Union of India and Others vs S. Preethy and Another

K.T. Sankaran, J.—These four Arbitration Appeals, namely, Arb. A Nos. 65/2012, 66/2012, 1/2013 and 4/2013, arise out of OP (Arb.) Nos. 33/2004, 31/2004, 32/2004 and 36/2004 respectively, on the file of the Court of the Subordinate Judge of Alappuzha. The appellants in all the four appeals are the same. [Union of India and Chief Engineer and Deputy Chief Engineer of Southern Railway (Construction).] While, the first respondent in two appeals is V.K. Natesan, the first respondent in the two other appeals is S. Preethy, wife of V.K. Natesan. It is submitted by the counsel on either side that the questions involved in all the four Arbitration Appeals are similar and connected. Therefore, all these four appeals are being disposed of by this common judgment. The appellants awarded the work of Extension new BG Railway Line from Ernakulam-Alappuzha to Kayamkulam and the works connected therewith to V.K. Natesan and his wife Preethy. The works were completed in the year 1992. However, disputes arose between Railways and the contractors. Disputes relating to the contract between the parties to the contract were to be referred for arbitration, in terms of the agreement between them. The contractors filed OP (Arb.) Nos. 31, 32, 33 and 36 of 2004 on the file of the Sub Court, Alappuzha for appointing an Arbitrator. The Chief Engineer/workshop, Southern Railway, Southern Railway Head Quarters, Park Town, Chennai was appointed as the sole Arbitrator in all the four cases.

OP (Arb.) Nos. 31, 32, 33 and 36 of 2004 were respectively regarding (1) Agreement No. 24/CN/87 dated 27/03/1987-for the work of Alleppey-Kayamkulam new BG line-Construction of 5 x 20 m. span PSC girder (Railway design) bridge at ch. 21052 across Korankuzhi thodu between Thakazhy and Karuvatta stations; (2) Agreement No. 91/CN/86 dated 31/12/1986-for the work of construction of new BG Railway line between Alleppey and Kayamkulam-Earth work in forming bank with sand core-Moorum blanketing, side pitching, grouting, turfing, etc. from ch. 21100 (Kayamkulam side abutment of Korankuzhi bridge) to ch. 21900 (Alleppey side abutment of Puthanar bridge); (3) Agreement No. 69/CN/91 dated 05/08/1991-for the work of Extension of New BG Railway line from Ernakulam-Alleppey to Kayamkulam-Earth work in forming bank with sand core, moorum blanketing, turfing etc. and construction of minor bridges between ch. 20020 and ch. 21000 in Reach XI-residual works and (4) Agreement No. 65/CN/87 dated 01/12/1987-for the work of extension of BG line from Ernakulam-Alleppey to Kayamkulam = Earth work in forming bank with sand core, moorum blanketing, side pitching, turfing etc. and construction of minor bridges between ch. 19480 and ch. 20000 etc.-Reach X.

The Arbitrator passed awards dated 10/02/2011 and they were published on 10/02/2011. The awards were filed in Court by the Advocate appearing for the Railways on 29/03/2011. The Court issued notice to the contractors, which was served on them on 17/04/2011. On 13/06/2011, the contractors filed applications u/s 17 of the Arbitration Act, 1940, to pass decrees in terms of the awards. The Southern Railways filed applications to set aside the award u/s 30 of the Arbitration Act, 1940, on 06/07/2011.

The contractors contended that the applications filed by Railways u/s 30 of the Arbitration Act were barred by limitation as they were filed beyond the time prescribed under Article 119(b) of the Limitation Act. The contractors also contended that no grounds are made out for setting aside the awards. The Southern Railways contended that no notice was issued by the Court on them after the awards were filed in Court and, therefore, the applications filed by the Railways u/s 30 of the Arbitration Act were well within time. The Railways also contended that sufficient grounds were made out to set aside the awards.

