of the matters referred to arbitration for
reconsideration or to set aside the award, the Court shall, after the
time for making an application to set aside the award has expired,
or such application having been made, after refusing it, proceed to
pronounce judgment according to the award, and upon the
judgment so pronounced a decree shall follow and no appeal shall
lie from such decree except on the ground that it is in excess of, or
not otherwise in accordance with, the award.”
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54. The ground for setting aside an arbitral award contained
in paragraph No. ’30’ are as under:-
“30. Grounds for setting aside award .-An award shall not be set
aside except on one or more of the following grounds, namely:-
(a)that an arbitrator or umpire has misconducted himself or the
proceedings;
(b)that an award has been made after the issue of an order by the
Court superseding the arbitration or after arbitration proceedings
have become invalid under section 35;
(c)that an award has been improperly procured or is otherwise
invalid.”
55. The remedy to a party to challenge the arbitral award
was provided under Section 33 of the Arbitration Act’ 1940,
which reads as under:-
“33. Arbitration agreement or award to be contested by
application. – Any party to an arbitration agreement or any person
claiming under him desiring to challenge the existence or validity
of an arbitration agreement or an award or to have the effect of
either determined shall apply to the Court and the Court shall
decide the question on affidavits:
Provided that where the Court deems it just and expedient, it may
set down the application for hearing on other evidence also, and it
may pass such orders for discovery and particulars as it may do in
a suit.”
56. Section 39 providing for remedy of appeal against the
order of the Civil Court under the Arbitration Act‘ 1940 states
that:-
“39. Appealable orders .-
(1) An appeal shall lie from the following orders passed under this
Act (and from no others) to the Court authorised by law to hearPage 35 of 65
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appeals from original decrees of the Court passing the order:-
An order-
(i)superseding an arbitration;
(ii)on an award stated in the form of a special case;
(iii)modifying or correcting an award;
(iv)filing or refusing to file an arbitration agreement;
(v)staying or refusing to stay legal proceedings where there is
an arbitration agreement;
(vi)setting aside or refusing to set aside an award:
Provided that the provisions of this section shall not apply to
any order passed by a Small Cause Court.
(2)No second appeal shall lie from an order passed in appeal under
this section, but nothing in this section shall affect or take away
any right to appeal to the Supreme Court.”
VIII. JUDICIAL PRONOUNCEMENTS:-
57. In Rajasthan State Mines and Minerals Ltd. 1, the
challenge before the Apex Court was to the order passed by
the District Judge in accepting the interim as well as final
award and passing the decree in terms thereof, on the
premise that the Arbitrator therein had travelled beyond the
scope of the contract in awarding compensation for certain
claims and thus, had committed a jurisdictional error. The
grounds for challenge to the arbitral award passed under the
Arbitration Act‘ 1940 were that the Arbitrator failed to
consider the relevant clauses of the contract and the
regulatory enactment and further had failed to apply his mind
to consider pleadings, documents and evidence. The award
was bad as the learned Sole Arbitrator failed to apply his mind
in deciding the dispute and thus, liable to be set aside being
perverse. It was contended therein that the award was a non-
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speaking award and it was not open for the Court to
speculate, where no reasons were given by the Arbitrator as
to what impelled the Arbitrator to arrive at his conclusion.
58. By ignoring the terms of the contract, the Sole Arbitrator
had travelled beyond his jurisdiction as his existence depends
upon the agreement and his function is to act witin the limit of
the said agreement. The deliberate departure from the
contract amounts not only resulted to manifest disregard of
the authority or misconduct on his part but it may tantamount
to mala fide action. It was contended that, “It is settled law that
the arbitrator is the creature of the contract between the parties
and hence if he ignores the specific terms of the contract, it would
be a question of jurisdictional error which could be corrected by
the court and for that limited purpose agreement is required to be
considered. For deciding whether the arbitrator has exceeded his
jurisdiction reference to the terms of the contract is a must…”
59. The respondent therein had contended that, “…the award
is a non-speaking one and the arbitration clause in this case
empowers the arbitrator not only to decide all disputes arising out
of the contract but also to decide all disputes in any way touching
the contract whatsoever, hence the arbitrator is not required to
confine himself only to the terms of the contract but can pass an
appropriate award so as to do justice between the parties including
awarding damages suffered by the contracting parties. Therefore,
the award cannot be said to be without or beyond jurisdiction. He
further submitted that the award passed by the arbitrator is on the
basis of the interpretation of clauses 17 and 18 and, therefore, the
award would be within his jurisdiction.”
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60. The Apex Court had noticed the decisions relied by the
learned counsels for the parties to buttress their submissions in
paragraph Nos. ’25 to 29′ and ’31 to 43′ as under:-
“25….In Jivarajbhai Ujamshi Sheth v. Chintamanrao Balaji [AIR 1965
SC 214 : (1964) 5 SCR 480] the dispute arose between the partners
of a firm on retirement of the partners which was referred to the
arbitrator. The arbitrator had passed a non-speaking award….
26….After considering the decision in Champsey Bhara and
Co. v. Jivraj Balloo Spg. and Wvg. Co. Ltd. [(1922-23) 50 IA 324 :
AIR 1923 PC 66] Shah. J, observed that:
(a) It is not open to the court to speculate, where no reasons are
given by the arbitrator, as to what impelled the arbitrator to arrive
at his conclusion.
(b) It is not open to the court to admit to probe the mental process
by which the arbitrator has reached his conclusion where it is not
disclosed by the terms of the award.
(c) The primary duty of the arbitrator under the deed of a
reference in which was incorporated the partnership agreement,
was to value the net assets of the firm and to award to the retiring
partners a share therein. In making the “valuation of the firm”, his
jurisdiction was restricted in a manner provided by para 13 of the
partnership agreement. As the arbitrator has expressly stated in
his award that in arriving at his valuation, he has included the
depreciation and appreciation of the property, the arbitrator has
travelled outside his jurisdiction and the award was on that
account liable to be set aside. This was not a case in which the
arbitrator has committed a mere error of fact or law in reaching his
conclusion on the disputed question submitted for his adjudication.
It is a case of assumption of jurisdiction not possessed by him, and
that renders the award, to the extent to which it is beyond the
arbitrator’s jurisdiction, invalid. The award must fail in its entirety
as it was not possible to sever from the valuation made by the
arbitrator, the value of the depreciation and appreciation included.
