JUDGMENT
Sharma, J.
1. This Civil 1st Appeal is directed against the judgment and decree dated 18-5-1989 passed by a learned single Bench of this Court. The admitted facts of the case are that a dispute arising out of a contract was referred to Brig. B.V. Ahuja, the then Deputy Director General Border Roads for adjudication in terms of the contract agreement. The arbitrator made the award on 3-6-1987. After the award was filed in the Court, the appellants applied for setting aside the same under Sections 30 and 33 of the Arbitration Act (for short the Act) on various grounds. The learned single Bench made the award rule of the Court after disallowing pendent lite interest amounting to Rs. 4,57 lacs, allowed by the arbitrator.
2. Thejudgment and decree impugned is assailed on the grounds : (i) that the learned single Judge failed to appreciate that the award had been made after the period of limitation prescribed under the Act had expired and as such was invalid (ii) that the arbitrator misconducted himself by allowing certain claims which were not included in the reference (iii) that the amount claimed being more than the one lac, the arbitrator was bqund to give reasons for the award.
3. The respondent-contractor has preferred cross-objections challenging the judgment and decree impugned in so far as claim No. 11 regarding grant of pcndente lite interest amounting to Rs. 4.57 lacs was disallowed.
4. The parties joined the issues which are as follows :–
1. Whether the arbitrator has misconducted himself or the proceedings? O.P. Union of India.
2. Whet her the award is otherwise invalid?
O.P. Union of India.
3. Whether there is error apparant on the face of award and the record. If so, what is its effect? O.P. Union of India.
The Court found Issues 1 and 2 against the appellants holding that the arbitrator has neither misconducted nor the award except the grant of pendente life interest was invalid. The third issue was also found against the appellants as the Court did not find any error on the face of the award.
5. The contention of Mr. Choudhary, appearing for the appellant, is that the award being non-speaking is invalid in view of the amended general conditions of contracts making it obligatory for the arbitrators to give reasons for the award if the value of the claims or counter-claims exceeds Rs. one lac. This amendment, according to him, came into effect from Oct. 3, 1986 and since the arbitrator made the award on 3-6-1987, therefore, it is invalid as no reasons have been given by the arbitrator.
He next argued that the award is also invalid because it has been made more than two and half years from the date the arbitrator entered upon the reference.
Mr. Gupta, appearing for the respondent-contractor, while supporting the judgment and decree, argued that as per law laid down by the Apex Court the arbitrator was not required to give reasons for the award. This legal position he submits, cannot be altered by amending the general conditions of contracts requiring the arbitrator to give reasons. He also argued that the parties having consented to enlarge the time enabling the arbitrator to make the award, the same cannot be challenged on this ground.
6. It is true that following sub-para was
added to sub-para (9) of condition 70 of the
general conditions of contracts by order of
the Government of India Ministry of ‘Defence :–
“If the value of the claims or counterclaims in an arbitration reference exceeds Rs. 1 lakhs, the arbitrator shall give reasons for the award.”
However, the order directed that this amendment shall come into effect from 3-10-1986. Obviously, the amendment was only prospective. Since this condition was made part of the general conditions of contracts only after 3-10-1986, therefore, it could not be read into the agreements already executed and implemented. The arbitrator, therefore, had no obligation to follow the amendment, though it would be Ideal for any arbitrator to do so. But the award is not illegal because this amendment was not in force of the time the agreement between the parties was executed. The challenge to the award on this score is therefore, not well founded.
7. Coming to the second limb of the argument, it is not disputed that the time for making the award could be extended by the arbitrator up to one year with the consent of the parties. On facts, the learned single Judge found that the parties had from time to time made joint requests to the arbitrator to enlarge the time. The last letter written jointly by them is dated 8-4-1987 in terms of which the arbitrator was requested to enlarge the time up to 31-5-1987. By another letter, the Chief Engineer Project Sampark consented to enlarge the time up to 5-6-1987, but the award was made on 3-6-1987. This finding of fact has not been assailed in the present appeal. So the only question to be decided is, whether the arbitrator could extend the period beyond one year with the consent of the parties when the agreement does not so provide. According to the learned single Judge, this condition was too technical to invalidate the award when no ground has been made out for setting aside the same under Section30 of the Act. Since the time can be extended up to one year with the consent of the parties to the agreement, further extension with the consent of the parties at best amounts to alter the condition of agreement. This cannot be disputed that the parties to the agreement was not entitled to vary its terms with mutual agreement. If that be so, the time enlarged by the arbitrator with the consent of the parties does not make the award invalid because Section 28(2) of the Act invalidates only those agreements where the arbitrator without the consent of the parties to the agreement is empowered to enlarge the time. That not being so in the present case, the arbitrator having made the award only after the parties had given their written consent for enlarging the time, the same cannot be challenged by either party on this ground.
