Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS. 2764 OF 2009 (Arising out of SLP [C] Nos.10818 of 2007)

State of Rajasthan & Anr. … Appellants

Vs.

M/s. Ferro Concrete Construction Pvt. Ltd. … Respondents

WITH

CA No. 2767/2009 [@ SLP (C) No.22565/2007]

J U D G M E N T

R.V.RAVEENDRAN, J.

Leave granted. Heard learned counsel.

2. The appellants (also referred to as ‘employer’) invited tenders for the  

manufacture, laying, testing and commissioning of water pipeline of a length  

of 37.41 km. under a water supply scheme in Ajmer District. Tenders were  

received from various tenderers including respondent (hereinafter referred to  

as the ‘contractor’). As different tenderers had stipulated different terms and  

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conditions, the tenderers were invited for discussions, and common terms of  

reference (for short ‘CTR’) were formulated on 22.2.1988 and the original  

tender conditions stood modified to the extent of the alterations in the CTR.

3. Thereafter the offer of the respondent was accepted and a work order  

dated 23.8.1988 was issued to him stipulating the period for completing the  

contract as two years from that date. There was an amendment to the work  

order  on  8.11.1988.  The  employer  and  the  contractor  entered  into  an  

agreement  dated  11.1.1989  enumerating  and  stipulating  the  documents  

which will form part of the contract and the modifications agreed in regard  

to  certain  terms.  The  value  of  the  work  as  per  the  work  order  was  

Rs.9,91,94,602.50. Ten percent of the value of work (Rs.99.19 lakhs) which  

was  agreed  to  be  released  as  mobilization  advance,  was  released  to  the  

contractor  between  25.1.1989  and  5.5.1989.  The  contractor  created  an  

equitable  mortgage over  its  plant  by  depositing  its  title  deeds  thereto  as  

security  for  the  mobilization  advance.  By  letter  dated  15.12.1990,  the  

contractor confirmed that the original title deeds will remain in deposit with  

the  employer  till  the  entire  amount  of  advance  was  repaid  in  full  with  

interest.

4. The contract (clause 23 of General Conditions of Contract) provided  

for  settlement  of  disputes  by  arbitration.  By  letter  dated  18.6.1990  

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respondent invoked the provision for arbitration and sought appointment of  

an arbitrator to decide its claims aggregating to Rs.2,01,66,547, arising on  

account  of  certain  alleged  omissions  and  commissions  of  the  employer.  

Another  dispute  was raised in respect  of  the rate  payable  for  work done  

subsequent  to  the  due  date  of  completion  (22.8.1990).  On 22.8.1990 the  

contractor stopped the work. By that date it had manufactured 15.26 km. of  

pipes and had laid 11.6 km. out of them and tested only 1.4 km. of pipeline  

as  against  the  total  contracted  quantity  of  37.41  km.  On  13.9.1990  the  

employer  notified  the  contractor  that  if  he did  not  resume the work,  the  

balance of the work would be got executed through an alternative agency in  

terms of the contract, by treating the contract as having been abandoned on  

22.8.1990, and recover the excess cost from the contractor.  

5. The  respondent-contractor  sent  a  reply  dated  3.11.1990  stating  its  

efforts to complete the work were rendered futile on account of the delays  

and breaches on the part of the employer; and it was necessary to enter into a  

fresh agreement as the tender was not accepted in the manner in which it  

ought to have been accepted. The contractor did not resume the work. The  

contractor’s  stand  was  that  in  the  absence  of  an  extension  of  time  for  

completion by mutual consent before the stipulated date for completion, it  

was not liable to continue the work on the tendered rates. The employer on  

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30.3.1991 made a final demand calling upon the contractor to state whether  

it was ready to re-start and complete the remaining work and if so to submit  

a  revised  time  schedule  for  such  completion.  As  the  contractor  did  not  

resume  the  work,  the  employer  initiated  steps  to  get  the  balance  work  

executed  through  an  alternative  agency.  In  the  meanwhile  the  contractor  

filed a suit against the appellant in the District Court, Ajmer and obtained a  

temporary  injunction  restraining  the  employer  from  imposing  liquidated  

damages.  

6. The contractor made an application to the District Court, Ajmer, under  

section 20 read with section 8 of the Arbitration Act, 1940 (Act for short) for  

filing the arbitration agreement into court  and seeking appointment of an  

arbitrator. The District Court, Ajmer by order dated 27.4.1991 held that it  

had jurisdiction to appoint an arbitrator but deferred the actual appointment  

to a future date. The contractor revised its claim to Rs.5,51,90,306/- in the  

notice of appointment of arbitrator. The employer challenged the order of  

the District Judge and the High Court allowed the appeal on 9.8.1991 and set  

aside the order of the District Judge. The contractor in turn approached this  

Court.  On  12.11.1991,  this  Court  recorded  the  consent  of  parties  for  

appointment of Mr. B L Mathur as sole arbitrator and directed the employer  

(Chief Engineer, Public Health Engineering Department, State of Rajasthan)  

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to appoint him as the arbitrator. On being appointed, the arbitrator entered  

upon the reference  and the  contractor  filed  a  claim statement  before  the  

arbitrator on 13.1.1992 making 43 claims aggregating to Rs.6,21,29,626/-.