27. In a concurring judgment, Hidayatullah, J., after considering the
decision in Champsey Bhara and Co. case [(1922-23) 50 IA 324 :
AIR 1923 PC 66] observed that:
“The first point is therefore to decide what were the limits of the
arbitrator’s action as disclosed by the reference and the deed of
partnership and then to see what the arbitrator has actually done
and not what he may have stated loosely in his award. This is thePage 38 of 65
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only way in which the excess of jurisdiction can be found. If the
interpretation of the deed of partnership lies with the arbitrator,
then there is no question of sitting in appeal over his
interpretation, in view of the passage quoted above from Champsey
case [(1922-23) 50 IA 324 : AIR 1923 PC 66] , but if the parties set
limits to action by the arbitrator, then the arbitrator had to follow
the limits set for him, and the Court can find that he has exceeded
his jurisdiction on proof of such action.”
(emphasis supplied)
28. The next decision on which reliance is placed is Continental
Construction Co. Ltd. v. State of M.P. [(1988) 3 SCC 82 : (1988) 3
SCR 103] In the said case, it was contended by the contractor that
the contract could not be completed within the stipulated time
because of alleged gross delay on the part of the State in allotment
of work and discharge of its obligation under the contract. He had,
therefore, incurred unforeseen expenditure and claimed damages
to the tune of Rs 5,29,812. The matter was referred to the retired
Engineer-in-Chief, PWD, Bhopal, who partly allowed the
contractor’s claim. The award was set aside by the District Judge.
Appeal was also dismissed by the High Court and in appeal before
this Court, it was contended that the contractor was not entitled to
extra cost for material and labour in terms of the contract. This
Court held that the arbitrator misconducted himself in allowing the
claim without deciding the objection of the State that in view of the
specific clauses of the contract, the contractor was not legally
entitled to claim extra cost. The Court observed: (SCC p. 88, para
5)
“If no specific question of law is referred, the decision of the
arbitrator on that question is not final however much it may be
within his jurisdiction and indeed essential for him to decide the
question incidentally. The arbitrator is not a conciliator and cannot
ignore the law or misapply it in order to do what he thinks is just
and reasonable. The arbitrator is a tribunal selected by the parties
to decide their disputes according to law and so is bound to follow
and apply the law, and if he does not he can be set right by the
court provided his error appears on the face of the award. In this
case, the contractor having contracted, he cannot go back to the
agreement simply because it does not suit him to abide by it. The
decision of this Court in Alopi Parshad and Sons Ltd. v. Union of
India [AIR 1960 SC 588 : (1960) 2 SCR 793] may be
examined. There it was observed that a contract is not frustrated
merely because the circumstances in which the contract was made,
altered. The Contract Act does not enable a party to a contract to
ignore the express covenants thereof, and to claim payment of
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consideration for performance of the contract at rates different
from the stipulated rates, on some vague plea of equity. The
parties to an executory contract are often faced, in the course of
carrying it out, with a turn of events which they did not at all
anticipate, a wholly abnormal rise or fall in prices, a sudden
depreciation of currency, an unexpected obstacle to execution, or
the like. There is no general liberty reserved to the courts to
absolve a party from liability to perform his part of the contract
merely because on account of an uncontemplated turn of events,
the performance of the contract may become onerous.”
(emphasis supplied)
29. Thereafter, the Court distinguished the decision in Tarapore &
Co. v. Cochin Shipyard Ltd. [(1984) 2 SCC 680] In the said case,
there were no specific clauses which barred consideration of extra
claims in events of price escalation. At this stage, we would
mention that in Tarapore Co. case [(1984) 2 SCC 680] this Court
after considering the various decisions has held that a specific
question as to whether the claim of compensation made by the
contractor demurred and disputed by the respondent would be
covered within the scope, ambit and width of the arbitration clause
was specifically referred by the parties for the decision of the
arbitrator. In such cases, the award cannot be set aside on the
ground that there is an error of law on the face of the award.
Learned Senior Counsel, Mr Ashok H. Desai has heavily relied
upon this decision in support of his contention that in the present
case also, arbitration clause 74 is very widely worded. Dealing with
the arbitration clause, the Court observed
“arbitration clause so widely worded, as disputes arising out of the
contract or in relation to the contract or execution of the works,
would comprehend within its compass a claim for compensation
relating to estimates and arising out of the contract. The test is
whether it is necessary to have recourse to the contract to settle
the dispute that has arisen”.
Further, while interpreting such clause, the Court has held as
under: (SCC p. 716, para 40)
“40. We may now turn to some decisions to which our attention
was drawn. The first case we would like to refer to is A.M. Mair &
Co. v. Gordhandas Sagarmull [1950 SCC 741 : AIR 1951 SC 9 :
1950 SCR 792] . The Court was concerned with the arbitration
clause drawn up as: ‘all matters, questions, disputes, differences
and/or claims, arising out of and/or concerning, and/or in
connection and/or in consequence of, or relating to, the contract
etc.’ The question arose whether the due date under the contract
was extended within the time, earlier reserved. The arbitrator heldPage 40 of 65
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that the due date of the contract has been extended by a mutual
agreement and the respondents were held liable to pay a sum of Rs
4116 together with interest at the rates specified in the award. It
was contended that the dispute is not covered by the arbitration
clause. This Court while holding that the dispute is covered by the
arbitration clause observed that looking to the rival contentions,
such a dispute, the determination of which turns on the true
construction of the contract, would also seem to be a dispute under
or arising out of or concerning the contract. The test formulated
was that if in settling a dispute, a reference to the contract is
necessary, such a dispute would be covered by the arbitration
clause.”
31. In Sudarsan Trading Co. v. Govt. of Kerala [(1989) 2 SCC 38] this
Court posed the following questions for its decision: (SCC p. 41,
para 3)
“How should the court examine an award to find out whether it
was a speaking award or not; and if it be a non-speaking award,
how and to what extent the court could go to determine whether
there was any error apparent on the face of the award to be liable
for interference by the court. The other question that arises in this
case is, to what extent can the court examine the contract in
question though not incorporated or referred to in the award.”
32. In that case also, the arbitrator had passed non-speaking awards
but with regard to each and every claim he had separated and
passed the order either accepting or rejecting the claim or partly
accepting the claim of the contractor.