8. Mr. Choudhary next argued that the arbitrator had no jurisdiction to adjudicate upon the claim No. 1 because Clauses 34 and 54 of the contract agreement operate as complete bar against raising such claims before the arbitrator. This objection, though raised by the appellants in their objections for setting aside the award, has not been considered by the learned single Judge. The contention of Mr. Gupta, however, is that the dispute is covered by Cl. 70 of the General Conditions of Contracts and, therefore, the arbitrator was justified in awarding the claim.
While awarding Rs. eight lacs on claim No. 1, the arbitrator observed as under :–
“1. Claim No. 1 revised claim No. 5(i) and 1111.
Tools and plants/machinery etc. mobilised at site but the claimant forbidden by the respondent to remove the same. The respondent will pay to the claimant Rs. 8,00,000/- [Rupees eight lakhs only). …..
The jurisdiction of the arbitrator to adjudicate upon this claim was specifically challenged by the appellants on the ground that, as per Clause 54 of the Contract Agreement and letter No. 26410/DGBR/72/E8, dated 7-12-1984, claim No. 1 was excluded from the purview of arbitration clause. However, the learned single Judge has rejected this objection without giving any reason. Clause 34 of the contract agreement provides that all tools, plants and equipments brought at site shall become the property of the Government and shall not be removed of the site without prior written approval of the Officer Commanding/Garrison Engineer. Clause 54 of the contract agreement deals with the cancellation of contract in part or in full for contractor’s default. The relevant para of this clause reads as under :–
The Government shall also be at liberty to use the materials, tackle, machinery and other stores on site of the contractor as they think proper in completing the work and the contractor will be allowed the necessary credit. The value of the materials and stores and the amount of credit to be allowed for tackle and machinery belonging to the contractor and used by the Government in completing the works shall be assessed by the OC/GE and the amount so assessed shall be final and binding.”
So it is the Officer Commanding or Garrison Engineer who has to assess the value of the materials and stores brought on site by the contractor and his decision shall be final and binding. The question arises, whether a dispute against such a decision is also covered by Clause 70 of the General Conditions of contract, which reads as under :–
“70. Arbitration : All disputes, between the parties to the contract (other than those for which the decision of the TFC/CWE or any other person is by the contract expressed to be final and binding) shall after written notice by either party to the contract to the other may be referred to the sole arbitration of an Engineer Officer to be appointed by the authority mentioned in the tender document.”
It is obvious that this clause covers all disputes other than those for which the decision of any other person is by the contract expressed to be final and binding. The contractor in this case is bound by the terms of Clause 54. This fact has been specifically mentioned in Para 2 of the letter of reference dated 7-12-1984 (supra) which reads as under :
“2. And whereas the said contract includes an arbitration agreement vide condition 70 of IAFW-2249 forming part of the contract which inter alia, provides that all disputes between the parties to the contract (other than those for which the decision of the Chief Engineer or any other person is by the contract expressed to be final and binding shall, after written notice by either party to the contract to the other of them, be referred to the sole arbitrator of an Engineer Officer to be appointed by the Director General Border Roads.”
Not only this, the respondents specifically pleaded that in terms of Clause 54, the Officer Commanding has already determined the value of the materials and stores and informed the arbitrator vide letter dated 23-3-1987 (Annexure-P3). These facts have been stated in the affidavit filed by the Chief Engineer, Project Sampark, the relevant portion of which is extracted below :–
“……. .In view of Clauses 34 and 54 of the
contract agreement and letter No. 26410/ DBBR/772/EB, dated 7-12-1984, originals whereof were produced before the arbitrator and copies whereof are being supplied herewith as Exs. P1 and P2, learned arbitrator had no jurisdiction or competence to entertain still-less award claim No. 1 in favour of the respondents. In terms of the clauses of the agreement quoted hereinabove the exclusive jurisdiction to assess costs of tools and plants/machinery vested in the OC contract, whose decision, the parties had agreed to be final and binding and not subject to arbitration. OC contract’s final and binding decision of assessing Rs. 6,92,306.14 as costs of tools and plants lying at site has thus been encroached upon by the learned arbitrator. OC contracts’ assessment order was placed before the arbitrator, copy whereof is being supplied herewith as Ex. B-P3.”
The reply of the contractor is that the plea against lack of jurisdiction to award any amount against claim No. 1 is afterthought as it was never raised before the arbitrator.