The Court below numbered the applications filed by the contractors u/s 17 of the Act and the applications filed by the Railways u/s 30 as separate interlocutory applications in OP (Arb.) Nos. 31, 32, 33 and 36 of 2004. The Court below passed separate detailed orders in the interlocutory applications filed by the contractors u/s 17 of the Act and in those orders, the Court considered the issues involved in the applications filed by the Railways to set aside the award. On the same day, the Court below passed a one sentence order in the applications filed by the Union of India and others stating that in the light of the detailed order passed in the applications filed by the contractors, the applications filed by Union of India and others were rejected.

The Court below considered the following points: (1) Whether the objections filed by Union of India and others for setting aside the award are barred by time; (2) Whether Union of India and others succeeded in proving the grounds of interference by the Court with the award passed by the Arbitrator; (3) Whether the contractors are entitled to get interest as awarded by the Arbitrator; and (4) Reliefs and costs.

The Court below held that the applications filed by Union of India and others u/s 30 of the Arbitration Act, 1940 are not time barred, that the grounds raised by Union of India and others to set aside the awards are unsustainable, that the contractors are entitled to get interest and that the Arbitrator has not exceeded his jurisdiction.

It is an admitted fact that the awards were filed in Court by the counsel appearing for the Railways on 29/03/2011 and that the applications u/s 30 of the Arbitration Act, 1940 were filed by Union of India and others on 06/07/2011. The learned counsel for the appellants submitted that the period of limitation would begin to run from the date of service of notice u/s 14(2) of the Act. It is submitted that in the present case no such notice was issued by the Court and, therefore, the applications filed by the appellants u/s 30 of the Act cannot be said to be barred by limitation. The learned counsel appearing for the contractors submitted that the awards having been filed by the counsel appearing for the Railways, the appellants are estopped from contending that they had no knowledge of the award and that the period of limitation for filing applications u/s 30 would commence from the date of service of notice u/s 14(2) of the Act. Time begins to run from the date of filing of the award itself in such cases. The learned counsel for the appellants relied on the decisions of the Supreme Court in Ch. Ramalinga Rddy v. Superintending Engineer , Oil and Natural Gas Corporation Ltd. Vs. Nippon Steel Corporation Ltd., ; Bharat Coking Coal Ltd. Vs. L.K. Ahuja, ; and Union of India (UOI) and Another Vs. Deepak Electric and Trading Company and Another, . The learned counsel for the first respondent/contractor relied on the decisions of the Supreme Court in Food Corporation of India and others Vs. E. Kuttappan, ; Nilkantha Shidramappa Ningashetti Vs. Kashinath Somanna Ningashetti and Others, and Indian Rayon Corporation Ltd. Vs. Raunaq and Company Pvt. Ltd., .

In Food Corporation of India and others Vs. E. Kuttappan, , the award was passed on 03/10/1988. The contractor requested the Arbitrator to forward the awards to his counsel for filing the same in Court. The Arbitrator forwarded the award to the advocate on 12/10/1988. On 25/10/1988, the counsel for the contractor filed the award in Court with intimation to the Food Corporation of India on 26/10/1988. On 03/11/1988 the Court directed for the issuance of notice to the counsel appearing for the parties for appearance on 07/11/1988. The contractor filed objections to the award u/s 14(2) of the Act on 05/12/1988, computing the period of limitation from 07/11/1988. The Food Corporation of India raised the defence of limitation. In that context, the Supreme Court, after considering the decisions in Nilkantha Shidramappa Ningashetti Vs. Kashinath Somanna Ningashetti and Others, and Indian Rayon Corporation Ltd. Vs. Raunaq and Company Pvt. Ltd., and other decisions, held thus:

In the case of Nilkantha Shidramappa Ningashetti Vs. Kashinath Somanna Ningashetti and Others, , the arbitrator had filed the award in Court on February 18, 1948 and three days later on February 21, 1948, the Civil Judge adjourned the matter "for parties say to the Arbitrator''s report", to March 22, 1948. The point which fell for consideration was that when no specific notice in writing had been issued by the Court u/s 14 of the Act to the parties, wherefrom shall the period of limitation be reckoned for filing an objection against the award. This Court observed on page 555 of the report as follows:

