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PETITIONER: RAM NATH INTERNATIONAL CONSTRUCTION PVT. LTD.

       Vs.

RESPONDENT: STATE OF U.P.

DATE OF JUDGMENT:       21/10/1997

BENCH: SUJATA V. MANOHAR, D.P. WADHWA

ACT:

HEADNOTE:

JUDGMENT: [with Civil  Appeal No  7375 of  1997 [arising out of SLP[c) No. 20055 of 1997 (cc 6248/97}]                       J U D G M E N T Mrs. Sujata V. Manohar, J.      Delay in  filing S.L.P.(c)  No. 20055  /97 (cc 6248) is condoned.      Leave in both the petitions is granted.      These cross appeals arise from a common judgment of the Allahabad High  Court.   For the  sake of  convenience,  the appellant, M/s.  Ram Nath  International  Construction  Pvt. Ltd., in  the appeal arising from S.L.P.(C) No. 4328 of 1997 is referred  to as  the appellant while the State of U.P. is referred to as the respondent.      The  appellant  entered  into  an  agreement  with  the respondent dated  17.2.1989 for  the work  o lining  of  the Upper Ganga  Canal  from  kilometres  189.50  to  197.00  at Gesupur in  Bulandshahr. The  total amount  payable  to  the appellant under the agreement was Rs. 4,81,4,312.  Clause 32 of the  tender which related to "Extra Items" stated, "Extra terms  of   work  shall  not  vitiate  the  contract.    The contractor shall  be bound to execute extra items of work as directed by the Engineer Incharge.  The rates of extra items are to  be mutually  agreed". Clause  51 which  provides for arbitration is as follows:      "ARBITRATION:      All  the  disputes  in  respect  of      which the  decision  has  not  been      final  and   conclusive  shall   be      referred for  arbitration to a sole      arbitrator appointed as follows.      The arbitration  shall be conducted      in accordance  with the  provisions      of the Indian Arbitration Act, 1940      or   any   statutory   modification      thereof.     The  decision  of  the      arbitrator  shall   be  final   and      binding  on  the  parties  thereto.      The arbitrator  shall determine the      amount of  costs of  arbitration to      be awarded to either parties.

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    Performance  under   the   contract      shall    continue     during    the      arbitration     proceedings     and      payments due  to the  contractor by      the owner  shall  not  be  withheld      unless they  are the subject matter      of the arbitration proceedings.      All award  shall be  in writing and      in case  of awards amounting to Rs.      100 lakhs  above, such awards shall      state  reasons   for  the   amounts      awarded.      Neither party  is entitled to bring      a  claim   to  arbitration  if  the      arbitrator has  not been  appointed      before  the  expiration  of  thirty      days   after    defect    liability      period."      Disputes arose between the appellant and the respondent in connection  with the  execution of  the work specified in the tender as also in relation to payment for extra items of work.   Ultimately by  an Office Memorandum dated October 4, 1992 disputes  between the parties were referred to the sole arbitration of  Shri Thakur  Das, Chief Engineer, Design and Research, I.D.U.P.,  Lucknow.   The terms  of  reference  as recorded in the Office Memorandum are as follows:-      "as such  Shri  Thakur  Das,  Chief      Engineer,  Design   and   Research,      I.D.,  U.P.,   Lucknow  is   hereby      appointed  as  Arbitrator  for  the      following claims  as raised  by the      contractor vide  his  letter  dated      13.12.1991  against  the  agreement      No.B2-02A-033    dated    17.2.1989      according  to   para  51   of   the      Agreement.      i) Rate  for extra  item  of  earth      work beyond  lip cutting  in  reach      km. 189.50 to km.190.70.      ii) Bailing out of standing water.      iii) Earth  work beyond lip cutting      in reach km.190.70 to km. 197.00.      iv) Claims  of idle  labour due  to      non supply of cement."      The arbitrator  has given  a  detailed  speaking  award dated 23.5.1994  under which,  inter alia, in respect of the extra item  of earth  work beyond  lip cutting  in reach  km 189.50 to km.190.70. the arbitrator has awarded a sum of Rs. 72.22.740/. The arbitrator has also awarded to the appellant interest at the rate of 18% per annum on the total amount of claim (Rs.  1,71,11,208/-) with  effect from 1.1.1991 to the date of the award and further interest at the rate of 6% per annum of the said amount from the date of the award till the date of the decree or payment whichever is earlier.      The appellant  applied for  a decree  in terms  of  the award while  the respondent  filed objections.  The District Judge granted  decree in  terms of the award.  In the appeal which was  filed before  the High Court, the High Court has, inter alia. disallowed the claim for extra earth work beyond lip cutting in the reach 189.50 to 190.70 kms. on the ground that the  arbitrator  travelled  beyond  the  scope  of  his reference in  granting the  said amount.   The appeal of the appellant before  us challenged  this finding  of  the  High Court.   The respondent  in its  cross appeal has challenged the award  of interest  by the arbitrator at the rate of 18%