7. The employer filed its reply to the claim statement, and also made five  

counter-claims aggregating for Rs.863,46,505/- before the arbitrator. In the  

meanwhile, the employer having concluded the arrangements to get the work  

completed  through  an  alternative  agency,  on  the  contractor’s  failure  to  

resume the work, awarded the work to M/s. Indian Hume Pipes Co. Ltd. on  

10.8.1992. On the basis of the contract value in regard to the balance work,  

the  employer  revised  its  counter  claim  No.  2  relating  to  extra  cost  to  

Rs.6,66,62,000/-and  consequently  the  total  of  the  counter  claims  stood  

increased to   Rs.11,55,98,388/-.

8. After considering the claims and counter claims, the learned arbitrator  

made  an  award  dated  21.9.1994.  He  rejected  claim  nos.  4,  7,8,10,  14  

21,22,23,26,36,36A,  37,38,39,40,41,  &  41A,42,  &  42A  and  43  of  the  

contractor. He awarded the following amounts to the contractor in regard to  

the remaining claims:

S. No.

Claim No. Description of claim Amount  claimed

Rs.

Amount  awarded

Rs.

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1. 1 Loss  of  profitability  due  to  late  release of mobilization advance

83,49,913 33,06,500

2. 2 & 16 Refund  of  excess  sales  tax  deducted

2,94,142 2,94,142

3. 3 & 15 5%  amount  withheld  for  testing  of pipeline

14,70,956 14,70,956

4. 5 & 18 Excess  recovery  of  security  deposit

13,28,457 13,28,457

5. 6 & 17 Price escalation 58,83,854 43,47,520

6. 9 & 19 Refusal  of  employer  for  re- designing  pressure  pipes  from  higher into lower.

10,11,354 6,95,910

7. 11 & 20 Slow progress due to reduction of  width of trench

21,32,496 21,07,195

8. 24 Refund of deduction for want of  BG renewal

4,31,926 4,31,926

9. 27 & 28 Gap pipes fitted 2,60,200 67,098 10. 29 Payment  for 8 kg pipes but paid  

for 6 kg pipes 1,17,150 1,12,294

11. 30 Refunds for paint of specials 9,759 9,759

12. 31 Deduction  from running  bill  for  pipes

22,385 22,385

13. 32 Refund  for  deduction  for  insufficient refilling

46,569 46,569

14. 33 Less measurement of pipe 1,15,738 1,15,738

15. 35 with 25 34

Difference in final bill  Less payment re: sand bedding Payment for excavation  

1,47,00,000     7,31,676     2,50,740

23,74,458

16. 37A Idle charges for machinery,  staff  etc.

12,072  per  day  from  13.1.92

12,072  per  day  from  date  of  award,  if  the  factory was not  released  from  mortgage  security  within  30 days.  

17. 12 & 13 Interest  (pre-reference,  pendente  lite and future)  

18%  per  annum

18% per annum

  The arbitrator rejected counter claims 1, 2, 4 and 5 of the employer.  In  

regard  to  counter-claim  No.  3  (Rs.79,87,846/-  towards  refund  of  

mobilization  advance  with  interest),  the  arbitrator  awarded  a  sum  of  

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Rs.59,42,275 with interest at 18% per annum from 18.9.1990 up to the date  

or decree or payment whichever was earlier.

9. The contractor made an application for making the award, a rule of  

the  court.  The employer  challenged the award by filing objections  under  

section 30 read with section 33 of the Act. By order dated 17.2.2003, the  

District Judge, Ajmer allowed the application of the contractor and made the  

award a rule of the court subject to a modification in regard to the award  

made  on  claim  No.37A.  In  place  of  the  award  made  by  the  Arbitrator  

(direction to employer to pay Rs.12072/- per day from the date of award),  

the District Judge directed that the employer shall return the original title  

deeds to the contractor and pay the amounts awarded to the contractor after  

deducting  the  amount  awarded  by  way  of  counter-claim  (that  is  

Rs.59,42,275/-  towards  refund  of  mobilization  advance  due  with  18%  

interest) within 30 days from the date of decree, failing which, the employer  

shall pay Rs.12072 per day from the date of decree.

10. The  employer  filed  an  appeal  (Civil  Misc.  Appeal  No.872/2003)  

against  the said judgment and decree contending that the award ought to  

have been set aside. The contractor also filed an appeal (Civil Misc. Appeal  

No. 910/2003) aggrieved by the modification by the Learned District Judge  

directing compensation of Rs.12,072/- per day only from the date of decree  

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(instead of the date of award). The High court dismissed the appeal filed by  

the  employer  by  judgment  dated  5.2.2007.  The  High  Court  allowed  the  

appeal filed by the contractor by judgment dated 30.5.2007 and restored the  

direction of the arbitrator that the payment of compensation at Rs.12,072/-  

per day should be from the date of the award itself (21.9.1994). The High  

Court also granted interest at 18% per annum from the date of the award.  

Thus the High Court upheld the award.

11. Feeling aggrieved the employer has filed these two appeals by special  

leave. The first of the appeals (arising out of SLP [C] No.10818/2007) is  

against the dismissal of its appeal on 5.2.2007. The second of the appeals  

(arising  out  of  SLP(C)No.22565/2007)  is  against  the  judgment  dated  

30.5.2007 allowing the contractor’s appeal. One of the contentions urged by  

the appellants before the court below was that the Arbitrator did not have  

jurisdiction to enter upon the reference and make an award, as the appointing  

authority under the arbitration clause had merely appointed the arbitrator,  

but had not referred any dispute to him for arbitration. The said contention  

was rejected by both courts on the ground that when the authority competent to  

appoint the arbitrator appointed the arbitrator, in pursuance of the agreement  

reached before this Court to have the pending disputes of both parties settled  

by arbitration, the employer could not be permitted to raise a technical plea  

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that the arbitrator had no jurisdiction to proceed with the arbitration, in the  

absence  of  a  further  specific  reference  by  the  employer.  Realising  the  

unsoundness of the said contention, the appellants did not press it before us.