Sub-section (1) of Section 14 of the Arbitration Act, 1940 (10 of 1940) requires the arbitrator or umpire to give notice in writing to the parties of the making and signing of the award. Sub-section (2) of that section requires the Court, after the filing of the award, to give notice to the parties of the filing of the award. The difference in the provisions of the two sub-sections with respect to the giving of notice is significant and indicates clearly that the notice which the Court is to give to the parties of the filing of the award need not be a notice in writing. The notice can be given orally. No question of the service of the notice in the formal way of delivering the notice or tendering it to the party can arise in the case of a notice given orally. The communication of the information that an award has been filed is sufficient compliance with the requirements of sub-section (2) of Section 14 with respect to the giving of the notice to the parties concerned about the filing of the award. ''Notice'' does not necessarily mean ''communication in writing''.

''Notice'', according to the Oxford concise Dictionary, means ''intimation, intelligence, warning'' and has this meaning in expressions like ''give notice, have notice ''and it also means ''formal intimation of something, or instructions to do something'' and has such a meaning in expressions like ''notice to quit, till further notice''. We are of opinion that the expression ''give notice'' in sub-section (2) of Section 14, simply means giving intimation of the filing of the award, which certainly was given to the parties through their pleaders on February 21, 1948. Notice to the pleader is notice to the party, in view of Rule 5 of 0. III, Civil Procedure Code, which provides that any process served on the pleader of any party shall be presumed to be duly communicated and made known to the party whom the pleader represents and, unless the Court otherwise directs, shall be as effectual for all purposes as if the same had been given to or served on the party in person.

(emphasis supplied)

In the case of Indian Rayon Corporation Ltd. Vs. Raunaq and Company Pvt. Ltd., , this Court before applying the ratio of Nilkantha Shidramappa Ningashetti Vs. Kashinath Somanna Ningashetti and Others, , analysed the facts to state that the award therein had been filed in the High Court on February 4, 1977. The respondent therein had affirmed an affidavit on November 29, 1977 stating that the award had been filed in the Court on February 4, 1977 and made prayer on that basis that a notice be issued and served on the appellant so that the judgment in terms of the award could be passed. The Court then went on to hold in view of the facts that the notice was served on the appellant on February 4, 1978 because on that date the appellant had acknowledged by affidavit that the award had been filed in the High Court of Calcutta but it had been filed in a wrong Court. According to the appellant, he had later got notice of the filing of the award communicated to him by the Court on which date he would have limitation reckoned. But this Court held that limitation was to be computed from February 4, 1978 and on that basis objection to set aside the award made on September 8, 1981 was held to be time barred. Ratio of Nilkantha''s case was applied to reiterate that the expression ''give notice'' in Section 14(2) simply meant giving information of filing of the award and such intimation need not be given in writing and could otherwise be communicated..

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11.......It does not lie in the mouth of the respondent to say that though he filed the award in Court through his counsel, with or without the implied or express authority of the arbitrator, he did not have the corresponding knowledge of the filing of the award, when the award was readily received by the Court. It seems to us that the mute language inherent in the action of the Court did convey to the party placing the award before it, the factum of the award being filed in Court. The mere fact that at a subsequent stage, the Court issued notice to the parties informing them of the filing of the award in Court for the purpose of anyone to object to the award being made the rule of the Court is an act of the Court which cannot in law prejudice the rights of the parties. If once it is taken that the period of limitation for the purposes of filing the objection, in so far as the respondent was concerned, had begun on October 25, 1988, the objections filed by it on December 6, 1988 were obviously barred by time, those having been filed beyond the prescribed period of thirty days. If this be the logical conclusion, the appeals shall merit acceptance, holding the objections filed by the respondents to be time barred......

