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2014 DIGILAW 566 (ORI)

Union of India v. Vaishnodevi Construction

2014-09-04

S.C.PARIJA

body2014
ORDER : S.C. Parija, J. 1. Heard Learned Counsel for the parties. This appeal is directed against the Judgment dated 17.11.2008, passed by the Learned District Judge, Khurda, at Bhubaneswar, in ARBP No. 31 of 2007, dismissing the application of the Appellant filed under Section 34 of the Arbitration & Conciliation Act, 1996. The brief facts of the case, as detailed in the appeal memo, is that the Appellant invited sealed tender in the prescribed form for execution of "Balance left over works of earth work in formation, construction of bridges & other allied works in Section-M at Talcher end from CH 23000 to CH 24000 (1.00 KM distance) of Sambalpur -Talcher Rail link". The Respondent participated in the tender & the offer made by it was accepted by the Appellant vide letter dated 14.07.1990. The value of the contract work was Rs. 44,68,087/- & the period of completion was 15 months, with effect from 14.08.1990. The contract agreement was executed between the parties on 30.10.1990. 2. The Respondent having failed to complete the contract work within the stipulated period, they requested for extension of time & on their request, time for completion of the contract was extended from time to time. Ultimately, the Respondent completed the contract work on 30.11.1996. After completion of the contract work & payment of the final bill, the Respondent raised a claim for compensation on the ground that they sustained loss due to delay in handing over possession of the work site, supply of the plants, lay out of the profile of the drawing & designs. The Appellant having not accepted the claims of the Respondent, the dispute was referred to the sole Arbitrator, Hon'ble Shri Justice S.K. Mohanty, Retd. Judge of this Court, for adjudication. 3. The Respondent raised the following claims before the Learned Arbitrator. "(1) Compensation for the idle period of expenditure on establishment held Rs. 76,59,773. (2) Compensation for monetary loss on contract value during non-working period Rs. 18,09,575. (3) Quantity variation of transported earth till materials & differential cost of item of work not paid Rs. 26,24,474. (4) Interest of blockage amount Rs. 1,08,27,473." 4. Learned Arbitrator, after considering the statement of claims made by the Respondent & the counter statement filed by the Appellant, vide award dated 30.09.2006, allowed the claims of the Respondent in respect of claim item Nos. 3 & 4 & rejected claim item Nos. 26,24,474. (4) Interest of blockage amount Rs. 1,08,27,473." 4. Learned Arbitrator, after considering the statement of claims made by the Respondent & the counter statement filed by the Appellant, vide award dated 30.09.2006, allowed the claims of the Respondent in respect of claim item Nos. 3 & 4 & rejected claim item Nos. 1 & 2. Accordingly, the Appellant was directed to pay Rs. 11,13,266/- towards the outstanding dues & Rs. 12,46,784 as interest on the said outstanding dues & Rs. 7800/- as interest on the outstanding security deposit till 7.2.2001, along with cost of Rs. 50,000/-, to be paid within a period of three months, failing which, interest @ 18% per annum shall be payable on the total awarded amount. 5. Being aggrieved by the award passed by the Learned Arbitrator, the Appellant filed application under Section 34 of the Arbitration & Conciliation Act, 1996 ("the Act" for short), for setting aside the award, which having been rejected by the Learned District Judge, Khurda, vide impugned Judgment dated 17.11.2008, the present appeal has been filed. Learned Counsel for the Appellant submits that as the final bill in respect of the contract work was passed after furnishing of "no claim certificate" by the contractor-Respondent, they were not entitled to raise any subsequent claim for compensation. It is submitted that the Respondent having received the final bill without any protest, on submission of "no claim certificate", they are estopped from raising any further claim by way of compensation, as has been awarded by the Learned Arbitrator. 6. It is the further case of the Appellant that the award of interest by the Learned Arbitrator for the period from the date of the cause of action till the date of the award is ex facie illegal & contrary to the terms & conditions of the contract agreement & therefore, the same cannot be sustained in law. In this regard, it is submitted that Clause 16(2) of the General Conditions of Contract ('GCC' for short), which is a part & parcel of the contract agreement, specifically prohibits any interest, either on the earnest money & on the security deposit or any amount payable to the contractor under the contract. Therefore, Learned Arbitrator erred in allowing. the claim item No. 4 & awarding interest amounting to Rs. 12,46,784 on the outstanding dues & Rs. Therefore, Learned Arbitrator erred in allowing. the claim item No. 4 & awarding interest amounting to Rs. 12,46,784 on the outstanding dues & Rs. 7800/- as interest on the outstanding security deposit, from the date of the cause of action to the date of the award. 7. In this regard, Learned Counsel for the Appellant has relied upon a decision of the Apex Court in M/s. Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palghat & Ors., AIR 2010 SC 3337 , in support of his contention that in view of bar under Clause 16(2) of the GCC, no interest for the pre-reference period or pendent lite is payable, as has been awarded by the Learned Arbitrator. 