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per annum for 1.1.1991 to the date of the award.      The first  item of  dispute  relates  to  the  work  of excavating the canal section from kms. 189,50 to kms. 190.70 in addition  to the  earth work  involved in lip cutting for this section and lining it.  According to the respondent, in the  Technical   Specifications  annexed  to  the  contract, paragraph 2.09.01  stated that  from kms. 190.70 to kms. 197 earth work  involved is  in lip cutting; and from kms. 189.5 to kms.190.7  whole of  the anal section is to be excavated. In the pre-bid conference which was held, the minutes of the meeting record  that departmental  machines will  be working from  kms.190.7   to  kms.197.    The  canal  cross  section available will  be irregular and the contractor will have to excavate the  remaining quantity  to the  dimensions  shown. Between kms.  189.5 and  kms. 190.7 whole of the canal cross section is  to  be  excavated  below  ground  level  by  the contractor.   The respondent  contends that  excavating  the canal is  not extra work.  But the rate for this work is not specified anywhere.  Bill of Quantity, which is also annexed to the  contract specified  the rates for different kinds of work which  the contractor has to carry out.  Item at S.No.1 provides for payment at the rate of Rs. 19/- per cubic metre of earth  for "the earth work in lip cutting, transportation in  embankment  or  spoil  bank  including  all  lead  lifts mechanical   compaction,   dressing,   dewatering   as   per specification".   The rate for the work of excavation of the canal does  not appear  to be  specified.    The  respondent contended before  the arbitrator that payment at the rate of Rs. 19/-  per cubic  metre covered  every kind of earth work and not  just the earth work involved in lip cutting.  While according to  the appellant,  this was  extra work for which payment had  not been  specified and  had to be agreed upon. There was  clearly a  dispute on the issue and the reference to arbitration  clearly covers this dispute.  The first item of Office  Memorandum referring  the dispute  to arbitration relates to  rate for  extra work  of earth  work beyond  lip cutting in the reach kms. 189.50 to Kms. 190.70.  In view of the  fact  that  this  dispute  was  expressly  referred  to arbitration, we  fail to  see how  it can  be said  that the decision on  this dispute  by the  arbitrator is  beyond the scope of  the reference.   Both parties argued this question before the  arbitrator.  The arbitrator has given a speaking award giving  detailed reasons why he considers this work as extra work  for which  payment is required to be made to the contractor.    We  are  not  examining  the  correctness  or otherwise of  the  conclusion reached by the arbitrator.  It is a  matter of  interpretation  of  the  contract  and  was referred by  the parties to arbitration.  The High Court was not right in coming  to the conclusion that this dispute was beyond the scope of the reference to arbitration.      The other  dispute between  the parties  relates to the award by  the arbitrator of interest for the period 1.1.1991 till the  date of  the award.  The appellant has very fairly conceded that  the arbitrator  has no  jurisdiction to grant any interest  for the  pre-reference period.  Clause 1.18 of the  Technical   Specifications  annexed   to  the  contract provides as follows:      "No claim  for interest  or  damage      will   be    entertained   by   the      Government  with   respect  to  any      money or balance which may be lying      with the  Government or  may become      due   owing    to   any    dispute,      difference   or    misunderstanding      between the  Engineer-in-Charge  on