In Nilkantha Shidramappa Ningashetti Vs. Kashinath Somanna Ningashetti and Others, , the four Judge Bench of the Supreme Court held:

Sub-section (1) of Section 14 of the Arbitration Act, 1940 (Act X of 1940) requires the arbitrators or umpire to give notice in writing to the parties of the making and signing of the award. Sub-section (2) of that section requires the Court, after the filing of the award, to give notice to the parties of the filing of the award. The difference in the provisions of the two sub-sections with respect to the giving of notice is significant and indicates clearly that the notice which the Court is to give to the parties of the filing of the award need not be a notice in writing. The notice can be given orally. No question of the service of the notice in the formal way of delivering the notice or rendering it to the party can arise in the case of a notice given orally. The communication of the information that an award has been filed is sufficient compliance with the requirements of sub-section (2) of Section 14 with respect to the giving of the notice to the parties concerned about the filing of the award. ''Notice'' does not necessarily mean ''communication in writing''. ''Notice'', according to the Oxford Concise Dictionary, means ''intimation, intelligence, warning'' and has this meaning in expressions like ''give notice, have notice'' and it also means ''formal intimation of something, or instructions to do something and has such a meaning in expressions like ''notice to quit, till further notice''. We are of opinion that the expression ''give notice'' in sub-section (2) of Section 14, simply means giving intimation of the filing of the award, which certainly was given to the parties through their pleaders on February 21, 1948. Notice to the pleader is notice to the party, in view of Rule 5 of Order III, Civil Procedure Code, which provides that, any process served on the pleader of any party shall be presumed to be duly communicated and made known to the party whom the pleader represents and, unless the Court otherwise directs, shall be as effectual for all purposes as if the same had been given to or served on the party in person.

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We see no ground to construe the expression ''date of service of notice'' in col. 3 of Article 158 of the Limitation Act to mean only a notice in writing served in a formal manner. When the Legislature used the word ''notice'' it must be presumed to have borne in mind that it means not only a formal intimation but also an informal one. Similarly, it must be deemed to have in mind the fact that service of a notice would include constructive or informal notice. If its intention were to exclude the latter sense of the words ''notice'' and ''service'' it would have said so explicitly. It has not done so here. Moreover, to construe the expression as meaning only a written notice served formally on the party to be affected, will leave the door open to that party, even though with full knowledge of the filing of the award he has taken part in the subsequent proceedings, to challenge the decree based upon the award at any time upon the ground that for want of a proper notice his right to object to the filing of the award had not even accrued. Such a result would stultify the whole object which underlies the process of arbitration-the speedy decision of a dispute by a Tribunal chosen by the parties.

In Bharat Coking Coal Ltd. Vs. L.K. Ahuja, , the Supreme Court held that if there is no material to show that a notice of filing of the award has ever been given to the parties, period of limitation as prescribed in Article 119(b) loses its significance. Mere knowledge of passing of an award is not enough and the period of limitation will commence only upon notice as to filing of the award in Court was given to the parties concerned.

In Ch. Ramalinga Rddy v. Superintending Engineer , a three Judge Bench of the Supreme Court considered the question of limitation for an application u/s 14(2) of the Act. In that case, the award was made on 29/07/1985. The award was sent by the Arbitrator to the Court on 31/07/1985 and it was received in Court on 05/08/1985. The case of the appellant before the Supreme Court was that his advocate informed the Additional Government Pleader in writing of the receipt of the award on 05/08/1985. The Court issued notice of the award on 07/08/1985 and it was received by the respondents on 10/08/1985. The petition to challenge the award was filed by the respondents on 06/09/1985. The Supreme Court held that the period of limitation begins to run from the date of service of notice. The Supreme Court in Ch. Ramalinga Reddy''s case distinguished the decision in Food Corporation of India and others Vs. E. Kuttappan, , and held thus:

It was found by the High Court that "learned counsel for the respondent contractor had not drawn our attention to any material to indicate that Ext. B1 notice was given by the learned counsel for the contractor to the learned Government Pleader on 05/08/1985 about the receipt of the award by the Court on the basis of the directions of the Court". It is, therefore, clear that no notice as required by Section 14(2) of the Arbitration Act, 1940, had been served on the respondents or their advocate on 05/08/1985. Therefore, that date cannot be the starting point for limitation for the filing of a petition to impugn the award. The notice of the filing of the award was given by the Court on 07/08/1985. The petition to challenge the award was filed by the respondents on 06/09/1985. The High Court was, therefore, right in holding that the petition was in time.