12. On the contentions urged, the question that arises for consideration is  

whether there is any legal misconduct or error apparent on the face of the  

award, in regard to the award of the Arbitrator in respect of (i) claims 1 and  

37A; (ii) claims 12 & 13; (iii) claims 2 & 16, 3 & 15, 5 & 18, 6 & 17, 9 &  

19, 11 & 20, 24, 27 & 28, 29, 30, 31, 32, 33, 35 (with claim nos. 25, 34); and  

(iv) counter claims 1, 2, 4 and 5.  

13. Section 30 of the Act inter alia provides that an award can be set aside  

on  the  ground  that  an  arbitrator  had  misconducted  himself  or  the  

proceedings, or that the award had been improperly procured or is otherwise  

invalid. An error apparent on the face of the award, is a ground for setting  

aside the award under section 30  or for remitting the award to the Arbitrator  

under  section  16(1)(c)  of  the  Act.  In  Champsey  Bhara & Co.  vs.  Jivraj   

Balloo Spinning & Weaving Co.  Ltd.  [AIR 1923 PC 66] the Privy Council  

explained the term ‘an error of law on the face of the award’ thus :  

“An error of law on the face of the award means that you can find in the  award or a document actually incorporated thereto as for instance, a note  appended by the arbitrator stating the reasons for his judgment, some legal  proposition which is the basis of the award and which you can then say is  erroneous.”   

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It was well settled that under the Arbitration Act, 1940, an award was not  

open to challenge on the ground that  the  arbitrator  has reached a  wrong  

conclusion or failed to appreciate facts, as under the law, the arbitrator is  

made the final arbiter of the dispute between the parties. While considering  

the challenge to an award, the court will not sit in appeal over the award nor  

re-appreciate the evidence for the purpose of finding whether on the facts  

and circumstances, the award in question could have been made. When there  

is no allegation of moral misconduct against the arbitrator with reference to  

the award, and where the arbitration has not been superseded, there were  

only two grounds of attack. First was that there was legal misconduct on  the  

part of the arbitrator in making the award.  Second was that there was an  

error apparent on the face of the award. This Court explained the principles  

relating  to  interference  with  awards  under  the  1940  Act  in  State  of  

Rajasthan v. Puri Construction Co. Ltd. [1994 (6) SCC 485] thus :  

“Similarly, an award rendered by an arbitrator is open to challenge within  the  parameters  of  several  provisions  of  the  Arbitration  Act.  Since  the  arbitrator is a judge by choice of the parties, and more often than not, a  person with little or no legal background, the adjudication of disputes by  an  arbitration  by  way of  an  award  can  be  challenged  only  within  the  limited  scope  of  several  provisions  of  the  Arbitration  Act  and  the  legislature in its wisdom has limited the scope and ambit of challenge to  an award in the Arbitration Act. Over the decades, judicial decisions have  indicated the parameters of such challenge consistent with the provisions  of  the  Arbitration  Act.  By  and  large  the  courts  have  disfavoured  interference with arbitration award on account of error of law and fact on  the score of mis-appreciation and misreading of the materials on record  and  have  shown  definite  inclination  to  preserve  the  award  as  far  as  possible. As reference to arbitration of disputes in commercial and other  transactions involving substantial  amount has increased in recent times,  the courts were impelled to have fresh look on the ambit of challenge to an  

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award  by  the  arbitrator  so  that  the  award  does  not  get  undesirable  immunity. In recent times, error in law and fact in basing an award has not  been given the wide immunity as enjoyed earlier, by expanding the import  and implication of “legal misconduct” of an arbitrator so that award by the  arbitrator does not perpetrate gross miscarriage of justice and the same is  not reduced to mockery of a fair decision of the lis between the parties to  arbitration. Precisely for the aforesaid reasons, the erroneous application  of law constituting the very basis of the award and improper and incorrect  findings  of  fact,  which  without  closer  and  intrinsic  scrutiny,  are  demonstrable on the face of the materials on record, have been held, very  rightly, as legal misconduct rendering the award as invalid. It is necessary,  however, to put a note of caution that in the anxiety to render justice to the  party  to  arbitration,  the  court  should  not  reappraise  the  evidences  intrinsically with a close scrutiny for finding out that the conclusion drawn  from some facts, by the arbitrator is, according to the understanding of the  court, erroneous. Such exercise of power which can be exercised by an  appellate court with power to reverse the finding of fact, is alien to the  scope  and  ambit  of  challenge  of  an  award  under  the  Arbitration  Act.  Where the error of finding of facts having a bearing on the award is patent  and is easily demonstrable without the necessity of carefully weighing the  various  possible  viewpoints,  the  interference  with  award  based  on  erroneous finding of fact is permissible. Similarly, if an award is based by  applying a principle of law which is patently erroneous, and but for such  erroneous application of legal principle, the award could not have been  made, such award is liable to be set aside by holding that there has been a  legal misconduct on the part of the arbitrator. In ultimate analysis, it is a  question of delicate balancing between the permissible limit of error of  law and fact and patently erroneous finding easily demonstrable from the  materials on record and application of principle of law forming the basis  of the award which is patently erroneous.”          

Keeping the said principles in mind let us examine the various claims.  

Re : Claim 1 :  

14. The  contractor  claimed  that  the  mobilization  advance  had  to  be  

released to it immediately on entrustment of work, to enable it to set up the  

factory for manufacturing the pipes. It was contended that prompt release of  

mobilization  advance  was  crucial  and  fundamental  to  the  contract  as  

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manufacture of pipes depended upon setting up a factory for that purpose.  