8. It is accordingly submitted that the Learned District Judge has erred in not considering the relevant fact that the award of interest by the Learned Arbitrator is contrary to Clause 16(2) of the GCC, which is a part & parcel of the terms & conditions of the contract agreement's therefore, the award is in conflict with the public policy, as provided under Section 34(2) of the Act. 9. Learned Counsel for the Respondent submits that the finding of facts recorded by the Learned Arbitrator cannot be assailed either in an application under Section 34 of the Act or in the present appeal, as this Court does not sit in appeal over the award passed by the Learned Arbitrator. In this regard, it is submitted that as the Learned Arbitrator, on the basis of the evidence on record, both oral & documentary, has passed the award in respect of the claim item No. 3 towards outstanding dues, the same cannot be interfered with, especially when the Appellant has failed to make out a case for setting aside the award in respect of the said item of claim, as provided under Section 34 of the Act. 10. As regard the award of interest by the Learned Arbitrator, Learned Counsel for the Respondent fairly accepts the position that Clause 16(2) of the GCC prohibits award of interest either on the earnest money & security deposit or any amount payable to the contractor under the contract. However, it is submitted that the Respondent is entitled to interest on the awarded amount of Rs. However, it is submitted that the Respondent is entitled to interest on the awarded amount of Rs. 11,13,266/- @ 18% per annum, from the date of award to the date of payment, as provided under Section 31(7)(b) of the Act. On a perusal of the impugned order, it is seen that the Learned District Judge has come to find that there is no justification for setting aside the award as regard claim item No. 3, as the Learned Arbitrator has considered all aspects of the matter & has given his findings on the basis of the materials available on record. As regard the plea of the Appellant that the contractor Respondent having furnished "no claim certificate" prior to the payment of final bill, no claim for any further amount by way of compensation is maintainable, Learned District Judge has dealt with the same in detail & has come to hold that mere furnishing of a "no claim certificate" cannot be bar, to prevent the contractor for raising a justified claim, by invoking the arbitration clause. This finding of the Learned District Judge cannot be faulted. 11. Coming to the question regarding the award of interest by the Learned Arbitrator, from the date of cause of action to the date of award, Learned District Judge has come to hold as under:-- "xxx The withholding is permissible only if there is any claim of the Railway against the contractor, whereas in the present case there was no such occasion. Neither before the Learned Arbitrator nor before this Court any material was placed to show that the Railway authority had any claim whatsoever against the contractor. Moreover, the work was completed on 30.11.1996 & 90% of the security money was released on 12.01.1998 & the balance was released only on 08.01.2001 when the final bill was passed after singing of no claim certificate by the contractor. The Learned Arbitrator has awarded interest on the unpaid security amount from 31.05.1997 till 09.02.2001. Further the rate of interest has been calculated at the rate of 12 percent per annum which is not unreasonable." 12. The Learned Arbitrator has awarded interest on the unpaid security amount from 31.05.1997 till 09.02.2001. Further the rate of interest has been calculated at the rate of 12 percent per annum which is not unreasonable." 12. Clause 16(2) of the GCC governing the contract between the parties bars payment of interest, which is extracted below: "16(2) Interest on amounts: 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. Interest on the said Government Security will be drawn by the Railway Administration & credited to the Contractor & the Contractor shall not be entitled to claim any other sum by way of interest or profit on the said Security Deposit than the amount actually drawn by the Railway Administration from the Government" 13. It is now well settled that if there is a bar against payment of interest in the contract, the Arbitrator cannot award any interest for the pre-reference period or pendent lite. The Apex Court in M/s. Sree Kamatchi Amman Constructions (supra), has reiterated that Section 31(7)(a) of the Act by using the words "unless otherwise agreed by the parties" categorically clarifies that the Arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to date of award. Therefore where the parties had agreed that no interest shall be payable, arbitral tribunal cannot award interest between the date when the cause of action arose to date of award. 14. Section 31(7)(b) of the Act provides that a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest @ 18% per annum from the date of the award to the date of payment. In view of the specific bar under Clause 16(2) of the GCC, which governs the contract between the parties, the award of interest by the Learned Arbitrator amounting to Rs. 12,46,784/-, on the awarded outstanding dues of Rs. 11,13,266 from the date of cause of action till the date of award & Rs. 7800 as interest on the outstanding security deposit till 08.02.2001 was not proper & justified & the same is accordingly set aside. 12,46,784/-, on the awarded outstanding dues of Rs. 11,13,266 from the date of cause of action till the date of award & Rs. 7800 as interest on the outstanding security deposit till 08.02.2001 was not proper & justified & the same is accordingly set aside. However, the Respondent is entitled to interest on the awarded amount of Rs. 11,13,266/- @ 18% per annum, from the date of the award till the date payment. The appeal is accordingly allowed to the extent indicated above.