Important Points
1. After the coming into force of the Interest Act, 1978, Arbitrator has power to grant interest for pre-reference period.
2. Section 29 of the U.P. Civil Laws (Reforms and Amendment) Act, 1976 only bars the power of Arbitrator and not the Court to award interest.
3. A question purely on merits of the award which could not be agitated in objections as they were not in the nature of an appeal against the award before the court below.

Headnote:(i) Arbitration Act, 1940-Section 13 - Powers of - Power to award interest-Cause of action arising after coming into force of Interest Act, 1978-Arbitrator has power to grant interest for pre-reference period-Clause in Arbitration agreement that no interest payable for delayed payment on money lying unpaid due to dispute-Not a bar to award interest on awarded amount -It was not.
       Held : In dispute between the parties that in the present cases the cause of action for reference arose after coming into force of the Interest Act, 1978. Consequently, it cannot be effectively urged by learned senior counsel for the appellant-State that the arbitrator had no power to grant such pre-reference period interest. (Para 7)
       It was vehemently contended that even if arbitrator had power to award interest for pre-reference period, Clause 1.9 prohibited the consideration of such claim by the arbitrator. A mere look at the Clause shows that the claim for interest by way of damages was not to be entertained against the Government with respect to only a specified type of amount, namely, any moneys or balances which may be lying with the Government owing to any dispute, difference between the Engineer-in-Charge and the contractor; or misunderstanding between the Engineer-in-charge and the contractor in marking periodical or final payments or in any other respect whatsoever, The words “or in any other respect whatsoever” also referred to the dispute pertaining to the moneys or balances which may be lying with the Government pursuant to the agreement meaning thereby security deposit or retention money or any other amount which might have been with the Government and refund of which might have been withheld by the Government. The claim for damages or claim for payment for the work done and which was not paid for would not obviously cover any money which may be said to be lying with the Government. Consequently, on the express language of this Clause, there is no prohibition which could be culled out against the respondent-contractor that he could not raise the claim for interest by way of damages before the arbitrator on the relevant items placed for adjudication. In fact, similar contention has been repelled by the aforesaid decision of the 3-Judge Bench of this Court in paragraphs 24 and 25 of the Report. It has been clearly observed in paragraphs 24 and 25 of the Report. It has been clearly observed in paragraph 25 of the Report that under Clause 4 which was pressed in service, no interest was payable on the amount withheld. The claim which was made in that case by Durga Parshad before the arbitrator was for the non-payment of the full amount as per final bill submitted by him and the interest so awarded on the said amount was clearly not covered by Clause 4 of the contract. Similar is the facts situation in the present case and the wording of the Clause in question is also of an identical nature. Therefore, the contention of learned senior counsel for the appellant-State that Clause 1.9 barred the consideration of such a claim for interest cannot be sustained. The High Court, therefore, rightly came to the conclusion that that Clause was not a bar to such a claim. (Paras 8 & 9)
       (ii) Arbitration Act, 1940-Sections 13 and 29-U.P. Civil Laws (Reforms and Amendment) Act, 1976 - Section 24 - Arbitrator awarding interest at the rate of 15% from date of reference till date of award and 6% from date of award to date of actual payment-Award made rule of court with direction claimant would be entitled to get ordinary interest of 15% on award upto satisfaction of decree-High Court reducing interest to 6% from date of decree till satisfaction - Not justified - Arbitrator had no power to award interest at 6%-Court has discretion to award interest beyond that-Section 29 of U.P. Civil Laws Amendment Act not a bar to award interest by Court -Claimant entitled to interest at 15%.
       Held : Senior counsel for the respondent-State vehemently submitted that as per Section 24 of the U.P. Civil Laws (Reforms and Amendment) Act, 1976, paragraph 7-A was inserted in the First Schedule to the Arbitration Act, 1940 which barred the power of the arbitrator in granting more than 6 per cent interest on the awarded amount and, therefore, the High Court was justified in reducing 15.5 per cent interest to 6 per cent in the light of the said provision. The aforesaid contention of the learned counsel has to be examined in the light of what the High Court stated in para 9 of the impugned judgment. It has observed that when the arbitrator has found interest at the rate of 6 per cent per annum to be reasonable, the trial Court ought to have adopted the same rate of interest for being awarded to the contractor. In our view, the said reasoning cannot be sustained for the simple reason that even if aforesaid paragraph 7-A which was not pressed in service before the High Court could be resorted to, it only barred the power of the arbitrator and not of the court. Further, it could not be said that the arbitrator had found the interest at the rate of 6 per cent per annum to be reasonable. In fact, he had no authority or power to go beyond 6 per cent interest. So far as the court is concerned, it is in its discretion to award 15.5 per cent interest on the decretal amount from the date of the decree till satisfaction of the decree. As that was within the realm of the discretionary jurisdiction of the trial Court it could not have been set aside by the High Court in appeal. The cross-appeal will stand allowed to this extent by modifying the judgment and order of the High Court by substituting 15.5 per cent interest instead of 6 per cent interest per annum from the date of the decree till payment. (Para 10)
       (iii) Arbitration Act, 1940-Section 30-Ground for setting aside award-Question purely on merits of the award could not be agitated in objections as there were not in the nature of an appeal against the award before the Court below. (Para 9)