33. After referring to the various decisions including Jivarajbhai
Ujamshi Sheth case [AIR 1965 SC 214 : (1964) 5 SCR 480] the
Court observed as under: (SCC p. 55, para 30)
“This was reiterated by Justice Hidayatullah that if the parties set
limits to action by the arbitrator, then the arbitrator had to follow
the limits set for him and the court can find that he exceeded his
jurisdiction on proof of such excess. In that case the arbitrator in
working out net profits for four years took into account
depreciation of immovable property. For this reason he must be
held to have exceeded his jurisdiction and it is not a question of his
having merely interpreted the partnership agreement for himself
as to which the civil court could have had no say, unless there was
an error of law on the face of the award. Therefore, it appears to us
that there are two different and distinct grounds involved in many
of the cases. One is the error apparent on the face of the award,
and the other is that the arbitrator exceeded his jurisdiction. In the
latter case, the courts can look into the arbitration agreement butPage 41 of 65
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in the former, it cannot, unless the agreement was incorporated or
recited in the award.”
(emphasis supplied)
This Court further observed: (SCC pp. 55-56, para 31)
“31. An award may be remitted or set aside on the ground that
the arbitrator in making it, had exceeded his jurisdiction and
evidence of matters not appearing on the face of it, will be
admitted in order to establish whether the jurisdiction had been
exceeded or not, because the nature of the dispute is something
which has to be determined outside the award — whatever might
be said about it in the award or by the arbitrator. … It has to be
reiterated that an arbitrator acting beyond his jurisdiction — is a
different ground from the error apparent on the face of the award.”
34. Further, dealing with the non-speaking award and also for the
claims on the ground of escalation of price, due to various reasons
including payment of minimum rates of wages payable to various
categories of workers, this Court in Associated Engg. Co. v. Govt.
of A.P. [(1991) 4 SCC 93] referred to the contract clauses and set
aside the award by holding: (SCC p. 102, para 21)
“This conclusion is reached not by construction of the contract but
by merely looking at the contract. The umpire travelled totally
outside the permissible territory and thus exceeded his jurisdiction
in making the award under those claims. This is an error going to
the root of his jurisdiction: See Jivarajbhai Ujamshi
Sheth v. Chintamanrao Balaji [AIR 1965 SC 214 : (1964) 5 SCR
480] .”
The Court further held as under: (SCC p. 103, para 25)
“25. An arbitrator who acts in manifest disregard of the contract
acts without jurisdiction. His authority is derived from the contract
and is governed by the Arbitration Act which embodies principles
derived from a specialised branch of the law of agency (see Mustill
and Boyd’s Commercial Arbitration, 2nd Edn., p. 641). He commits
misconduct if by his award he decides matters excluded by the
agreement (see Halsbury’s Laws of England, Vol. II, 4th Edn., para
622). A deliberate departure from contract amounts to not only
manifest disregard of his authority or a misconduct on his part, but
it may tantamount to a mala fide action. A conscious disregard of
the law or the provisions of the contract from which he has derived
his authority vitiates the award.”
35. Learned counsel for the respondent relied upon the case
of Hindustan Construction Co. Ltd. v. State of J&K [(1992) 4 SCC
217] . In the said case, the Court has observed that the award was
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a non-speaking one and contained no reasoning which could be
declared to be faulty; the scope of the court’s jurisdiction in
interfering with the non-speaking award is extremely limited. While
discussing the contention, the Court quoted the decision in the
case of Sudarsan Trading Co. case [(1989) 2 SCC 38] (which we
have earlier referred) and thereafter held that the High Court had
not rested its decision on any question of the arbitrator having
exceeded his jurisdiction or travelled beyond the contract; the
Court had set aside the award on the ground of error apparent on
the face of it. The Court further held that the clauses of the
contract referred to by the High Court were not so clear or
unambiguous as to warrant an inference that the interpretation
placed on them by the arbitrators was totally unsustainable. In that
view of the matter, the Court held that it was difficult to say that
the arbitrator’s interpretation was erroneous on the face of it.
Hence, the aforesaid decision would have no bearing on the facts
and the law involved in this matter.
36. Similarly, in Managing Director, J&K Handicrafts v. Good Luck
Carpets [(1990) 4 SCC 740] dealing with the non-speaking award,
the Court negatived the contention that the agreement containing
the arbitration clause cannot be looked into even to find out as to
what was the nature of the dispute contemplated by it with regard
to which a reference to an arbitrator was contemplated, nor so,
when the award was a non-speaking one, by observing thus: (SCC
pp. 742-43, para 5)
“Firstly, the award is not a totally non-speaking one inasmuch as it
gives a resume of the incentive scheme and the agreement
between the parties as also the items of the claim made by the
respondent. Of course while fixing the amount found payable by
the appellant, no reasons are recorded. Secondly, if there is any
challenge to the award on the ground that the arbitrator had no
jurisdiction to make the award with regard to a particular item
inasmuch as it was beyond the scope of reference, the only way to
test the correctness of such a challenge is to look into the
agreement itself. In our opinion, looking into the agreement for
this limited purpose is neither tantamount to going into the
evidence produced by the parties nor into the reasons which
weighed with the arbitrator in making the award.”
37. In Tarapore & Co. v. State of M.P. [(1994) 3 SCC 521] this Court
again considered whether the arbitrator had exceeded his
jurisdiction in awarding extra payment to the contractor on
account of payment of enhanced wages to labour by the contractor
pursuant to statutory revision of minimum wages by the
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Government or increase in rates of fair wages by the Wage
Committee binding on the contractor under conditions of tender
notice. In the said case, the Court considered the distinction
between the latent and patent jurisdiction of the arbitrator in
deciding the disputes and after referring to the arbitration clause,
observed:
Any dispute relating to or arising out of or in any way connected
with the contract has to be referred to arbitration. It cannot be said
that there was patent lack of jurisdiction on the part of arbitrators
in having gone into the question of reimbursement; at the best it
could be said that arbitrators had no jurisdiction to entertain the
claim and hence a case of latent lack of jurisdiction.
38. After considering the decisions in Continental Construction
Co. [(1988) 3 SCC 82 : (1988) 3 SCR 103] and Tarapore and
Co. [(1984) 2 SCC 680] this Court held that as there was an
absence of the escalation clause, it was not a case where on the
basis of the terms of the agreement entered between the parties, it
can be held that the arbitrator had no jurisdiction to make the
award. The Court observed that it cannot be held that the
arbitrator has no jurisdiction to make the award because of lack of
a specific provision permitting the claim at hand. The Court further
observed: (SCC p. 532, para 25)
“It has to be seen whether the term of the agreement permitted
entertainment of the claim by necessary implication. It may be
stated that we do not accept the broad contention of Shri Nariman
that whatever is not excluded specifically by the contract can be
subject-matter of claim by a contractor. Such a proposition will
mock at the terms agreed upon. Parties cannot be allowed to
depart from what they had agreed. Of course, if something flows as
a necessary concomitant to what was agreed upon, courts can
assume that too as a part of the contract between the parties.”