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It will be noted that it was held that it did not lie in the mouth of the party who had filed the award in Court through his advocate to contend that he did not have knowledge of the filing of the award and he could not contend that it was only the subsequent date upon which the Court issued notice that was the starting point for limitation. This judgment, as the passage quoted indicates, does not in any way dilute what was laid down in the cases of Nilkantha Shidramappa Ningashetti Vs. Kashinath Somanna Ningashetti and Others, and Indian Rayon Corporation Ltd. Vs. Raunaq and Company Pvt. Ltd., ; indeed, it could not, for those were decisions of a larger and a coordinate Bench, respectively. The judgment holds only that a party who has filed the award in Court through his advocate is estopped from contending that, so far as he is concerned also, the period of limitation to challenge the award begins only when the Court issues notice in respect of its filing. The ratio of the judgment has, therefore, no application to the facts of the case before us.

In Oil and Natural Gas Corporation Ltd. Vs. Nippon Steel Corporation Ltd., , the Supreme Court held in paragraph 30 that the facts leading to the dictum laid down in Food Corporation of India and others Vs. E. Kuttappan, , were different and, therefore, the dictum laid down therein was not applicable to the facts and circumstances of the case.

In Union of India (UOI) and Another Vs. Deepak Electric and Trading Company and Another, , the Supreme Court held that an application for setting aside an award has to be filed within thirty days from "the date of service of notice of the filing of the award". It was also held that the starting point of limitation under Article 119 of the Limitation Act is the date of service of notice of the filing of the award and not the date of knowledge of the filing of the award.

We are of the view that the dictum laid down in Food Corporation of India and others Vs. E. Kuttappan, , would squarely apply to the facts of the present case. We are also of the view that the Court below was not right in holding that the applications filed by the appellants u/s 30 of the Arbitration Act, 1940 were within time. The applications were barred by limitation, since time began to run from the date of filing of the award in Court by the learned counsel appearing for the Railways.

We have entered into a finding on the question of limitation since the respondents have challenged the correctness of the finding arrived at by the Court below on point No. 1, while supporting the final conclusion in the judgment. The respondents in these appeals are entitled to support the ultimate conclusion in the judgment of the Court below by even challenging the findings which are against them.

Since we have held that the applications filed by the appellants u/s 30 were barred by limitation, these appeals can be disposed of on that short ground. However, since these appeals were filed mainly challenging the findings of the Court below on the merits of the case, we think we are bound to deal with the contentions put forward by the appellants.

The appellants herein filed the application u/s 30 of the Arbitration Act, 1940 to set aside the award mainly on the ground that the Arbitrator misconducted himself and the proceedings. It was also contended that the principles of natural justice were violated by the Arbitrator at the time of taking evidence. The Court below held that a perusal of the proceedings of the case would disclose that the Arbitrator recorded the evidence on 26/12/2009 at the office of the Deputy Chief Engineer, Southern Railway, Thycaud, Thiruvananthapuram, in the presence of the officers of the Railways. The Railways had enough opportunity to adduce evidence, as sufficient opportunity was afforded to them. The Court below held, on facts, that the principles of natural justice were not violated. A perusal of the award passed by the Arbitrator would also disclose that enough opportunities were provided to the Railways. We do not find any merit in the contention raised by the appellants that they were denied an opportunity to adduce evidence before the Arbitrator.

Section 30 of the Arbitration Act, 1940 reads as follows:

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 u/s 35;

(c) that an award has been improperly procured or is otherwise invalid.

