IMPORTANT POINT –
Section 37(1) of Arbitration and Conciliation Act, 1996 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 the date of award. Hence where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award.

Headnote:Arbitration and Conciliation Act, 1996 – 31(7) – Contract for supply of mono block concrete sleepers – Dispute between parties referred for arbitration – Award passed by Arbitrator – Issue in consideration whether contractors were entitled to interest for the amount withheld and if so at what rate – Case of appellants that arbitrator had no authority to award interest in view of the prohibition contained under Section 31(7) of Act, 1996 and that contract entered into between parties did not provide for any payment of interest – Held sole arbitrator in awarding interest to the contractors failed to take into account the provisions contained in two clauses 2401 and 2403 of agreement – Award of interest at – least from the date when the amount was deposited in Court was wholly unwarranted – High Court as well as the arbitrator committed an error of jurisdiction in this respect – Section 37(1) of the new 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 the date of award – Where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award – Hence arbitrator could not have awarded any interest from the date when the recovery was made till the award was made – Direction given that respondents would not be entitled to any interest on the amount which was recovered by appellant, till the date of award and thereafter till the date when the amount awarded was deposited in the High Court – Appeals allowed
       Facts of the Case –
       A. The appellant herein in the instant case had entered into agreements with the respondents for supply of mono block concrete sleepers. The agreements were renewed from time to time under which the Union of India agreed to pay specified rates for supply of each sleeper. The agreements/contracts also provided that the rates payable shall be based on certain standard rates of principal raw materials, such as cement, High Tensile Steel (HTS) wires, molded steel, etc. On dispute between parties matter was referred to arbitration in terms of the contract.
       B. The only question which arises for consideration of this Court is whether the contractors are entitled to interest for the amount withheld and if so at what rate. Case of appellant that arbitrator had no authority to award interest in view of the prohibition contained under Section 31(7) of the Arbitration Act, 1996.
       Findings of the Court –
       The Apex Court held that sole arbitrator in awarding interest to the contractors failed to take into account the provisions contained in two clauses 2401 and 2403 of agreement. Award of interest at – least from the date when the amount was deposited in Court was wholly unwarranted. High Court as well as the arbitrator committed an error of jurisdiction in this respect. Section 37(1) of the new 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 the date of award. Where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award. Hence arbitrator could not have awarded any interest from the date when the recovery was made till the award was made. Direction given that respondents would not be entitled to any interest on the amount which was recovered by appellant, till the date of award and thereafter till the date when the amount awarded was deposited in the High Court. Appeals were allowed
       Result – Appeals allowed

JUDGMENT

SURINDER SINGH NIJJAR, J.

1. Leave granted.

2. These appeals impugn the final judgment and decree dated 21st March, 2012 passed by the High Court of Judicature at Madras in OSA No. 44 & 45 of 2012 and M.P. No. 1 of 2012, whereby the letters patent appeals of the Union of India were dismissed. The appellant had entered into agreements with the respondents on 30th January, 1983 and 30th March, 1984 for supply of mono block concrete sleepers (in short “Sleepers”). The agreements were renewed from time to time under which the Union of India agreed to pay specified rates for supply of each sleeper. The agreements/contracts also provided that the rates payable shall be based on certain standard rates of principal raw materials, such as cement, High Tensile Steel (HTS) wires, molded steel, etc. The contracts further provided that whenever the cost of the principal raw materials increased or decreased, the contract price for sleepers shall also correspondingly be increased or decreased with effect from the date of such increase or decrease. The agreements/contracts also provided for escalation, subject to certain conditions prescribed under Clause 11 of the Contract. The contracts/agreements further provided that the respondents must exercise utmost economy in the purchase of raw materials and that the escalation will be admitted on the basis of actual price paid for the respective raw material. This was subject to the ceiling on the price. As per Clause 12.2(c), ceiling was fixed “in the case of raw materials not covered by either of the above, the lowest price (for destination) arrived at on the basis of at least three quotations obtained by the Contractor for each supply from various established sources of supply of the respective raw materials”.

3. The respondents/contractors purchased HTS wires from established sources in terms of the various clauses of the contract. The material was used in the manufacture of sleepers. Payment for the sleepers was made by the contractors at the lowest price quoted by the suppliers. The quotation was also scrutinized alongwith the supporting documents. The Railway authorities release the payment to the respondent contractors only upon their satisfaction, upon scrutiny of all the relevant documents.

4. A new contract was entered into between the parties in May, 1997. The railway administration changed the policy and allowed the respondents/contractors to purchase the HTS wires, subject to escalation as noticed above. By letter dated 12th July, 1997, the railways administration informed the respondents that the Railway Board had found that excess payments had been made between 1989 and November, 1994 under escalation clause for HTS wires. It was stated that the amounts paid to the contractors were more than the prevalent market price. Therefore, a sum of Rs. 1,80,92,462/- was recoverable from M/s Concrete Products and Construction Company, respondent in C.A. No. ____________ (arising out of SLP(C) No. 5384 of 2013) and a sum of Rs.1,78,09,789/- was recoverable from M/s. Kottukulam Engineers Private Limited, respondent in C.A. No. ______ (arising out of SLP(C) No. 5385 of 2013). It was also pointed out that the aforesaid sums would be recoverable from the sums due and payable to them in the current/running contracts.

5. The contractors (respondents herein) challenged the aforesaid recovery by filing Writ Petition No. 11805 and 10814 of 1999, before the High Court of Madras. The railway administration took up the preliminary objection, pleading that the writ petition is not maintainable as the dispute has to be referred to arbitration. The objection of the appellant was accepted. The High Court appointed a Former Judge of the Madras High Court as the arbitrator to adjudicate the dispute. The contractors/respondents herein challenged the aforesaid order of the learned Single Judge by filing Writ Appeal Nos. 251 and 252 of 2000, on the plea that the arbitrator had to be appointed in terms of the a

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Judicial Analysis

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2014 Supreme(SC) 173

SUPREME COURT OF INDIASurinder Singh Nijjar And Fakkir Mohamed Ibrahim Kalifulla, JJ.Union of India -– AppellantVERSUSM/s. Concrete Products & Const. Co. Etc. – RespondentsCIVIL APPEAL NO2950-2951 OF 2014(Arising out of SLP © Nos. 5384-5385 of 2013)Decided On : 03-03-2014

Cases Referred (6)

Judicial Analysis

SUPREME COURT OF INDIA
Surinder Singh Nijjar And Fakkir Mohamed Ibrahim Kalifulla, JJ.
Union of India -– Appellant
VERSUS
M/s. Concrete Products & Const. Co. Etc. – Respondents
CIVIL APPEAL NO2950-2951 OF 2014
(Arising out of SLP © Nos. 5384-5385 of 2013)
Decided On : 03-03-2014