SANJAY KISHAN KAUL, J.

1. M/s. Indian Farmers Fertilizers Cooperative Limited (for short „M/s. IFFCO?) floated a tender for construction of “B” Type residential quarters for its township at its Fertilizer Plant in Aonla (District Bareilly, Uttar Pradesh). M/s. Duggal Construction (India) Ltd. (for short “M/s. Duggal”) submitted its bid for the same and vide letter dated 8.4.1985, contract No.117 was allotted to M/s. Duggal for construction of 257 quarters for contract value of `4,26,80,000.00. In response to the very same tender another contract No.117-A for construction of 128 quarters was awarded to M/s. Duggal vide letter dated 25.5.1985 of about the same value.

2. The contract was to be completed within a period of 18 months as per clause 2 of Letter of Intent (for short LoI) dated 8.4.1985. Any delay was to attract liquidated damages. The relevant clause 2 reads as under:

“The entire job has to be completed within a period of 18 (eighteen) months from the date of acceptance of this Letter of Intent. Any delay in completion of job will attract liquidated damages at the rate of ½ per cent (half per cent) of the contract price (as defined under clause 1 of the letter) for each week of delay or part thereof, subject to a maximum of 5 per cent of the contract price.” The contracts were delayed by sixteen (16) months and twelve (12) months respectively.

3. The contract between the parties provided for reference of disputes to arbitration and since disputes arose about the payments to be made by M/s. IFFCO to M/s. Duggal, the same were referred to two learned arbitrators Mr. Justice M.S. Gujral (Retd.) and Air Commodore Mr. B.S. Gathwala (Retd.). The arbitrators framed two issues qua the disputes as under:

“a. Whether breach of contract has been committed, if so by which party and to what extent? b. Which party is entitled to damages from the other party and to what extent?” The arbitrators published their award on 6.6.1997 holding that M/s. Duggal was entitled to `1,31,22,353.00 from M/s. IFFCO while M/s. IFFCO was entitled to `98,654.00 from M/s. Duggal and, thus, a net award in favour of M/s. Duggal for `1,30,23,790.00 was made. M/s. Duggal was also held entitled to interest @ 18 per cent per annum on the aforesaid amount which itself amounted to `1,87,20,000.00. Thus, the total amount awarded under the award to M/s. Duggal was `3,17,43,790. Needless to say that this interest was calculated from the date of entering upon reference till date of award and further interest was also awarded from the date of award till date of payment on the sum of `3,17,43,790.00.

4. M/s. IFFCO filed objections under Sections 30 & 33 of the Arbitration Act, 1940 (hereinafter referred to as the „Old Act?), which was registered as Suit No.1412-A/1997. The principal grievance of M/s. IFFCO was that the arbitrators had exceeded their jurisdiction by awarding escalation over and above the ceiling limit of 5 per cent prescribed under the contract with a further grievance against rate of 18 per cent per annum interest. The rate of interest of 18 per cent per annum was also stated to be disputed apart from the fact that interest on interest component under the award amounted to granting compound interest which was not permissible.

5. The learned single Judge in terms of impugned order dated 25.4.2001 has allowed only one objection, i.e., award of escalation which was stated to be under the garb of damages as according to the learned single Judge such amount could not have exceeded the maximum ceiling limit of 5 per cent of the contract value. Thus, the ceiling limit which was to prevail during the period of contract was held applicable also for the spillover period. The remaining part of the award was made rule of the court.

6. We are, thus, faced with a set of cross-appeals arising from the impugned order.

7. Learned counsel for M/s. IFFCO sought to urge the following aspects in his appeal:

Grant of compound interest:

8. The award