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2020 DIGILAW 903 (PNJ)

Union of India v. Dharampal Sharma

2020-03-05

DEEPAK SIBAL

body2020
Judgment Mr. Deepak Sibal, J.: (Oral) - In the present appeal, instituted under Section 37 of the Arbitration and Conciliation Act, 1996 (for short – the Act), challenge is made to the order dated 03.11.2014 passed by the District Judge, Pathankot upon an application filed by the appellant under Section 34 of the Act. 2. The facts, in brief, which are required to be noticed for adjudicating upon the present appeal are that through an agreement dated 09.03.1994 the appellant awarded to the respondent the work of repair of A, B and C class level crossing in the section of IOW/Northern Railway, Pathankot. As per the agreement disputes between the parties were to be resolved through the mode of arbitration. Disputes arose between the parties and they were referred to a sole Arbitrator. Through his Award dated 18.08.2012 the Arbitrator held respondent No.1 entitled to receive from the appellant an amount of Rs.4,22,693/-. It was further directed that the earnest money be released to respondent No.1 and that if the awarded amount was not paid by the appellant within 90 days from the date of receipt of the Award the same would be paid alongwith simple interest @ 9% per annum for the delay beyond the said period of 90 days. 3. The respondent filed an application under Section 34 of the Act seeking setting aside of the aforesaid Award only to the extent that through the same the Arbitrator had not awarded to respondent No.1 any interest from the date the awarded amount had become due as also for the period when the dispute was pending before the Arbitrator. The District Judge, Pathankot, through his order dated 03.11.2014, upheld the non-grant of interest for the pre-reference period but set aside the Award with regard to non-grant of interest for the period the reference was pending before the Arbitrator and remanded the matter to the Arbitrator for a fresh decision on that issue. The afore-referred direction passed by the District Judge, Pathankot is the subject matter of challenge in the present appeal. 4. The afore-referred direction passed by the District Judge, Pathankot is the subject matter of challenge in the present appeal. 4. Learned counsel for the appellant submits that as per clause 16 (2) of the General Conditions of Contract (for short – GCC), no interest was payable to the contractor for any amount which may be found due to him and therefore, the District Judge, Pathankot, erred in setting aside the Award of the Arbitrator to the extent of non-grant of interest for the reference period. 5. Per contra, learned counsel for the respondent submitted that once the claimed amount was found due to be paid to the respondent, interest should have been allowed by the Arbitrator as the same was only as a natural consequence. 6. Clause 16 of the GCC duly agreed to between the parties may be advantageously referred to. The same reads as under:- “16. Earnest money and security deposit;- (1) The earnest money deposited by the Contractor with his tender will be retained by the Railway as part of security for the due and faithful fulfillment of the contract by the Contractor. The balance to make up this security deposit which will be 10 per cent of the total value of the contract, 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 deduction from the Contractor’s “on account” bills, provided also that in case of a defaulting contractor on the spending ‘on account bills’ so that the amount or amounts so retained may not exceed 10% of the total value of the contract. (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 subclause (1) of this clause will be repayable with interest accrued thereon.” (emphasis supplied) 7. As per the afore-quoted clause 16(2) of the GCC the parties had agreed that no interest would be payable to the contractor on the earnest money or the security deposit or any amount payable to it under the contract and only Government securities deposited in terms of clause 16(1) were repayable alongwith interest accrued thereupon. 8. As per the afore-quoted clause 16(2) of the GCC the parties had agreed that no interest would be payable to the contractor on the earnest money or the security deposit or any amount payable to it under the contract and only Government securities deposited in terms of clause 16(1) were repayable alongwith interest accrued thereupon. 8. Clause 16(2) creates a specific bar with regard to grant of interest on any amount which may be found payable to the contractor under the contract. Once the parties had specifically agreed to such term, the Arbitrator through his Award dated 18.08.2012, rightly did not grant any interest to the respondent contractor for the pre-reference or the reference period. 9. The above view of mine finds support from the opinion expressed by the Supreme Court in Union of India versus vs. M/s Bright Power Projects (I) P. Ltd., (2015) 9 SCC 695 wherein while considering a clause in a contract which was similar to the afore-quoted clause 16(2) the Supreme Court held that in terms thereof the contractor was not entitled to grant of any interest whatsoever. The relevant observations in this regard are as follows:- “10. Clause 13(3) of the contract entered into between the parties reads as under: “13(3). No interest will be payable upon the earnest money and 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.” 11. Thus, it had been specifically understood between the parties that no interest was to be paid on the earnest money, security deposit and the amount payable to the contractor under the contract. So far as payment of interest on Government Securities, which had been deposited by the respondent contractor with the appellant is concerned, it was specifically stated that the said amount was to be returned to the contractor alongwith interest accrued thereon, but so far as payment of interest on the amount payable to the contractor under the contract was concerned, there was a specific term that no interest was to be paid thereon. 12. When parties to the contract had agreed to the fact that interest would not be awarded on the amount payable to the contractor under the contract, in our opinion, they were bound by their understanding. 12. When parties to the contract had agreed to the fact that interest would not be awarded on the amount payable to the contractor under the contract, in our opinion, they were bound by their understanding. Having once agreed that the contractor would not claim any interest on the amount to be paid under the contract, he could not have claimed interest either before a civil court or before an Arbitral Tribunal.” (emphasis supplied). 10. In view of the above, the order dated 03.11.2014 passed by the District Judge, Pathankot is set aside to the extent of remand of the matter to the Arbitrator. 11. The appeal is allowed in the above terms.