1999 (2) TMI 685 - SC - Indian Laws

Summary

Issues Involved:
1. Arbitration clause and its applicability.
2. Legality and maintainability of arbitration proceedings.
3. Waiver and acquiescence by the respondent-State.
4. Award of interest by the arbitrator.

Detailed Analysis:

1. Arbitration Clause and Its Applicability:
The contracts between the contractors and the respondent-State included an arbitration clause (Clause 3.3.29), which required disputes to be referred to the Superintending Engineer for a final decision before arbitration could be initiated. The clause stipulated that if a party was dissatisfied with the Superintending Engineer's decision, they had to notify within 28 days to seek arbitration. The trial court and the High Court held that the absence of a decision by the Superintending Engineer rendered the arbitration clause inapplicable, making subsequent arbitration proceedings void.

2. Legality and Maintainability of Arbitration Proceedings:
The appellants contended that the State of Madhya Pradesh had submitted to arbitration and thus waived its right to object. The court noted that an arbitrator's award is not invalid merely because it is a lump sum or non-speaking award. The principle issue was whether the absence of a decision by the Superintending Engineer invalidated the arbitration proceedings. Legal authorities (Hudson, Russell) suggest that an arbitrator can override the certifier's failure to issue a certificate if the certifier unreasonably refuses to act.

3. Waiver and Acquiescence by the Respondent-State:
The court found that the respondent-State had, through its conduct, waived the requirement of a decision by the Superintending Engineer. In both cases, the State had initially agreed to arbitration and appointed arbitrators, only to later object to the proceedings. The court held that the State could not take advantage of its own failure to comply with Clause 3.3.29 and that the procedural prerequisites were waived by the State's actions.

4. Award of Interest by the Arbitrator:
The court addressed the legality of awarding interest, noting that under the Interest Act of 1839, interest could not be awarded in the absence of statute, contract, usage, or custom. The court upheld the trial court's decision to set aside the interest awarded for the pre-reference period. However, for the period during which the arbitration was pending, the court relied on the precedent set in Secretary (Irrigation Department) Government of Orissa v. G.C. Roy, which allowed arbitrators to award interest pendente lite. The court upheld the arbitrator's award of interest for the period during which the arbitration proceedings were ongoing.

Conclusion:
The Supreme Court allowed the appeals, setting aside the judgments of the High Court and the trial court. The awards dated 26.9.1978 were made rule of the court, with the modification that the contractor-claimants would not be entitled to interest up to the date of reference. The decrees were to be drawn accordingly, and no order as to costs was made.