Even  assuming  that  the  mobilization  advance  could  be  released  in  three  

instalments, as per modified terms and conditions, the contractor contended  

that there was inordinate delay on the part of the employer in releasing the  

instalments, that too, in five instalments. It was further contended that if the  

mobilization advance had been released immediately on award of the work,  

it  would  have  set  up  a  factory  and  commenced  production  within  three  

months; that in view of the delay, it  lost production for a period of eight  

months  that  is  nearly  one  third  of  the  contract  period,  and  that  as  a  

consequence  they  were  not  able  to  execute  the  work  of  the  value  of  

Rs.5,56,66,086/- and the loss of profits and overheads on the said amount at  

a standard 15% was Rs.83,49,913/-  and it  was entitled to that amount as  

compensation for the breach by the employer. The calculation of the said  

loss of profit and overheads in claim no.(1) was as follows :  

Amount of Contract (with ZVV) Rs.9,91,94,602.00

Payment already received from the Department Rs. 2,88,28,516.00

------------------------ Balance Rs. 7,03,66,086.00

------------------------ Amount due to contractor against work Done Rs.1,47,00,000.00

------------------------ Balance Rs. 5,56,66,086.00

------------------------

Loss of Profitability & overheads @ 15% Rs. 83,49,913.00

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(0.15 x 5,56,66,086) ------------------------

15. The employer resisted the said claim contending that having regard to  

the relevant conditions in the work order and the contract agreement,  the  

mobilization advance had to be released in three instalments against Bank  

Guarantees; that the second and third instalments had to be released only on  

production of the certificate of a chartered accountant on the utilization of  

the  previously  paid  amount  and on verification  of  the  department  of  the  

progress; and that the mobilization advance was released in instalments in  

terms of contract and there was no delay no breach on their part.

16. We may refer to the relevant provisions of the contract in this behalf.  

Clause 8 of the Special Conditions relating to establishment of factory at site  

provided thus :  

“Establishment of factory at site :

The contractor, if he so desires, may establish the pipe factory at site to  avoid  transportation  of  pipes.  All  material  and  equipment  and  land  required for the purpose shall  be arranged by the contractor at his own  cost. The department may assist him in acquisition of land. However, the  work should not be delayed on this account. The firm should commence  and continue to supply the pipes etc.  from their existing set  up till  the  factory at site is established. As already stated, the supply of pipes etc.  should commence within 30 days, from the award of contract.”   

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The above clause was superseded by clause 3 of  the Common Terms of  

Reference which is extracted below :  

“Mobilisation advance (for PSC Pipes only)

10%  of  the  contract  value  shall  be  given  against  Bank  Guarantee  as  mobilization  advance  at  a  simple  interest  rate  of  18%.  Recovery  of  mobilization advance shall be effected from 1st Running Bill on pro-rata  basis in a way that complete mobilization advance is recovered by the time  75% work is complete. Interest shall also be recovered alongwith recovery  of capital mobilization advance. The assets built by the contractor out of  mobilization advance so made will  be mortgaged to the department.  In  case work is left in-complete, liquidated damages will be imposed as per  terms  of  the  document  and  the  assets  built  by  the  contractor  for  manufacturing  pipe  will  become the  property  of  the  department.  Such  assets can be used by the department for the purpose of completing the  remaining work.”

In  the  subsequent  work  order  issued  on  23.8.1988,  clause  5.1  relates  to  

mobilization advance. While para (a) of clause 5.1 was a reproduction of  

clause (3) of the Common Terms of Reference, the following was added as  

para (b) in clause 5.1 of the work order :  

“The mobilization advance is being given for establishment of factory at  site.  In  case  the  factory  is  not  established  in  3  months  period  the  mobilization advance shall be recovered by way of the Bank Guarantee  given in lieu of the mobilization advance.”  

By letter  of  amendment  dated 8.11.1988 issued by the employer,  several  

clauses of the work order including clause 5.1(b) were amended/replaced.  

Para 5.1(b) as replaced is extracted below :  

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“The mobilization advance is being given for establishment of factory at  site. The mobilization advance shall be paid in three instalments of which  the  second  and  third  instalment  shall  be  paid  on  production  of  the  certificate of the Chartered Accountant about utilization of the previously  paid amount and on verification by the department of the progress towards  setting up of the factory.”  

This was followed by an agreement executed by both parties on 11.1.1989  

and clause (7) thereof extracted below dealt with mobilization advance :  

“Mobilisation advance:

10% of the contract value shall be given as mobilization advance @ 18%  simple interest subject to production of Bank Guarantee from any of the  Nationalised Bank equal to the amount of such advance. The recovery of  such advance shall be effected from 1st running bill on prorate basis in  such a way that recovery of this advance is made by the time when 75% of  the work is completed. Amount of interest is recoverable along with the  recovery of principal amount.

(b) The assets built by the contractor out of the mobilization advance shall  be mortgaged with the Government.  Such assets will not be mortgaged  with any other agency for any purposes.