Judgment

Majmudar, J.-Leave granted in SLP (C) No. 6307 of 1996.

We have heard learned senior counsel for the parties in these two appeals.

2. Both these appeals by special leave arise out of one and the same judgment rendered by the High Court of Judicature at Allahabad.

3. In Civil Appeal No. 7643 of 1995, the appellant-State of U.P. has brought in challenge the aforesaid order of the High Court dismissing its appeal against the award decree passed by the learned Trial Judge subject to a slight modification in favour of the appellant-State to which we will make a reference while considering the cross-appeal arising out of SLP (C) No. 6307 of 1995. The cross-appeal is filed by the respondent Harish Chandra & Co. in Civil Appeal No. 7643 of 1995 who has felt aggrieved by the modification regarding rate of interest as ordered by the High Court in the impugned judgment to the extent it reduced interest from 15 per cent per annum as awarded by the trial Court from the date of decree till payment to 6 per cent.

4. A few facts leading to the controversy in question may be stated at the outset. On 26th October, 1979, an agreement was entered into between the Suprintending Engineer, Irrigation Construction Circle, Dehradun on behalf of the appellant-State on the one hand and M/s. Harish Chandra & Co., New Delhi (respondent herein) on the other. The work entrusted to the respondent-contractor was for excavation of Khara Power Channel from K.M. 8 to K.M. 9.8 and also the construction of drainage crossings at Chhoti Lui at K.M. 9.2 and Bari Lui at K.M. 9.6. The work was to be started on 1.12.1979 and was to be completed latest by 31.5.1982. It is the case of the appellant-State that the respondent-contractor did not complete the work within the specified time, that is, by 31.5.1982. Time was extended and still he did not complete and left the work incomplete on 31.5.1986. That required the State to get the work completed through other agencies which resulted in incurring of additional costs by the State in completing the said work. Disputes arose between the parties in connection with the work which was carried on by the respondent before the aforesaid date, i.e., 31.5.1986. It appears that the respondent issued a letter dated 16.11.1983 regarding various claims put forward in the said letter and seeking arbitration of the said disputes as per the Clause contained in the Special Conditions of the Contract. The Chief Engineer, Yamuna Valley Projects, Irrigation Department, Dehradun responded to the said letter of the respondent and referred the claims Nos. 1, 2, 4 to 8, 13, 15 and 16 contained in the claimant’s aforesaid letter for arbitration to the sole arbitrator - Chief Engineer, Irrigation Department of the State. After hearing the parties, the arbitrator rendered his award dated 24th February, 1992. The arbitrator awarded interest on the amounts found due by him to the respondent at the rate of 15 per cent from 16.11.1983, that is, the date on which the claimant had sought for reference, to 5.1.1988 on different items. Interest pendente lite was also allowed at 15 per cent and 6 per cent interest was allowed on the amounts found due from the date of the award to the date of actual payment or date of decree whichever was earlier. The said award was sought to be made rule of the court by the respondent. The appellant-State raised various objections to the award being made rule of the court. The learned Trial Judge/Civil Judge, Dehradun, after hearing the parties, by order dated 11th March, 1993 made the award rule of the court and further directed that the claimant shall be entitled to get the ordinary interest of 15.5 per cent annum on the amount of award with effect from the date of the order upto the satisfaction of the decree. It is this decree passed by the trial Court that resulted into an appeal by the appellant-State before the High Court which came to be disposed of by the impugned judgment.

5. Learned senior counsel for th

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1998 Supreme(SC) 1131

Cases Referred (2)