The learned counsel appearing for the appellants submitted that the case of the appellants is that the award is liable to be set aside on the ground provided in clause (a) of Section 30 of the Act. It is well settled that the Court cannot substitute its own decision to the decision of the Arbitrator on facts. Appreciation of evidence by the Court is not permissible while dealing with an application u/s 30 of the Act. The Court also is not entitled to consider the merits of the case and arrive at a conclusion as to whether the findings of the Arbitrator were correct on facts. The Court below relied on the decisions in Sudarsan Trading Co. Vs. Government of Kerala and Another, and in Municipal Corporation of Delhi Vs. Jagan Nath Ashok Kumar and Another, in this regard. The Court below also held thus:

11........The contentions taken by the respondents based on technical datas are not liable to be evaluated. It is evident from the reading of the award that the arbitrator, who is conversant with the technical knowhow of the works carried out by the petitioner, had gone through all the materials in the evidence on record to arrive at a conclusion. This Court cannot examine the correctness of such findings of the award by the arbitrator. More over. I do not find anything to come to a conclusion that the award is perverse. I do not find any manifest error on the face of the award. In these circumstances, I have no hesitation to hold that the grounds alleged in the petition to set aside the award would not sustain......

The learned counsel for the appellant submitted that the Arbitrator was not justified in awarding interest for the period before reference and for the period during which the arbitration proceedings were pending. The learned counsel for the appellants also submitted that Clause 16(2) of the General Conditions of Contract provides that no interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract. Clause 52 of the General Conditions of Contract provides that the contractor will have no claim for interest or damages whatsoever on any account in respect of the sum of money withheld or retained under the lien. Clause 64(5) of the General Conditions of Contract provides that where the arbitral award is for payment of money, no interest shall be payable on the whole or any part of the money for any period till the date on which the award is made.

The learned counsel for the first respondent submitted that the terms of reference to the Arbitrator includes the question of interest and the terms having attained finality, the appellants are not entitled to contend that the Arbitrator was not justified in awarding interest. The learned counsel for the first respondent also submitted that Clause 64(5) of the General Conditions of Contract was introduced only on 11/09/1997 pursuant to the promulgation of the Arbitration and Conciliation Ordinance, 1996 and, therefore, it cannot be made applicable to a contract entered into before 1996 and an arbitration in respect of the same which commenced before 1996.

The learned counsel for the appellants relied on the decision in Sree Kamatchi Amman Constructions Vs. The Divisional Railway Manager (Works), Palghat and Others, and Union of India (UOI) Vs. Krafters Engineering and Leasing (P) Ltd., . In Sree Kamatchi Amman Constructions Vs. The Divisional Railway Manager (Works), Palghat and Others, , the Supreme Court held that where the parties agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest from the date of cause of action to the date of award on amount awarded to the contractor under the contract. The case in M/s. Sree Kamatchi Amman Constructions'' case arose under the Arbitration and Conciliation Act, 1996 and therefore, the Supreme Court was not inclined to follow the decisions in The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, and in Madnani Construction Corporation (P) Ltd. Vs. Union of India (UOI) and Others, , which were cases coming under the 1940 Act. This is made clear in paragraph 11 of the judgment in M/s. Sree Kamatchi Amman Constructions'' case, which reads as follows:

We are of the view that the decisions in The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, and Madnani Construction Corporation (P) Ltd. Vs. Union of India (UOI) and Others, are inapplicable for yet another reason. In Engineers-De-Space-Age and Madnani the arbitrator had awarded interest for the pendente lite period. This Court upheld the award of such interest under the old Act on the ground that the arbitrator had the discretion to decide whether interest should be awarded or not during the pendente lite period and he was not bound by the contractual terms insofar as the interest for the pendente lite period. But in this case the arbitral Tribunal has refused to award interest for the pendente lite period. Where the arbitral tribunal has exercised its discretion and refused award of interest for the period pendente lite, even if the principles in those two cases were applicable, the award of the arbitrator could not be interfered with. On this ground also the decisions in The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, and Madnani Construction Corporation (P) Ltd. Vs. Union of India (UOI) and Others, are inapplicable...