39. After referring to the facts as found from the record, the Court
held that the award cannot be said to be beyond the jurisdiction of
the arbitrator insofar as increased payment on account of rise in
rates of fair wages was concerned. In our view, the said finding is
based on appreciation of evidence on record and the terms of the
contract. However, the Court made it clear that part of the award
which is relatable to increase in minimum wages cannot be
regarded as one within jurisdiction and observed (at SCC p. 533,
para 28) “needless to say that if an arbitrator acts beyond
jurisdiction, the same would amount to misconduct”.
40. In T.N. Electricity Board v. Bridge Tunnel Constructions [(1997) 4
SCC 121] the contractor had set up the claims raised at rates
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higher than the contracted rates and twice the rate for the work
done after the expiry of the contract period. For those claims,
dispute was raised and the matter was referred to the arbitrator.
The civil court made the award the rule of the court. The High
Court confirmed the same. In appeal, this Court set aside the
award and while discussing various contentions, observed as
under: (SCC p. 134, para 25)
“If the arbitrator decides a dispute which is beyond the scope of his
reference or beyond the subject-matter of the reference or he
makes the award disregarding the terms of reference or the
arbitration agreement or terms of the contract, it would be a
jurisdictional error beyond the scope of reference; he cannot clothe
himself to decide conclusively that dispute as it is an error of
jurisdiction which requires to be ultimately decided by the court.”
41. In New India Civil Erectors (P) Ltd. v. Oil & Natural Gas Corpn.
[(1997) 11 SCC 75] this Court again considered the contention
wherein the arbitrator has passed an award contrary to the specific
stipulation/condition contained in the agreement between the
parties. The Court observed thus: (SCC p. 79, para 9)
“It is axiomatic that the arbitrator being a creature of the
agreement, must operate within the four corners of the agreement
and cannot travel beyond it. More particularly, he cannot award
any amount which is ruled out or prohibited by the terms of the
agreement. In this case, the agreement between the parties clearly
says that in measuring the built-up area, the balcony areas should
be excluded. The arbitrators could not have acted contrary to the
said stipulation and awarded any amount to the appellant on that
account.”
42. The aforesaid judgment was considered in H.P. SEB v. R.J. Shah
and Co. [(1999) 4 SCC 214] and in para 26, the Court held as
under: (SCC p. 225)
“26. In order to determine whether the arbitrator has acted in
excess of jurisdiction what has to be seen is whether the claimant
could raise a particular dispute or claim before an arbitrator. If the
answer is in the affirmative then it is clear that the arbitrator
would have the jurisdiction to deal with such a claim. On the other
hand if the arbitration clause or a specific term in the contract or
the law does not permit or give the arbitrator the power to decide
or to adjudicate on a dispute raised by the claimant or there is a
specific bar to the raising of a particular dispute or claim then any
decision given by the arbitrator in respect thereof would clearly be
in excess of jurisdiction.”
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43. Learned Senior Counsel, Mr Ashok H. Desai relied upon the case
of P.V. Subba Naidu v. Govt. of A.P. [(1998) 9 SCC 407] In that case,
a non-speaking award was rendered by the arbitrator. The Court
held that the terms of the arbitration clause were very wide,
therefore, all the disputes which arise as a result of the contract
would be covered by the arbitration clause and that all claims were
expressly referred to the arbitrator and were raised before the
arbitrator. In that set of circumstances, by purporting to construe
the contract the Court could not take upon itself the burden of
saying that it was contrary to the contract and as such beyond
jurisdiction. Thereafter, the Court referred to the decision in Ch.
Ramalinga Reddy v. Superintending Engineer [(1999) 9 SCC 610 :
(1994) 5 Scale 67] and observed that in that case the arbitrator
was required to decide the claims referred to him having regard to
the contract. Hence, his jurisdiction was expressly limited to
decide claims under the terms of the contract but in the case which
was considered by the Court, there was no clause in the contract
which prevented the arbitrator from examining the claims put up
before the arbitrator. Considering the aforesaid aspect, in our view,
this judgment also would have no bearing in the present case, as
there are express prohibitions and stipulations in the contract for
non-payment of extra amount on any ground whatsoever. In the
present case, the rates were to remain firm, fixed and binding
irrespective of fall or rise in the cost of mining operation of the
work covered by the contract or for any other reason. The contract
was for a composite rate and it stipulated that no other or further
payment of any kind of item whatsoever was payable by the
Company to the contractor.”
61. The principles of making of an award rule of Court and
dealing with the objections to the same, are culled out in
paragraph No. ’44’ as under:-
“44. From the resume of the aforesaid decisions, it can be stated that:
(a) It is not open to the court to speculate, where no reasons are
given by the arbitrator, as to what impelled the arbitrator to arrive
at his conclusion.
(b) It is not open to the court to admit to probe the mental process
by which the arbitrator has reached his conclusion where it is not
disclosed by the terms of the award.
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(c) If the arbitrator has committed a mere error of fact or law in
reaching his conclusion on the disputed question submitted for his
adjudication then the court cannot interfere.
(d) If no specific question of law is referred, the decision of the
arbitrator on that question is not final, however much it may be
within his jurisdiction and indeed essential for him to decide the
question incidentally. In a case where a specific question of law
touching upon the jurisdiction of the arbitrator was referred for the
decision of the arbitrator by the parties, then the finding of the
arbitrator on the said question between the parties may be
binding.
(e) In a case of a non-speaking award, the jurisdiction of the court
is limited. The award can be set aside if the arbitrator acts beyond
his jurisdiction.
(f) To find out whether the arbitrator has travelled beyond his
jurisdiction, it would be necessary to consider the agreement
between the parties containing the arbitration clause. The
arbitrator acting beyond his jurisdiction is a different ground from
the error apparent on the face of the award.
(g) In order to determine whether the arbitrator has acted in
excess of his jurisdiction what has to be seen is whether the
claimant could raise a particular claim before the arbitrator. If
there is a specific term in the contract or the law which does not
permit or give the arbitrator the power to decide the dispute raised
by the claimant or there is a specific bar in the contract to the
raising of the particular claim then the award passed by the
arbitrator in respect thereof would be in excess of jurisdiction.