(c) In case contractor fails to complete the work in specified time, the  contractor shall  pay the compensation as liquidated damages as per the  terms and conditions of the contract and the assets built by the contractor  for manufacturing of pipes will be the property of the government and the  department will have right to use it as government property for completion  of remaining work. x x x x x

   17. The arbitrator held that clause 8 of the special conditions of contract  

stood superseded by clause 3 of the Common Terms of Reference which  

required the mobilization advance to be released in one instalment and not in  

three instalments. He held that clause 5(1)(b) inserted by the amendment to  

the  work  order  dated  8.11.1988  was  an  unilateral  incorporation  by  the  

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employer and was not binding on the contractor.  He further held that the  

employer ought to have released the mobilization advance along with the  

work order dated 23.8.1988, and the employer had abnormally delayed the  

release of mobilization advance by a total period of 8.5 months by releasing  

it in instalments.  He held that there was a clear delay of about 8 months and  

during that period the contractor could have executed one third of the work  

of the value of Rs.330,64,867.50, and as the contractor was prevented from  

executing the said work on account of the delay, the contractor was entitled  

to 10% of the said amount, that is Rs.33,06,500/- as loss of profit. The said  

sum was therefore awarded to the contractor under claim (1).

18. There  is  no  doubt  that  clause  8 of  the  special   conditions  of  

contract has  to  be  read   with   clause  3 of  the  CTR.  It is true that Clause  

3 of CTR did not contemplate the mobilization advance being released in  

three instalments. But the CTR was followed by work order dated 23.8.1988  

which  was  followed  by  amendment  dated  8.11.1988  which  specifically  

stated that the mobilization advance shall  be paid in three instalments  of  

which the  second and third instalments  shall  be paid on production of  a  

certificate of the Chartered Accountant about utilization of the previously  

paid amounts and on verification by the department towards progress of the  

factory.  The  arbitrator  has  held  that  the  said  clause  was  unilaterally  

16

introduced and therefore is not binding by the contractor. On the face of it  

this is erroneous. After the work order, the parties have executed a bilateral  

agreement dated 11.1.1989 which specifically states at para 2 and para 6 that  

the  work  order  dated  23.8.1988 and subsequent  amendment  to  the  work  

order dated 8.11.1988 shall be deemed to be a part of the contract and will  

bind  both  the  parties.  The  agreement  dated  11.1.1989  itself  contains  a  

detailed  clause (clause  7)  relating to  mobilization  advance  in  addition to  

what  was  earlier  agreed  in  regard  to  mobilization  advance.  Therefore  

obviously the clauses relating to mobilization advance in the amendment to  

work order dated 8.11.1988 and the agreement dated 11.1.1989 had to be  

read  in  addition  to  the  earlier  provision  relating  to  mobilization  advance  

contained  in  the  CTR.  Clause  5(1)(b)  of  the  work  order,  as  amended,  

specifically provided that the contractor had to provide a Bank guarantee for  

the mobilization advance. Sub-clause (b) of clause 7 of the agreement dated  

11.1.1989 provided  that  assets  built  by  the  contractor  by  utilizing  the  

mobilization advance should be mortgaged to the employer. Sub-clause (c)  

of clause 7 provided that if the contractor fails to complete the work, the  

assets built by the contractor would become the property of the employer  

and the department could use it as government property for completion of  

the  remaining  work.  Sub-clause  (d)  of  clause  7  provided  that  if  the  

contractor failed to establish the factory within three months of payment the  

17

mobilization advance, the said advance would be recovered by enforcing the  

bank guarantee given in lieu of the mobilization advance. Thus it is evident  

that  the  mobilization  advance  had  to  be  released  only  against  a  bank  

guarantee to be furnished by the contractor.  

19. If  according  to  the  contractor,  the  mobilization  advance  had to  be  

released  in  a  single  instalment  and  if  the  contractor  wanted  the  entire  

mobilization  money  to  be  released  in  one  lump sum instead  of  in  three  

instalments,  it  ought to have given a single bank guarantee for the entire  

sum. But strangely the contractor did not give such a bank guarantee. It gave  

four bank guarantees for Rs.40 lacs on 21.5.1989, Rs.25 lacs on 1.2.1989,  

Rs.15 lacs on 17.2.1989 and Rs.25 lacs on 23.3.1989.   It is thus evident that  

the contractor had   also  proceeded  on   the  basis  that  the  condition  in  

clause  5(1)(b)  of   the   work  order  amendment  letter  dated  8.11.1988  

governed  the  payment  of  mobilization  advance.  We  find  that  the  

mobilization  amount  corresponding  to  first  bank  guarantee  was  released  

within two days;  mobilization  amount corresponding to second guarantee  

was released in seven days; and mobilization amount corresponding to third  

guarantee, was partly released in 12 days and the balance in two months.  

The amount corresponding to the second and third bank guarantees had to be  

released  only  after  the  contractor  produced  a  certificate  in  regard  to  the  

18

utilization  of  the  earlier  advance.  It  is  seen  that  in  regard  to  the  first  

mobilization advance the certificate was produced on 7.2.1989 and on the  

same day the second instalment was released. Insofar as third instalment, the  

certificate was only received on 4.4.1989. Therefore it cannot be said that  

there  was  delay  or  breach  on  the  part  of  the  employer  in  releasing  the  

mobilization advance. If at all there was any delay, the delay was on the part  

of  the  contractor.  The  fact  that  release  of  mobilization  advance  was  

governed by clause 5(1)(b) of the work order (as amended on 8.11.1988) and  

clause 7 of the agreement dated 11.1.1989 was totally overlooked by the  

arbitrator  by  proceeding  on  the  basis  that  mobilization  advance  was  

governed by the CTR alone. The Arbitrator committed a legal misconduct  

by  ignoring  the  terms  of  contract,  that  is  the  agreement  dated  

11.1.1989,which specifically provided that in addition  to the CTR, the work  

order and amendment to work order dated 8.11.1988 would also form part of  

the contract. The Arbitrator also overlooked the fact that additional provision  

regarding mobilization  advance  was  introduced  in  the  agreement  itself.  