9. We are afraid this is not so because para 2 of the letter dated 7-12-1984 and Clause 70 of the General Conditions of contract when read with Clause 54 of the contract agreement, the position becomes clear and the dispute was not arbitrable under Clause 70 of the General Conditions of Contract. There is not even a whisper in the Judgment impugned to justify the award under this head. Since in terms of the contract agreement the contractor is bound by Clauses 34 and 54 of the contract agreement and Clause 70 of the General Conditions of Contract excludes any dispute in respect of which decision of any authority referred therein is final, the arbitrator acted illegally in entertaining claim No. 1. This is an error apparent on the face of award and to this extent the award is liable to be set aside. Since the Officer Commanding has already assessed Rs. 3.92,306.14 as costs of tools and plants lying at site and this decision was conveyed to the arbitrator, this claim was beyond the scope of reference. So the contractor will be entitled to amount determined by the O.C. and not the one awarded by the arbitrator. This brings us to the question of grant of pendente lite interest allowed by the arbitrator. The learned single Judge disallowed the interest relying on the judgment of the Apex Court in Executive Engineer (Irrigation) v. Abhadutta Jena (1988) 1 SCC 418 : (AIR 1988 SC 1520) and F.C.I, v. Surendera, Devendra and Mohendra Trans. Co. (1988) 1 SCC 54 : (AIR 1988 SC 734). The arbitrator in this case besides awarding interest pendente lite had also awarded interest for the pre-reference period. In the latter case, their Lordships had simply followed the decision in Jena’s case (supra). However, the question, whether the arbitrator has power to award interest pendente lite, was reconsidered by a Constitution Bench of the Court in Secretary to Govt. of Orissa v. G. C. Roy (1992) 1 SCC 508 ; (AIR 1992 SC 732) in which it was held that decision in Jena’s case did not lay down correct law.
A similar question again reached the Apex Court in Sudhir Brothers v. Delhi Development Authority(1996) 1 SCC 32 in which the question that fell for consideration of their Lordships was. whether the arbitrator has power and jurisdiction to grant pre-reference interest in a reference made after coming into force of the Interest Act. 1978. While explaining the law laid down in G. C. Roy’s case (AIR 1992 SC 732), their Lordships observed as under :–
“The Constitution Bench in G. C. Roy case was dealing with the question relating to the award of interest pendente lite and not with the question of the award of interest for the pre-reference period and it was in that context that the Constitution Bench held that the view expressed in Jena case with regard to award of pendente lite interest could not be said to have laid down good law. The Constitution Bench did not deal with the question of pre-reference interest in cases coming after the enforcement of the Interest Act, 1978, which came into force from 19-8-1981. In G. C. Roy case (AIR 1992 SC 732) itself, it is stated that the reference to the Constitution Bench had been necessitated only for deciding the question whether the decision in Jena case was correct insofar as it held that arbitrator had no power to award interest pendente lite. On a doubt being raised whether the Constitution Bench in G. C. Roy case had overruled the law laid down in Jena case relating to the power of the arbitrator to award interest for the pre-reference period in the post-Interest Act, 1978 era. the position was clarified by a three-Judge Bench in Jugal Kishore Prabhatilal Sharma v. Vijayendra Prabhatilal Sharma (AIR 1993 SC 864), wherein It was specifically held that the decision in G. C. Roy case was concerned only with the power of arbitrator to award interest pendente lite and that it was not concerned with his power to award interest for the pre-reference period.”
So under law, the arbitrator is empowered to award pendente lite interest.
Regarding pre-reference interest, their Lordships further held :–
‘Thus, the law is now well settled that the arbitrator has the power and jurisdiction to grant pre-reference Interest in references made after the coming Into force of the Interest Act, 1978. ………”
Since the Interest Act, 1978 is not applicable to the State, the arbitrator committed an error of law in granting pre-reference interest from Sept. 12, 1983 up to the date he entered upon the reference. So this amount has to be reduced.
10. This taken us to the cross-objections challenging the judgment, in so far as it set aside the award of pendente lite Interest amounting to Rs. 4.57 lacs on Rs. 8.18 lacs, though the total amount of the award is more than Rs. 16.00 lacs. The interest was denied by placing reliance on the decision in Jena’s case (AIR 1988 SC 1520) (supra). This is no longer the law. However, in G. C. Roy case (AIR 1992 SC 732), their Lordships further held that :–
“In the result both the appeals fail and are, accordingly, dismissed but there will be no order as to costs. Even though we have held that the decision in Jena case does not lay down good law, we would like to direct that our decision shall only be prospective in operation, which means that this decision shall not entitle any party nor shall it empower any Court to reopen proceedings which have already become final. In other words, the law declared herein shall apply only to pending proceedings.”
But appeal being a continuation of the proceedings, this case is covered by the decision and since the interest was awarded by the arbitrator and the ground on which it was denied by the learned single Bench being not available, the same can be allowed, if justified. However, we find that the interest was awarded only on half of the amount so awarded. It will be unjust and inequitable to allow this amount after having held that the arbitrator had no jurisdiction to adjudicate upon claim No. 1. Since an amount of Rs. 8.00 lacs has been wrongly awarded, so the interest awarded must be rateably reduced. Hence, the amount of Rs. 4.57 lacs awarded as interest on Rs. 8.18 lacs is reduced to Rs. 2.40 lacs as interest pendente lite. The contractor is also entitled to interest at the rate of 12 per cent, per annum on the amount awarded from the date of decree till realisation. In case the amount of Rs. 392,306.00 assessed as per Ex. B-P3 has not been said the same is payable in addition to the amount of the award.
11. So the appeal and the cross-objections are partly allowed to the extent as indicated above and the decree shall follow accordingly. Parties to bear their own costs.