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    the one  hand and the contractor on      the other  hand or  with respect to      any  delay   on  the  part  of  the      Engineer-in-Charge    in     making      periodical or  final payment  or in      any other respect whatsoever."      Clause 51  of the contract which deals with arbitration provides that  all the disputes or differences in respect of which the  decision has not been final shall be referred for arbitration to  a  Sole  arbitrator  as  specified  therein. Neither Clause  1.18  of  the  Technical  Specification  nor clause 51  excludes the  jurisdiction of  the arbitrator  to ward interest  pendente lite.   As  far back  as in  1992  a constitution Bench  of this  Court in the case of Secretary, Irrigation Department,  Government of Orissa & Ors. vs. G.C. Roy (1992  1 SCC  508), considered  an arbitrator’s power to award interest  pendente lite.   It held that when the terms of  the   arbitration  agreement   did   not   exclude   the jurisdiction of  the arbitrator  to entertain  a  claim  for interest the  arbitrator was  competent  to  award  interest pendente lite.   His power was analogous to the power of the court under  Section 34 of the Civil Procedure Code to award interest  in  order  to  do  complete  justice  between  the parties.    In  paragraph  43  of  the  said  judgment,  the Constitution Bench  has enumerated  the principles for grant of interest  pendente lite  by  the  arbitrator.    Interest pendente lite  is not  a  matter  of  substantive  law  like interest for the period anterior to reference (pre-reference period).  The power to award interest pendente lite has to e inferred on the analogy of section 34 of the Civil Procedure Code for  doing complete  justice between the parties.  This decision has  been followed  in many  subsequent case.   One such decision  shown to  us is  Sudhir  Brothers  vs.  Delhi Development Authority  & Anr.  (1996 1  SCC 32),  where this court observed  that the decision in G.C. Roy’s case (supra) holds  the  field  as  far  as  interest  pendente  lite  is concerned.   The respondent, however, relied upon a decision of this  Court in  Durga Ram Parsad vs. Government of Andhra Pradesh (1995  1 SCC  418).   The substantial  body  of  the judgment deals  with the  power of  the arbitrator  to grant interest for  the pre-reference  period.   The judgment  has also relied  upon  G.C.  Roy’s  case  (supra)  for  interest pendente lite.   However,  in  the  last  paragraph  of  the judgment the  Court has  declined to  grant interest for the pre-reference  period   as  also   interest  pendente  lite. Presumably this  is because  of clause  69 of  the  contract which is  set out in paragraph 3 of the judgment although no reasons are  given in  the judgment  for excluding  interest pendente lite.   In  the  present  case,  however,  we  have produced clause 1.18 on which the respondent is relying.  In our view  this clause  does not  debar  an  arbitrator  from granting interest  during the  pendency of the reference if, in his  discretion, he considers it appropriate to award it. As is held by the Constitution Bench in the case of G.C. Roy (supra), the  power of  the  arbitrator  to  grant  interest pendente lite is based on principles analogous to Section 34 of the  Civil Procedure  Code.   Such interest is granted by the arbitrator  in order  to do complete justice between the parties.   This is not a matter of substantive law as is the case regarding  the arbitrator’s power to grant interest for the  pre-reference  period.    Whether  interest  should  be awarded pendente  lite or  not is a matter of discretion for the court  or the  arbitrator.   When parties  go before  an arbitrator, they  expect that  the disputes  will be decided had the  decision been  of  a  court  of  law.    Hence  the

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arbitrator can exercise a power analogous to the power given to the  courts under Section 34 of the Civil Procedure Code. The appellant  is, therefore,  entitled to  interest on  the principal amount  awarded by the arbitrator from the date of the reference till the date of the award.  The appellant is, however, not  entitled to any interest for the pre-reference period.      In the  premises the  appeal arising  out of S.L.P. (c) No. 4328/1997  is allowed save and except that the appellant will not be entitled to any interest on the principal amount awarded prior to the arbitrator entering upon the reference. The appeal  of the  respondent is  dismissed with  the above modification.   There will,   however,  be no  order  as  to costs.