Therefore the mobilisation advance was governed by the terms in the CTR,  

the  work  order,  the  amendment  to  the  work  order  dated  8.11.1988  and  

agreement dated 11.1.1989 read together. If so read, it was clear that there  

was  no breach on the  part  of  the  employer  and the  contractor  was itself  

responsible for the delay. If so, the question of compensating the contractor  

19

on that score does not arise.  

20. There is yet another aspect. The contractor claimed compensation on  

the basis that he could not do work of the value of Rs.5,56,66,086/- in view  

of the delay and he was entitled to 15% thereof namely Rs.83,49,913/- as  

compensation. But the arbitrator made an award in respect of the claim on  

the ground that there was delay in releasing the mobilization advance and  

during that period of delay, one third of the contract work could have been  

done  and  the  value  of  the  work  that  could  have  been  done  was  

Rs.3,30,64,867, and 10% thereof was the loss of profit. Firstly, there was no  

such  plea.  Secondly,  we  have  already  held  that  the  delay  relating  to  

mobilisation advance, was not on the part of the employer. Thirdly, even if  

there was delay, it  was nobody’s case that no work was done or that the  

contractor  had  suffered  loss  for  non-execution  of  the  work  during  the  

contract  period.  Therefore  we  are  of  the  view  that  the  award  of  

compensation  of  Rs.33,03,500/-  towards  claim  no.(1)  is  liable  to  be  set  

aside.  

Re : Claim 37A :

21. Claim No.37A was linked  to  mobilization  advance.  The  contractor  

claimed that it had mortgaged its pipe manufacturing unit in favour of the  

20

employer  by  deposit  of  title  deeds,  as  security  for  repayment  of  the  

mobilization advance; that the machinery installed in the said factory had  

not been released by the employer in its favour and as a consequence, it  

could not be shifted to another place to enable it to start the manufacturing  

process  elsewhere;  and that  on  account  of  the  failure  on  the  part  of  the  

employer  to release the plant,  it  had to keep the  machinery idle and the  

employer  was  therefore  liable  to  reimburse  to  the  contractor  the  loss  of  

production from 13.1.1992 at the rate of Rs.12,072/- per day. The contractor  

contended that if it had been permitted to shift its plant and machinery, it  

would have produced 15 pipes per day valued at Rs.1,20,000/-, that out of  

which the overhead and profit  element was 15% (that  is  Rs.18,000/-  per  

day);  that  as  there   were   306  working days    in   a  year,  the   loss  of  

profits/overheads would be 18,000 x 306/365 = Rs.15,090/- per day; and that  

if  20%      thereof  (Rs.3,018/-)  was  deducted  therefrom towards  labour  

component,   the loss of profit per day on account of non-availability of plant  

and machinery was Rs.12,072 per day. The employer resisted the claim by  

contending that there was no obligation to release the plant and its title deeds  

until the mobilization advance was repaid with interest; that the contractor  

had not repaid the mobilization advance and interest thereon in spite of the  

award; and therefore the question of compensating any ‘daily loss’ on that  

account did not arise.  The employer also contested the correctness of the  

21

assumptions made for calculating the loss.

22.  The contractor deposited the title deeds relating to the plant by way  

of mortgage of deposit of title deeds, in terms of the contract and specifically  

agreed that the original deeds will remain in deposit with the employer till  

the entire mobilization advance was repaid with interest.  It  is also not in  

dispute  that  though  a  mortgage  security  was  created  on  the  plant,  it  

continued to be in the possession, enjoyment and control of the contractor,  

as the employer did not take over physical possession of the plant at any  

point of time.

23. The arbitrator considered Claim 37A with three other claims – (36,  

36A and 37). The particulars of the said claims are:

Claim 36  Compensation for idling machinery, labour,  staff due to delay and wrong decisions  (for the period up to 12.1.1992) Rs.48.21 lacs

Claim 36 A Compensation for idling machinery, staff & Labour etc. from 13.1.1992 Rs.6370 per day

Claim 37 Compensation for loss of production in the Factory (for the period upto 12.1.1992) Rs.61.48 lacs

Claim 37A Compensation for loss of production in the

22

Factory from 13.1.1992 Rs.12,072 per day

The arbitrator  held that  none of the four claims was maintainable  as  the  

factory built out of mobilization advance had been mortgaged in favour of  

the employer. As a consequence he did not award any amount in respect of  

the four claims.  But strangely he directed payment of Rs.12,072 per  day  

from the  date  of  award  not  because  he  held  that  there  was  any  loss  of  

production as  a  consequence  of  any breach  by the  employer,  but  on the  

following reasoning:  

“After perusal of the arguments of the parties and the evidence on record, I  come to the finding that it is a case of real hardship to the claimants for  having been denied the use of the factory and machinery elsewhere in their  business venture, but because of legalities involved, such as mortgage, the  claimants  cannot  be given the benefit  of  any award. Had the assets  of  factory built out of mobilization advance not being mortgaged in favour of  the respondent I would have considered making an award in favour of the  claimants. In view of the fact that I have allowed counter claim No.3 of  the respondent for balance amount of mobilization advance in full along  with interest, there is no reason why the assets built out of mobilization  advance  should  continue  to  remain  mortgaged  with  the  respondents.  I  therefore  direct  the  respondent  to  release  the  documents  relating  to  mortgage as mentioned above within a period of 30 days from the date of  this award failing which the claimants  shall  be entitled to an award of  Rs.12,072 per day from the date of this award till the date of release of  mortgage. No award in favour of the claimants for the period I entered  upon, reference to the date of the publication of the award.”

