2009 (12) TMI 1007 - SC - Indian Laws

Arbitration Proceedings - Application filled u/s 20 - for appointment of an arbitrator - Grant of interest by the arbitrator - Agreement was entered between the appellant and the North Eastern Railway for the construction of bridge - special conditions of the contract (SCC) and they stipulate that the General Conditions of Contract (GCC) and standard specifications of the North Eastern Railways shall form part of the aforesaid contract - payments made to the appellant after completion of the contract but they were received by them under protest - High Court considered Clause 30 of SCC and Clause 52 of GCC and found them to be similar and these clauses according to High Court bar interest and damages in respect of withholding or retention under the lien. HELD THAT - The arbitrator in his award after perusal of the level Book No.1 Graph-Sheets Logbook No. 1A and Logbook No.4 came to a clear finding that there were manipulations/alterations/over writings by the railways and as a result of which the volume of work done by the contactor has been reduced. It is well settled that the arbitrator is the master of facts. When the arbitrator on the basis of record and materials which are placed before him by the railways came to such specific findings and which have not been stigmatized as perverse by the High Court the High Court in reaching its conclusions cannot ignore those findings. But it appears that in the instant case the High Court has come to the aforesaid finding that the items mentioned above are excepted matters and non-arbitrable by completely ignoring the factual finding by the arbitrator and without holding that those findings are perverse. It goes without saying that in order to deny the claims of the contractor as covered under excepted matters the procedure prescribed for bringing those claims under excepted matters must be scrupulously followed. The clear finding of the arbitrator is that it has not been followed and the High Court has not expressed any dis-agreement on that. Therefore the finding of the High Court that those items are non-arbitrable cannot be sustained. Before discussing the implication of these clauses it may be noted that the Arbitration Act 1940 does not contain any provision enabling the arbitrator to give interest. Section 29 of the Arbitration Act enables the Court to award interest from the date of the decree and at such rate as the Court deems reasonable. The present Act of 1996 (the Arbitration and Conciliation Act 1996) however empowers the Arbitrator under Section 31(7)(a) and (b) to grant interest. Admittedly in this case the 1996 Act is not attracted. Therefore the provisions of 1940 Act will govern. The arbitrator s power to grant interest is governed by the various judicial pronouncements and the provisions of Interest Act of 1978. Under the Interest Act Section 3 empowers the Court to allow interest. But sub-Section (3) of Section 3 contains a proviso namely Section 3 sub-Section (3) Clause (a) (ii). Normally there are three periods for which interests are awarded - (a) pre-reference period i.e. from the date of the cause of action for going to arbitration and to the date of reference; (b) the pendente lite period i.e. from the date of reference to the date of award; and (c) the postreference period i.e. from the date of the award to the date of realization. In the instant case also the relevant clauses which have been quoted above namely Clause 16(2) of GCC and Clause 30 of the SCC do not contain any prohibition on the arbitrator to grant interest. Therefore the High Court was not right in interfering with the arbitrator s award on the matter of interest on the basis of the aforesaid clauses. We therefore on a strict construction of those clauses and relying on the ratio in Engineers 1995 (12) TMI 400 - SUPREME COURT find that the said clauses do not impose any bar on the arbitrator in granting interest. In N.C. Budharaj 2001 (1) TMI 916 - SUPREME COURT Justice Raju speaking for the majority considered the question of the arbitrator s jurisdiction and authority to grant interest in great detail and also considered both Indian and English cases and the ratio of the Constitution Bench of this Court in G.C. Roy 1991 (12) TMI 268 - SUPREME COURT . We are constrained to note that Hon ble High Court unfortunately erred in appreciating the ratio of N.C. Budharaj 2001 (1) TMI 916 - SUPREME COURT in passing the impugned judgment and order. In view of such consistent views taken by both the Constitution Bench judgments in G.C. Roy (supra) and N.C. Budharaj (supra) we are of the view that in the facts of this case no interference is called for with the award passed by the arbitrator. The judgment of the High Court is therefore set aside and the award is upheld. The appeal is allowed.

Summary

Issues Involved:
1. Jurisdiction of the Court
2. Arbitrability of Disputes
3. Excepted Matters
4. Award of Interest by the Arbitrator

Detailed Analysis:

Jurisdiction of the Court:
The High Court concluded that the court below had the jurisdiction to entertain the application under Section 17 of the Arbitration Act, 1940. This was affirmed despite the respondent Railways' contention that the disputes were not arbitrable as they fell under 'excepted matters' in the contract.

Arbitrability of Disputes:
The High Court held that the decision of the General Manager regarding excepted matters is not final between the parties and that the General Manager could not exclude the jurisdiction of the Court by wrongly deciding this question. The High Court also concluded that the trial court did not address the issue of excepted matters, leaving it to be decided by the Arbitrator, who held that none of the contractor's claims were excepted matters.

Excepted Matters:
The High Court identified Item Nos. 1 to 3 and 5 to 8 as excepted matters and non-arbitrable, concluding that the Arbitrator committed an illegality in allowing them. However, the Supreme Court found this conclusion incorrect, emphasizing that the Arbitrator, as the master of facts, had found manipulations and alterations by the Railways, which the High Court ignored without deeming those findings perverse. The Supreme Court held that the procedure prescribed for bringing claims under excepted matters must be scrupulously followed, which was not done in this case.

Award of Interest by the Arbitrator:
The High Court held that the contract prohibited the payment of interest based on Clause 16(2) of the GCC, Clause 30 of the SCC, and Clause 52 of the GCC. The Supreme Court, however, noted that these clauses did not contain any prohibition on the arbitrator to grant interest. The Supreme Court referenced several judgments, including G.C. Roy and N.C. Budharaj, to support the arbitrator's authority to award interest, concluding that the High Court erred in interfering with the arbitrator's award on interest.

The Supreme Court emphasized that an arbitrator has the power to award interest for the pre-reference period, pendente lite, and post-award period unless explicitly prohibited by the contract. The judgment of the High Court was set aside, and the arbitrator's award was upheld. The appeal was allowed with no order as to costs.