In Union of India (UOI) Vs. Krafters Engineering and Leasing (P) Ltd., , it was held that the Arbitrator cannot grant pendente lite interest where the contract between the parties expressly prohibit grant of interest.

The learned counsel for the first respondent relied on the decision in Madnani Construction Corporation (P) Ltd. Vs. Union of India (UOI) and Others, and drew a distinction between the clause for non-payment of interest and power of the arbitrator to award interest. It is submitted that in Madnani''s case, the Supreme Court referred to the decision of the Constitution Bench in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, and held:

The Constitution Bench in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , discussed several aspects of the Act of 1940 and also the provisions of Section 34 of the CPC and also those of the Interest Act. After discussing those provisions, the Constitution Bench formulated the question which arose in that case as follows: (SCC p.514, para 7)

......In the context of these provisions the question arises whether an arbitrator to whom reference is made by the parties has jurisdiction or authority to award interest pendente lite. If the arbitration agreement or the contract itself provides for award of interest on the amount found due from one party to the other, no question regarding the absence of arbitrator''s jurisdiction to award the interest could arise as in that case the arbitrator has power to award interest pendente lite as well. Similarly, where the agreement expressly provides that no interest pendente lite shall be payable on the amount due, the arbitrator has no power to award pendente lite interest. But where the agreement does not provide either for grant or denial of interest on the amount found due, the question arises whether in such an event the arbitrator has power and authority to grant pendente lite interest.

The Supreme Court in Madnani''s case referred to the decision in State of Orissa Vs. B.N. Agarwalla, etc., , Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir, , State of U.P. Vs. Harish Chandra and Others, and The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, and held thus:

Following the Constitution Bench ratio in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , another three-Judge Bench in Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir, , while referring to the ratio in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, held: ( Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir, ):

5.......Though the said decision deals with the power of the arbitrator to award interest pendente lite, the principle of the decision makes it clear that the arbitrator is competent to award interest for the period commencing with the date of award to the date of decree or date of realisation, whichever is earlier. This is also quite logical for, while award of interest for the period prior to an arbitrator entering upon the reference is a matter of substantive law, the grant of interest for the post-award period is a matter of procedure. Section 34 of CPC provides both for awarding of interest pendente lite as well as for the post-decree period and the principle of Section 34 has been held applicable to proceedings before the arbitrator, though the section as such may not apply.......

Subsequently, in State of Orissa Vs. B.N. Agarwalla, etc., . before another three-Judge Bench a similar question came up for consideration and this Bench following the ratio in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, and Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir, considered the question of payment of interest. After discussing the ratio in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, and Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, and various other cases, the learned Judges came to the conclusion that; ( State of Orissa Vs. B.N. Agarwalla, etc., .

(a) it is well settled that the arbitrator has a jurisdiction to award pre-reference interest in cases which arose after the Interest Act, 1978 had become applicable. It is no doubt that in this case arbitration proceedings were initiated after the 1978 Act became applicable;

(b) for the period in which the arbitration proceedings are pending the arbitrator has the power to award interest;

(c) the Court also held that the power of the arbitrator to award interest for the post-award period also exists.

In Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, this Court made it clear that the arbitration clause was silent on the payment of interest but in State of Orissa Vs. B.N. Agarwalla, etc., , the Court considered Clause (4) which had the following stipulation on interest: ( State of Orissa Vs. B.N. Agarwalla, etc., ).

24.......No interest is payable on amounts withheld under the item of the agreement Considering the said Clause (4), the learned Judges held that the claim which was made before the arbitrator was for non-payment of the full amount as per the final bill submitted by the claimant and the arbitrator awarded interest on that. The interest so awarded, according to the learned Judges, is not prohibited under Clause (4) of the Contract. Therefore, the three Judge Bench clearly held that just a stipulation in the contract purporting to indicate non-payment of interest cannot denude the arbitrator of his right to pay interest.