[emphasis supplied]

24. Thus  we  find  that  the  award  under  claims 37A was  not  made  on  

account of any finding of breach on the part of the employer. It was made  

because the Arbitrator had made an award against the contractor in favour of  

the employer for Rs.59,42,275 with interest. The Arbitrator was of the view  

23

that if that sum was adjusted against the amounts due by the employer, there  

was no need for  the mortgage of  the plant  to continue and therefore the  

employer  should  release  the  documents  of  title  deposited  by  way  of  

equitable mortgage, within 30 days from the date of award; and that if the  

employer  failed  to  do  so,  the  employer  should  pay  to  the  contractor  

Rs.12,072 per day from the date of the award till the date of release of the  

mortgage.  Therefore,  the said award under  claim 37A was made,  not  on  

account of any breach committed by the employer, but in respect a breach if  

made in future after the date of the award. There was no such claim and the  

award was therefore beyond the reference.  Further,  the reasoning is  very  

strange and is a classic case of an error apparent on the face of the award and  

a legal misconduct. The arbitrator rejected the claim No.37A for payment of  

Rs.12,072/- as compensation for loss of production from 13.1.1992 (which  

was  the  subject  matter  of  claim)  on  the  ground  that  the  plant  had  been  

mortgaged in favour of the employer and therefore there was no justification  

for the contractor to claim that it should be permitted to remove and take  

away the plant when the mortgage subsisted. Having rejected the claim, the  

Arbitrator evolved a strange reasoning that though there was a subsisting  

valid mortgage in respect of the mobilization advance with interest in favour  

of the employer, because he had made an award in favour of the employer  

for  Rs.59,42,275  plus  interest,  the  mortgage  came  to  an  end  and  the  

24

employer became liable to return the documents and if it failed to return the  

documents, the contractor was entitled to damages of Rs.12,072/- per day  

from the date of award.  

25. The  arbitrator  noticed  the  fact  that  the  plant  and  machinery  was  

mortgaged by deposit of title deeds in favour of the employer and that the  

contract was that “the original documents will remain in deposit with the  

employer  till  the  amount  of  advance  is  repaid  with  full  interest.”  The  

arbitrator in fact makes an award for return of Rs.59,42,276 in favour of the  

employer with interest at 18% per annum from 1.9.1990 to 17.9.1990 and  

interest  at  18% per annum on Rs.59,42,275/-  from 18.9.1990 till  date  of  

decree  or  payment,  whichever  was  earlier.  Therefore  evidently  until  the  

amount of Rs.59,42,275/-  with interest  was paid by the contractor  to the  

employer, the mortgage would continue. If the mortgage continued, there  

was no obligation on the part of the employer to return the documents; and if  

there was no obligation on the part of the employer to return the documents,  

the contractor could not complain that the documents were wrongly held by  

the employer nor could it claim loss of production as a result of employer  

wrongly withholding the documents.  

25

26. It is of some interest to note that as per the award of the arbitrator,  

made under claim 37A, on a claim that was never made, the amount that  

would  become  due  at  Rs.12,072/-  from  21.9.1994  to   date  will  be  

approximately  Rs.6,42,70,000/-.  We  have  a  strange  situation  where  the  

arbitrator makes an award in favour of an employer directing the contractor  

to refund the employer Rs.59,42,275/- with interest at 18% per annum from  

18.9.1990  upto  date  of  decree/payment  and  then  even  though  the  said  

payment was not made, awards damages to the contractor which works out  

to  Rs.6,42,70,000/-  to  the  contractor.  This  to  say  the  least  is  legal  

misconduct and an error apparent on the face of the award.  

27. We may also refer to another aspect. A sum of Rs.12,072/- per day  

was claimed as damages by the contractor in a two line calculation without  

any supporting evidence or document. As noticed above, the claim was on  

the basis that the contractor would have manufactured 15 pipes per day of  

the value of Rs.1,20,000/- and that the profit and overhead element out of it  

would have been 15% or Rs.18,000/- per day. By taking the working days as  

306 in a year and deducting 20% of labour component, the loss of profit per  

day was calculated to be Rs.12,072/- per day. There is no evidence to show  

that the contractor was at any point of time manufacturing 15 pipes a day of  

the value of Rs.8000/- each or that he would have made a profit of 15% on  

26

the cost thereof. The claim is made on the ground that it is disabled from  

manufacturing that many number of pipes elsewhere. There is no evidence  

that it had other contracts where it was required to manufacture that number  

of pipes or that it could not manufacture the required pipes for want of plant  

and machinery. Nor is there any evidence as to the value of the plant and  

machinery that had been mortgaged to the employer and what would be the  

cost of an alternative plant with a capacity to manufacture 15 pipes per day.  

If the plant and machinery was of the value of say Rs.25 lakhs, or if the  

contractor could install another similar plant at a cost of Rs.25 lakhs, then  

the loss at best would be interest on Rs.25 lakhs and not anything more. In  

fact even though there is no evidence, while making claim nos.36 and 37 the  

contractor  has given value of the plant  and machinery as Rs.36,84,161/-.  

Even assuming the said figure to be true, at best the blocked up investment  

was  only   Rs. 36,84,161/- and  the  loss  would  be around 1%  thereon  per  

month by way of interest which would be Rs.36,841/- per month.  What is  

more strange is nowhere in the award the arbitrator considers the validity of  

the claim of Rs.12072 per day nor accepts the said claim as valid or correct.  