(h) The award made by the arbitrator disregarding the terms of the
reference or the arbitration agreement or the terms of the contract
would be a jurisdictional error which requires ultimately to be
decided by the court. He cannot award an amount which is ruled
out or prohibited by the terms of the agreement. Because of a
specific bar stipulated by the parties in the agreement, that claim
could not be raised. Even if it is raised and referred to arbitration
because of a wider arbitration clause such claim amount cannot be
awarded as the agreement is binding between the parties and the
arbitrator has to adjudicate as per the agreement. This aspect is
absolutely made clear in Continental Construction Co. Ltd. [(1988)
3 SCC 82 : (1988) 3 SCR 103] by relying upon the following
passage from Alopi Parshad v. Union of India [AIR 1960 SC 588 :
(1960) 2 SCR 793] which is to the following effect: (SCC p. 88, para
5)
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“There it was observed that a contract is not frustrated merely
because the circumstances in which the contract was made,
altered. The Contract Act does not enable a party to a contract to
ignore the express covenants thereof, and to claim payment of
consideration for performance of the contract at rates different
from the stipulated rates, on some vague plea of equity. The parties
to an executory contract are often faced, in the course of carrying
it out, with a turn of events which they did not at all anticipate, a
wholly abnormal rise or fall in prices, a sudden depreciation of
currency, an unexpected obstacle to execution, or the like. There is
no general liberty reserved to the courts to absolve a party from
liability to perform his part of the contract merely because on
account of an uncontemplated turn of events, the performance of
the contract may become onerous.”
(i) The arbitrator could not act arbitrarily, irrationally, capriciously
or independently of the contract. A deliberate departure or
conscious disregard of the contract not only manifests the
disregard of his authority or misconduct on his part but it may
tantamount to mala fide action.
(j) The arbitrator is not a conciliator and cannot ignore the law or
misapply it in order to do what he thinks just and reasonable; the
arbitrator is a tribunal selected by the parties to decide the
disputes according to law.”
62. Applying the aforesaid principles, in the facts of the said
case, it was held therein that the award passed by the
arbitrator was against the stipulations and prohibitions
contained in the contract between the parties. There was no
question of interpretation of clauses ’17’ and ’18’ of the
Contract as the language of the said clauses was absolutely
clear and unambiguous. Even the contractor had admitted in
his letter demanding such claims that the contract was signed
with the clear understanding that the rate under the contract
was firm and final and no escalation in rates except in case of
diesel would be granted. Hence, by ignoring the same, the
arbitrator had travelled beyond his jurisdiction. It amounted
to a deliberate departure from the contract. It was held
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therein that the reference to the Arbitrator was solely based
upon the agreement between the parties and the arbitrator
has stated so in his interim award that he was appointed to
adjudicate the disputes between the parties arising out of the
agreement. No specific issue was referred to the arbitrator
which would confer jurisdiction on the arbitrator to go beyond
the terms of the contract. The award passed by the Arbitrator,
hence, on the face of it, was held illegal being in excess of the
jurisdiction of the Arbitrator.
63. The next decision placed before us is Ferro Concrete
Construction (P) Ltd.2, pertaining to the regime of the
Arbitration Act‘ 1940. The principles stated therein on the
scope of Section 30 of the Act’ 1940 are as under:-
“18. Section 30 of the Act inter alia provides that an award can be set
aside on the ground that an arbitrator had misconducted himself or
the proceedings, or that the award had been improperly procured
or is otherwise invalid. An error apparent on the face of the award,
is a ground for setting aside the award under Section 30 or for
remitting the award to the arbitrator under Section 16(1)(c) of the
Act.
19. In Champsey Bhara & Co. v. Jivraj Balloo Spg. & Wvg. Co.
Ltd. [(1922-23) 50 IA 324 : AIR 1923 PC 66] the Privy Council
explained the term “an error of law on the face of the award” thus:
(IA p. 331)
“… An error in law on the face of the award means … that you can
find in the award or a document actually incorporated thereto, as
for instance, a note appended by the arbitrator stating the reasons
for his judgment, some legal proposition which is the basis of the
award and which you can then say is erroneous.”
20. It was well settled that under the Arbitration Act, 1940, an award
was not open to challenge on the ground that the arbitrator has
reached a wrong conclusion or failed to appreciate facts, as under
the law, the arbitrator is made the final arbiter of the dispute
between the parties. While considering the challenge to an award,
the court will not sit in appeal over the award nor reappreciate thePage 49 of 65
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evidence for the purpose of finding whether on the facts and
circumstances, the award in question could have been made. When
there is no allegation of moral misconduct against the arbitrator
with reference to the award, and where the arbitration has not
been superseded, there were only two grounds of attack. First was
that there was legal misconduct on the part of the arbitrator in
making the award. Second was that there was an error apparent on
the face of the award.
21. This Court explained the principles relating to interference with
awards under the 1940 Act in State of Rajasthan v. Puri
Construction Co. Ltd. [(1994) 6 SCC 485] thus: (SCC pp. 502-03,
para 31)
“31. … Similarly, an award rendered by an arbitrator is open to
challenge within the parameters of several provisions of the
Arbitration Act. Since the arbitrator is a Judge by choice of the
parties, and more often than not, a person with little or no legal
background, the adjudication of disputes by an arbitration by way
of an award can be challenged only within the limited scope of
several provisions of the Arbitration Act and the legislature in its
wisdom has limited the scope and ambit of challenge to an award
in the Arbitration Act. Over the decades, judicial decisions have
indicated the parameters of such challenge consistent with the
provisions of the Arbitration Act. By and large the courts have
disfavoured interference with arbitration award on account of
error of law and fact on the score of misappreciation and
misreading of the materials on record and have shown definite
inclination to preserve the award as far as possible. As reference to
arbitration of disputes in commercial and other transactions
involving substantial amount has increased in recent times, the
courts were impelled to have fresh look on the ambit of challenge
to an award by the arbitrator so that the award does not get
undesirable immunity. In recent times, error in law and fact in
basing an award has not been given the wide immunity as enjoyed
earlier, by expanding the import and implication of ‘legal
misconduct’ of an arbitrator so that award by the arbitrator does
not perpetrate gross miscarriage of justice and the same is not
reduced to mockery of a fair decision of the lis between the parties
to arbitration. Precisely for the aforesaid reasons, the erroneous
application of law constituting the very basis of the award and
improper and incorrect findings of fact, which without closer and
intrinsic scrutiny, are demonstrable on the face of the materials on
record, have been held, very rightly, as legal misconduct rendering
the award as invalid. It is necessary, however, to put a note of
caution that in the anxiety to render justice to the party to
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arbitration, the court should not reappraise the evidence
intrinsically with a close scrutiny for finding out that the conclusion
drawn from some facts, by the arbitrator is, according to the
understanding of the court, erroneous. Such exercise of power
which can be exercised by an appellate court with power to reverse
the finding of fact, is alien to the scope and ambit of challenge of
an award under the Arbitration Act. Where the error of finding of
facts having a bearing on the award is patent and is easily
demonstrable without the necessity of carefully weighing the
various possible viewpoints, the interference with award based on
erroneous finding of fact is permissible. Similarly, if an award is
based by applying a principle of law which is patently erroneous,
and but for such erroneous application of legal principle, the award
could not have been made, such award is liable to be set aside by
holding that there has been a legal misconduct on the part of the
arbitrator. In ultimate analysis, it is a question of delicate
balancing between the permissible limit of error of law and fact
and patently erroneous finding easily demonstrable from the
materials on record and application of principle of law forming the
basis of the award which is patently erroneous.”
