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TMI Blog2009 (12) TMI 1007X X X X Extracts X X X X X X X X Extracts X X X X ..... after, SCC) and they stipulate that the General Conditions of Contract (hereinafter, GCC) and standard specifications of the North Eastern Railways shall form part of the aforesaid contract. In terms of the contract, the construction was to be completed by 15.02.1982. Certain payments were made to the appellant after completion of the contract but they were received by them "under protest". Thus, disputes cropped-up between the parties. The appellant is said to have served a notice dated 16.11.1983 for the appointment of an arbitrator to settle the disputes. The General Manager of the respondent- Railways by an order dated 24.03.1986 rejected the appellant's prayer for appointment of an arbitrator on the ground that the disputes were not arbitrable, as they fell under 'expected matter' in the contract. 3. On or about 18.08.1987, the appellant filed an application under Section 20 of the Arbitration Act, 1940 (hereinafter, the Act) before the Court of Addl. Civil Judge, Gorakhpur for appointment of an arbitrator which was transferred on 21st February, 1990, to the Court of Judge of Small Causes /Additional Civil Judge (hereinafter, the Court below). The Court below passed an order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ys filed an application on 23rd November, 1992, before the court below for summoning their application and under Section 30/33 of the Act from the Court where it was filed. This was objected to by the Contractor on the same date. However, the Court below summoned it and not only rejected it but also rejected their objections against the application under Section 17 of the Act. The Court below by its order dated 1.12.1992 also pronounced judgment according to the award and decreed interest at the rate given by the Bank from the date of the award till actual payment". 7. On 1st December 1992, the Senior Civil Judge, Gorakhpur of the Court of Judge, Small Causes Gorakhpur made the award a Rule of Court and directed that a decree be prepared accordingly and directed that from the date of the award to the date of payment the rate of interest on the Bank loan is to be paid. 8. Challenging the aforesaid order of the Civil Judge, the Railways filed an appeal before the High Court. 9. Before the High Court, 7 issues were framed. The appeal was partly allowed by the High Court and in doing so the High Court came to the conclusion that the court below had the jurisdiction to entertain the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udhraj, AIR 2001 SC 628 High Court held that interest could not be awarded since there was specific prohibition in the contract regarding awarding of interest. 15. On the award of interest High Court's specific conclusions are: "(f) The contract prohibited payment of interest. Item 10 is award for interest; it could not be awarded. Similarly no interest could be awarded under clause 3 of the Award. (g) There is no illegality in awarding interest payable at the bank rate, but it could only be awarded from the date of decree and not from the date of award." 16. Appellant also filed a review petition before the High Court but the same was dismissed vide order dated 15.05.2003. 17. This Court finds that the High Court's conclusion that Item Nos. 1 to 3 and 5 to 8 of the award are 'excepted matters' and non-arbitrable is not correct for the reasons discussed below. 18. In coming to the aforesaid finding, the High Court relied on Clause 45 (a) of GCC. Clause 45(a) of the GCC is set out below: "45(a): It shall be open to the Contractor to take specific objection to any recorded measurement or classification on any ground within seven days of the date of such measurements. Any re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. 25. On the question of grant of interest by the arbitrator, the High Court held that Clause 16(2) of the GCC contains a provision against grant of interest. Clause 16(2)of the GCC is set out below: "16(2): No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract but government securities deposited in terms of such clause (1) of this clause will be repayable with interest accrued thereto." 26. The High Court has also relied on Clause 30 of the SCC and Clause 52 of the GCC to hold that payment of interest has been barred. The relevant portion of Clause 30 of the SCC relating to interest is set out below: "...That the contractor will have no claim for interest and damage whatsoever on any account in respect of such with-holding or retention under the lien referred to supra and duly notified as such to the Contrac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to award interest up to the date of institution of the proceedings, in cases which arose prior to the commencement of the 1978 Act the arbitrator has no such power under the Interest Act of 1839." (Para 4) 37. The decision in Abhaduta Jena (supra), however, was overruled by the Constitution Bench of this Court in Secretary, Irrigation Department, Government of Orissa and Others Vs. G.C. Roy, [1992 (1) SCC 508]. 38. The Constitution Bench in G.C. Roy (supra) discussed several aspects of the Act of 1940 and also the provisions of Section 34 of the Civil Procedure Code and also those of the Interest Act. After discussing those provisions, the Constitution Bench formulated the question which arose in that case as follows:- "......In the context of these provisions the question arises whether an arbitrator to whom reference is made by the parties has jurisdiction or authority to award interest pendente lite. If the arbitration agreement or the contract itself provides for award of interest on the amount found due from one party to the other, no question regarding the absence of arbitrator's jurisdiction to award the interest could arise as in that case the arbitrator has power to aw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (prereference period). For doing complete justice between t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r consideration and this Bench following the ratio in G.C. Roy (supra) and Hindustan Construction (supra) considered the question of payment of interest. After discussing the ratio in Abhaduta Jena (supra) and G.C. Roy (supra) and various other cases, the learned Judges in paragraph 18 at page 477 of the report came to the conclusion that; (a) it is well settled that the arbitrator has a jurisdiction to award pre-reference interest in cases which arose after the Interest Act, 1978 had become applicable. It is no doubt that in this case arbitration proceedings were initiated after the 1978 Act became applicable; (b) for the period in which the arbitration proceedings are pending the arbitrator has the power to award interest; (c) the Court also held that the power of the arbitrator to award interest for the post-award period also exists. 44. In G.C. Roy (supra) this Court made it clear that the arbitration clause was silent on the payment of interest but in B.N. Agarwalla (supra) the Court considered Clause (4) which had the following stipulation on interest: "......No interest is payable on amounts withheld under the item of the agreement....... " 45. Considering the said Claus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pra) held that Clause 13(g) merely prohibits the Commissioner from entertaining any claim for interest but it does not prohibit the arbitrator from awarding interest. The learned Judges held that such clauses must be strictly construed in view of the ratio of the Constitution Bench in G.C. Roy (supra). The reasoning given by the learned Judges in favour of strict construction runs as follows:- "...Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the arbitrator is not, in any manner, stifled by this term of the contract and the arb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gment the learned Judge summed up the position as follows:- "...By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to civil court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise it could have successfully asserted before courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of its substantive rights under the various laws in force, according to which only even the arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods ..... X X X X Extracts X X X X X X X X Extracts X X X X
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