In a subsequent decision of three-Judge Bench in the case of State of U.P. Vs. Harish Chandra and Others, , there was stipulation in the arbitration agreement against grant of interest. The relevant clause namely Clause 1.9 to the aforesaid effect is set out below: (SCC p.67, para 9)

9.....1.9 No claim for delayed payment due to dispute etc.-- No claim for interest or damages will be entertained by the Government with respect to any moneys or balances which may be lying with the Government owing to any dispute, difference; or misunderstanding between the Engineer-in-Charge in marking periodical or final payments or in any other respect whatsoever.

Considering the said clause, the Court held that the prohibition in the said clause does not prevent the contractor from raising the claim of interest by way of damages before the arbitrator on the relevant items placed for adjudication. (See SCC p.67, para 10). In saying so, the learned Judges relied on the ratio in State of Orissa Vs. B.N. Agarwalla, etc., and Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, .

In The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, , a two-Judge Bench of this Court considered the same question. That was a case under the 1940 Act. In The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, , the so-called prohibition in the contract relating to payment of interest was in Clause 13(g), which is set out below: (SCC p.517, para 2)

2....... 13(g) No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the Contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise.

Relying on the said clause, the appellant in The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, , argued that there was absolute prohibition against payment of interest.

The learned Judges however, relying on the ratio in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, held that Clause 13(g) merely prohibits the Commissioner from entertaining any claim for interest but it does not prohibit the arbitrator from awarding interest. The learned Judges held that such clauses must be strictly construed in view of the ratio of the Constitution Bench in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, . The reasoning given by the learned Judges in favour of strict construction runs as follows: ( The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, )

4.... Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the arbitrator is not, in any manner, stifled by this term of the contract and the arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified.

Clause 16 of the General Conditions of Contract reads as follows:

(1) The earnest money deposited by the Contractor with his tender will be retained by the Railways as part of Security for the due and faithful fulfilment of the contract by the Contractor. The balance to make up the security deposit which will be calculated as under, unless otherwise, specified in the special conditions, if any, may be deposited by the Contractor in cash or in the form of Government securities or may be recovered by percentage deductions from the Contractor''s on account bills-

Provided also that in case of a defaulting Contractor the Railways may retain any amount due for payment to the Contractor on the pending "on account bills" so that the amount or amounts so retained may not exceed 10 per cent of the total value of the contract.

(2) No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the contract, but Government Securities deposited in terms of sub-clause (1) of this clause will be repayable with interest accrued thereon.

We are of the view that sub-clause (2) therein does not relate to amount payable for the work done and the bills submitted. But the prohibition only contains in respect of the amount payable to the contractor in the light of the stipulation regarding earnest money or security deposit or amounts payable to a defaulting contractor. In the present case, the Arbitrator held that the Railways committed breach of contract and that finding was referred to by the Court below and acted on it. It was held that the failure on the part of the Railways to supply the materials in time was the main reason for the delay occasioned in the completion of the work. In these circumstances, we are of the view that the Arbitrator was justified in awarding interest. The principles of law laid down in the three Judge Bench decisions of the Supreme Court in State of Orissa Vs. B.N. Agarwalla, etc., and State of U.P. Vs. Harish Chandra and Others, would squarely apply to the facts of the case and, therefore, we are of the view that the award of interest by the Arbitrator is beyond challenge.

For the aforesaid reasons, we do not find any ground to interfere with the well considered judgment passed by the Court below and the order passed based on that judgment, except the finding on the question of bar of limitation. It is quite unfortunate to note that though four contracts were entered into in 1986, 1987 and 1991 and though the works were completed in the year 1992, the disputes have not been settled even in 2014. The agreements between the parties provide for appointment of an arbitrator, presumably since the parties wanted early settlement of the disputes. The arbitrator is none other than the Chief Engineer of Southern Railways. Still matters are not finalised even in 2014. Had there been no arbitration clause in the agreements, probably the matters would have been finalised before the Civil Court years before. It would be quite unjust to deny interest to a contractor in respect of payments which were to be made to him in the year 1992.

The Arbitration Appeals are, accordingly, dismissed.