64. One more decision of the Apex Court pertaining to the
issue of interference of the Court under Sections 30 and 33 of
the old Arbitration Act‘ 1940 is in the case of Ispat
Engineering & Foundry Works, B.S. City, Bokaro v. Steel
Authority of India Ltd., B. S. City, Bokaro 18. In the said
case, the challenge was to the award of the Umpire, which
evidently was a non-speaking award and had been made a
rule of Court by rejecting the objection under Sections 30 and
33 of the 1940 Act. The High Court, in appeal, had set aside
the award holding it invalid in terms of Clause (a) of Section
30 of the Act’ 1940.
65. The Apex Court has observed that Section 30 is
restrictive in its operation, inasmuch as, the use of the
expression “shall” in the· main body of the section made it
18 (2001) 6 SCC 347
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mandatory for the Court that the award of an Arbitrator shall
not be set aside except for the reasons as mentioned therein
in clauses (a) to (c) thereof. It was stated that these specific
clauses can only be taken recourse to in the matter of setting
aside of the award.
66. It was further held that the re-appraisal of evidence by
the Court is not permissible and in the event of there being
no reason in the award, the question of interference of the
Court would not arise at all, unless of course, there exists a
total perversity in the award or the judgment is based on a
wrong proposition of law. In the event, two views are possible
on the question of law, the Court would not be justified in
interfering with the award of the Arbitrator if the view taken
recourse to is a possible view.
67. The observations of Lord Dunedin in Champsey Bhara
and Company v. Jivraj Balloo Spinning and Weaving
Company Ltd.19, accepted and adopted by the Apex Court in
Union of India V. Bungo Steel Furniture Pvt. Ltd. 20, has
been noted therein, to the effect that under the scheme of the
1940 Act, the Court had no jursidiction to investigate into the
merits of the case or to examine the documentary or oral
evidence in the record for the purposes of finding out
whether or not the Arbitrator has committed an error of law.
The Court as a matter of fact, cannot substitute its own
evaluation and come to the conclusion that the Arbitrator had
acted contrary to the bargain between the parties.
19 AIR 1923 PC 66
20 AIR 1967 SC 1032
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68. It was held that the award of the Arbitrator is ordinarily
final and conclusive unless a contra intention is disclosed in
the agreement itself and the civil courts cannot exercise
apparent power over the decision of an arbitrator, right or
wrong, except in the case of error of law on the face of it or
in the event, the award itself or in a document actually
incorporated in it which is the basis of the award is found to
be on some legal proposition, which is erroneous.
69. In the facts of the said case, it was held that there was
no evidence on record that the Umpire had overstepped his
jurisdiction or had travelled beyond the agreement and, as
such, the Court ought not to have entertained the objection
and set aside the award.
70. On the aspect of award of interest, for pre-reference,
pendente lite as well as future insterest, we may note two
important five Judge Bench decisions of the Apex Court under
the 1940 Act.
71. In the Irrigation Deptt., Govt. of Orissa 14, the Apex
Court has held that where the agreement between the parties
does not prohibit grant of interest and where a party claims
interest and that dispute is referred to the arbitrator, he shall
have the power to award interest pendente lite. This is for the
reason that in such a case it must be presumed that interest
was an implied term of the agreement between the parties
and therefore when the parties refer all their disputes — or
refer the dispute as to interest as such to the arbitrator, he
shall have the power to award interest. This does not mean
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that in every case the arbitrator should necessarily award
interest pendente lite. It is a matter within his discretion to
be exercised in the light of all the facts and circumstances of
the case, keeping the ends of justice in view.
72. In another decision of five Judge Bench of Executive
Engineer, Dhenkanal Minor Irrigation Division v. N.C.
Budharaj21, by majority of three judges, it was held that as
long as there is nothing in the arbitration agreement to
exclude the jurisdiction of the arbitrator to entertain a claim
for interest on the amounts due under the contract, or any
prohibition to claim interest on the amounts due and become
payable under the contract, the Arbitrator under the 1940
Act was clothed with the power to award interest in respect
of all periods, subject only to Section 29 of the Act’ 1940,
whereunder the Court is empowered to award interest. The
power to award interest for the pre-reference period when
such interest becomes payable and has to be awarded as an
accessory or incidental to the sum awarded as due and
payable, taking into account the deprivation of the use of
such sum to the person lawfully entitled to the same, was to
be held as justified.
73. It was, thus, held that the Arbitrator appointed with or
without the intervenetion 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.
21 (2001) 2 SCC 721
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74. In a recent decision in Reliance Cellulose Products
Ltd.15, the Apex Court, after considering the long line of
decisions beginning from the aforementioned five Judges
Bench in 1992, uptil 2017 in Ambica Construction v. Union
of India22, has held that:-
“24. A conspectus of the decisions that have been referred to above
would show that under the 1940 Act, an arbitrator has power to grant
pre-reference interest under the Interest Act, 1978 as well as
pendente lite and future interest. However, he is constricted only by
the fact that an agreement between the parties may contain an
express bar to the award of pre-reference and/or pendente lite
interest. Since interest is compensatory in nature and is parasitic
upon a principal sum not having been paid in time, this Court has
frowned upon clauses that bar the payment of interest. It has
therefore evolved the test of strict construction of such clauses, and
has gone on to state that unless there is a clear and express bar to the
payment of interest that can be awarded by an arbitrator, clauses
which do not refer to claims before the arbitrators or disputes
between parties and clearly bar payment of interest, cannot stand in
the way of an arbitrator awarding pre-reference or pendente lite
interest. Thus, when one contrasts a clause such as the clause
in Second Ambica Construction case [Ambica Construction v. Union of
India, (2017) 14 SCC 323 : (2018) 1 SCC (Civ) 257] with the clause
in Tehri Hydro Development Corpn. Ltd. [Tehri Hydro Development
Corpn. Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10 : (2013) 2
SCC (Civ) 122] , it becomes clear that unless a contractor agrees that
no claim for interest will either be entertained or payable by the other
party owing to dispute, difference, or misunderstandings between the
parties or in respect of delay on the part of the engineer or in any
other respect whatsoever, leading the Court to find an express bar
against payment of interest, a clause which merely states that no
interest will be payable upon amounts payable to the contractor under
the contract would not be sufficient to bar an arbitrator from
awarding pendente lite interest under the 1940 Act. As has been held
in First Ambica Construction case [Union of India v. Ambica
Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36] , the grant of
pendente lite interest depends upon the phraseology used in the
agreement, clauses conferring power relating to arbitration, the
nature of claim and dispute referred to the arbitrator, and on what
items the power to award interest has been taken away and for which22 (2017) 14 SCC 323
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period. We hasten to add that the position as has been explained in
some of the judgments above under Section 31(7) of the 1996 Act, is
wholly different, inasmuch as Section 31(7) of the 1996 Act sanctifies
agreements between the parties and states that the moment the
agreement says otherwise, no interest becomes payable right from the
date of the cause of action until the award is delivered.
75. In the Ferro Concrete Construction (P) Ltd. 2, the
Apex Court considered the position regarding award of
interest after the Interest Act‘ 1978 came into force and
stated that:-
“65. The position regarding award of interest after the Interest Act,
1978 came into force, can be stated thus:
(a) Where a provision has been made in any contract, for interest
on any debt or damages, interest shall be paid in accordance with
such contract.
(b) Where payment of interest on any debt or damages is expressly
barred by the contract, no interest shall be awarded.
(c) Where there is no express bar in the contract and where there
is also no provision for payment of interest then the principles of
Section 3 of the Interest Act will apply in regard to the pre-suit or
pre-reference period and consequently interest will be payable:
(i) where the proceedings relate to a debt (ascertained sum)
payable by virtue of a written instrument at a certain time, then
from the date when the debt is payable to the date of institution
of the proceedings;
(ii) where the proceedings is for recovery of damages or for
recovery of a debt which is not payable at a certain time, then
from the date mentioned in a written notice given by the person
making a claim to the person liable for the claim that interest
will be claimed, to date of institution of proceedings.
(d) Payment of interest pendente lite (date of institution of
proceedings to date of decree) and future interest (from the date of
decree to date of payment) shall not be governed by the provisions
of the Interest Act, 1978 but by the provisions of Section 34 of the
Code of Civil Procedure, 1908 or the provisions of the law
governing arbitration as the case may be.”
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76. We are concerned in the present case only with the
Arbitration Act‘ 1940. The submissions made by the learned
counsel for the appellant in Associate Builders3 pertaining
to the Arbitration Act‘ 1996 pre-2015 amendment regime
therefore, need not to be deliberated.
77. From a conspectus of the above noted decisions, the
position of law, on the scope of interference under Sections
30 and 33 of the Arbitration Act’ 1940, can be culled out as
under:-
i. A mere error of fact or law committed by the
Arbitrator in reaching his conclusion on the disputed
question submitted for his adjudication, cannnot be a
ground for the Court to interfere.
ii. The award can be set aside if the Arbitrator acts
beyond his jurisdiction, and to find out whether the
Arbitrator has travelled beyond his jurisdiction it would
be necessary to consider the agreement between the
parties containing the arbitration clause.
iii. What is to be seen is whether the claimant could
raise a particular claim before the Arbitrator, and if
there is a specific term in the contract or the law, which
does not permit or give the Arbitrator the power to
decide the dispute raised by the claimant, or there is a
specific bar in the contract to the raising of the
particular claim.
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iv. The award made by the Arbitrator disregarding the
terms of the reference or arbitration agreement or the
terms of the contract would be treated to suffer from
jurisdictional error. The deliberate departure or
conscious disregard of the contract not only manifests
the disregard of his authority or misconduct on his part
but it may tantamount to be mala fide action.
v. A conscious disrgeard of the law or the provisions
of the contract from which the Arbitrator denies his
authority vitiates the award. It is axiomatic that the
Arbitrator being a creature of the agreement, must
operate within the four corners of the agreement and
cannot travel beyond it.
vi. The Arbitrator is not a Conciliator and cannot
ignore the law or misapply it in order to do what he
thinks just and reasonable; the Arbitrator is a tribunal
selected by the parties to decide the disputes according
to law.
vii. The Arbitrator acting beyond his jurisdiction or
travelled beyond the contract, is a ground different from
the error apparent on the face of the award.
viii. Under the 1940 Act, an award was not open to
challenge on the ground that the Arbitrator has reached
a wrong conclusion or failed to appreciate the facts, as
under the law the Arbitrator is “the final arbiter” of the
disputes between the parties. While considering the
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over the award nor reappreciate the evidence for the
purpose of finding whether on the facts and
circumstances, the award in question could have been
made.
ix. An award rendered by the Arbitrator was open to
challenge within the parameters of Section 30 of the
1940 Act. The power which can be exercised by the
appellate court to reverse the finding of fact in a civil
appeal, was alien to the scope and ambit of the challenge
to an arbitral award under Section 30 the 1940 Act.
x. Only where error of finding of fact having a bearing
on the award is patent and is easily demonstrable
without the necessity of carefully weighing the various
possible view points, the interference with award based
on erroneous finding of fact is permissible. Similarly, if
an award is based by applying a principle of law which is
patently erroneous, and but for such erroneous
application of legal principle, the award could not have
been made, such award is liable to be set aside by
holding that there has been a legal misconduct on the
part of the arbitrator.
xi. Explaining the principles of interference under the
1940 Act, in State of Rajasthan V. Puri Construction
Co. Ltd.23, noticing the shift in the approach of the
Courts, it was noted that in the recent times, error in law
and fact in basing an award has not been given the wide
immunity as enjoyed earlier, by expanding the import
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and implication of ‘legal misconduct’ of an arbitrator
with the idea that award by the arbitrator does not
perpetrate gross miscarriage of justice and the same is
not reduced to mockery of a fair decision of the lis
between the parties to arbitration.
xii. It was held therein that precisely for the aforesaid
reasons, the erroneous application of law constituting
the very basis of the award and improper and incorrect
findings of fact, which without closer and intrinsic
scrutiny, are demonstrable on the face of the materials
on record, have been held as legal misconduct rendering
the award as invalid. However, while holding so, the
Apex Court has put a note of caution that in the anxiety
to render justice to the party to arbitration, the Court
should not reappraise the evidence intrinsically with a
close scrutiny for finding out that the conclusion drawn
from some facts, by the arbitrator is, according to the
understanding of the court, erroneous.
xiii. It was further observed that in ultimate analysis, it
is a question of delicate balancing between the
permissible limit of error of law and fact and patently
erroneous finding easily demonstrable from the
materials on record and application of principle of law
forming the basis of the award which is patently
erroneous.
78. Keeping in mind the above legal principles, reverting to
the present case, when we look to the terms of the sub-
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contract, it clearly provided that the liquidated damages, as
provided in the main contract shall be levied due to the
default of the Associate namely, the claimant – respondent
herein. The Associate in the sub-contract, namely the
respondent herein has claimed the amount of Rs.123 Lakh
towards performance guarantee furnished by it to the
appellant, on account of the encashment of the same by the
appellant. Though, it was sought to be contended before us
by the learned counsel for the appellant that the respondent –
claimant did not proceed with the work with due diligence
and communications were sent by the appellant in the year
1991 reminding the claimant about the slow progress of the
work, but the fact remains that there is no challenge to the
finding of the learned Arbitrator that the appellant had not
issued any show cause notice to the Claimant before
encashment of the bank guarantee and that the sub-contract
was not terminated because of any alleged defaults on the
part of the respondent – claimant, but solely due to the
termination of the main contract by the employer / Gujarat
P.W.D.
79. In view of the specific clause ’17’ of the sub-contract, the
submissions of the learned counsel for the appellant that the
appellant was entitled to encash the bank guarantee without
calling the respondent claimant and intimating the default on
its part, cannot be accepted. The satisfaction recorded by the
learned Arbitrator that no reasons, warranting the
encashment of the bank guarantee by the respondent existed,
cannot be said to be an error apparent on the face of the
record warranting interference.
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80. The submission of the learned counsel for the appellant
that the sub-contract being back to back agreement to the
main contract, by mere automatic termination of the main
contract, the appellant was entitled to invoke the bank
guarantee furnished by the respondent claimant, as a result
of the bank guarantee furnished by the appellant under the
main contract having been encashed by the employer /
Gujarat P.W.D., is wholly misconceived.
81. The learned Arbitrator has rightly held that the
encashment of the bank guarantee of the appellant by the
State of Gujarat Gujarat P.W.D. under the main contract
cannot be linked with the encashment of the bank guarantee
towards performance guarantee under the sub-contract
lodged by the respondent – claimant with the appellant.
82. The impugned award cannot be said to suffer from any
error of fact or law which may be held to be patent or
amounts to legal misconduct on the part of the Arbitrator
rendering the award as invalid on the face of it. No
jurisdictional error of fact or law can be said to have been
committed by the learned Arbitrator in rendering the award
by travelling beyond the terms of the contract. The Arbitrator
being the “final arbiter” of the dispute between the parties, it
is not permissible for this Court to sit in appeal over the
award by forming an alternative view for the purpose of
finding out fault in the adjudication made by the Arbitrator.
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83. With the above, we do not find any good ground to
sustain the challenge to the award on issue No.’3′ agitated
before us.
84. As regards the counter claim, considering the above
noted principles, the findings returned by the learned
Arbitrator in rejecting the counter claim being barred by
time, cannot be interfered with.
85. Lastly, on the award of pre-suit and pendente lite
interest, the learned Arbitrator has considered the Prime
Lending Rate (PLR) produced by the claimant from a letter of
its banker, namely Central Bank of India, New Delhi. It was
noted that the PLR at that time was varying between 12.50%
(minimum) to 16.50% (maximum), exclusive of interest tax
and load which was applicable as per the category of
advances.
86. Taking mean of those two values, which came to 14.50%,
it was held by the learned Arbitrator that the award of simple
interest at the mean PLR value of 14.50% + 2% interest tax
thereon, or 14.79% per annum will meet the ends of justice.
It was, then, noticed that the amount of Rs.123 lakhs (of bank
guarantee) was debited to the claimant’s account on
28.01.1993 and the pre-suit interest on the said amount @
14.79% per annum simple, was to be awarded from
28.01.1993 to 27.02.1997, when the Arbitrator entered on
the reference. (For a period of 1491 days)
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87. The interest pendente lite was awarded in two parts. For
the period from 27.02.1997 to 31.03.2000 (1128 days) at the
rate of 14.79% per annum, whereas from 31.03.2000 to
30.11.2000, till the date of award for 244 days @ 14.50% per
annum simple, noticing that the interest tax was abolished
with effect from 01.04.2000.
88. Future interest on Rs.123 lakh @ 14.50% per annum
simple from the date of award, namely, 30.11.2000 till the
date of payment or the date of decree, whichever is earlier,
had further been awarded.
89. By placing various decisions of the Apex Court, as noted
hereinbefore, it was argued by the learned counsel for the
appellant that the interest awarded by the learned Arbitrator
was excessive and be reduced, accordingly.
90. We see no reason to interfere in the rate of interest, as
the learned Arbitrator meticulously considered the current
rate of interest and ensured that the interest rate shall not
exceed the maximum Prime Lending Rate fixed by the
Reserve Bank of India under the Banking Regulations Act,
1949.
91. The balancing act done by the learned Arbitrator in
drawing the mean value of Prime Lending Rate for fixing
interest for different periods, is not open to interference on
the plea of being excessive or inequitable The scope of
interference in the discretion exercised by the learned
Arbitrator judiciously is also limited.
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92. With the above, no error can be found in the decision of
the Court in rejecting the objections of the appellant under
Sections 30 and 33 of the Arbitration Act’ 1940 and making
the award the rule of the Court under Section 17 of the Act.
93. The appeal deserves to be dismissed being devoid of
merits and is dismissed, accordingly. No order as to costs.
Pending civil application stands disposed of.
(SUNITA AGARWAL, CJ )
(D.N.RAY,J)
SAHIL S. RANGER
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