In a reasoned award if the claim of a contractor is equated to proof of the  

claim, then it is obviously a legal misconduct and an error apparent on the  

face of the award. While the quantum of evidence required to accept a claim,  

may be a matter within the exclusive jurisdiction of the arbitrator to decide,  

27

if there was no evidence at all and if the arbitrator makes an award of the  

amount claimed in the claim statement,  merely on the basis of the claim  

statement without anything more, it has to be held that the award on that  

account would be invalid. Suffice it to say that the entire award under this  

head  is  wholly  illegal  and  beyond  the  jurisdiction  of  the  arbitrator,  and  

wholly unsustainable.  

28. Learned counsel for the contractor submitted that though there was an  

award  in  favour  of  the  employer  for  refund  of  mobilization  advance  of  

Rs.59,42,275/-  with  interest,  there  was  a  larger  award  in  its  favour  

aggregating  to  about  Rs.1.67  crores  and  interest  and  it  was  legitimately  

entitled to adjust the sum of Rs.59,42,275/- with interest towards the amount  

due by the employer under the award namely Rs.1.67 crores with interest  

and therefore as on the date of the award the liability towards mobilization  

advance stood wiped out on account of the same being adjusted towards the  

amount  claimed  by  him and  therefore  as  on  the  date  of  the  award,  the  

liability to refund the mobilization advance ceased.  This contention is not  

sound. The mobilization advance amount was an ascertained sum due to the  

employer from the contractor, with a specific provision for interest. There  

was  a  specific  contract  for  continuation  of  the  mortgage  until  the  said  

amount was paid. On the other hand the amounts that allegedly became due  

28

to  the  contractor  under  the  award  were  mostly  towards  damages  and  

escalation in prices validity of which were under challenge and there was no  

provision in the contract for payment of interest thereon. As noticed above  

at best the arbitrator could have directed return of the documents of title to  

the contractor and could not have directed payment of damages at the rate of  

Rs. 12072/- per day.

29. We therefore hold that viewed from any angle, awarding Rs.12,072/-  

per day as damages,  from the date of award under Claim 37A cannot be  

sustained and the same is liable to be set aside.

Re : Claim Nos. 12 and 13 :

30. The contractor claimed pre-reference interest at 18% per annum on all  

its  claims from the date  of  claim to  date  of  arbitrator  entering upon the  

reference  (18.6.1990  to  15.12.1991),  as  also  pendente  lite interest  from  

16.12.1991 to 21.9.1994 and  future  interest  from  the  date  of  award  till  

date of payment or decree whichever was earlier. The Arbitrator awarded the  

following interest  :  (a)  pre-reference interest  on all  sums awarded except  

claim no.(1), from 3.9.1990 (date of contractor’s application under section 8  

and  20  of  the  Act)  to  15.12.1991  at  18% per  annum;  (b)  pendente  lite  

29

interest  on  all  sums awarded  including  claim No.  1,  from 16,12.1991 to  

21.9.1994 at 18% per annum; and (c) future interest on all sums awarded  

from 22.9.1994 till date of decree or payment whichever is earlier at the rate  

of  18% per  annum.  The  District  Court  did  not  award  any  post  decretal  

interest,  but  the  High  Court,  however,  granted  interest  from the  date  of  

decree till date of payment at 18% per annum.  

31. The appellants contend that there was no provision in the contract for  

payment  of  interest  on  any  of  the  amounts  payable  to  the  contractor  and  

therefore no interest ought to be awarded. But this Court has held that in the  

absence of an express bar, the arbitrator has the jurisdiction and authority to  

award interest for all the three periods – pre reference, pendente lite and future  

(vide decisions of Constitution Bench in  Secretary,  Irrigation Department,   

Government of Orissa vs. G. C. Roy – 1992 (1) SCC 508, Executive Engineer,   

Dhenkanal Minor Irrigation Division vs. N. C. Budharaj – 2001 (2) SCC 721  

and the subsequent decision in Bhagawati Oxygen vs. Hindustan Copper Ltd –  

2005 (6) SCC 462). In this case as there was no express bar in the contract in  

regard to interest, the Arbitrator could award interest.   

32. The appellant next contended that in regard to claims in the nature of  

damages, as contrasted from ascertained sums due, interest becomes payable  

only on quantification and therefore award of interest prior to the date of  

30

arbitrator’s award was illegal.  It is no doubt true that the position of law  

earlier  was that  in regard to award of damages,  interest  was not  payable  

before quantification by a court. This was on the assumption that in so far as  

damages are concerned, there is no liability till determination of the quantum  

of damages. We may refer to a decision of the Bombay High Court in Iron  

& Hardware (India) Co. v. Firm Shamlal & Bros [AIR 1954 Bombay 423],  

where Chagla CJ, speaking for the Bench, stated the principle thus :

“In my opinion it would not be true to say that a person who commits a  breach of the contract incurs any pecuniary liability, nor would it be true  to say that the other party to the contract who complains of the breach has  any amount due to him from the other party……As already stated the only  right  which  he  has  is  the  right  to  go  to  a  Court  of  law  and  recover  damages. Now, damages are the compensation which a Court of law gives  to  a party for the injury which he has sustained.  But,  and this  is  most  important to note, he does not get damages or compensation by reason of  any existing obligation on the part of the person who has committed the  breach.   He  gets  compensation  as  a  result  of  the  fiat  of  the  Court.  Therefore, no pecuniary liability arises till the Court has determined that  the  party  complaining  of  the  breach  is  entitled  to  damages.  Therefore,  when damages are assessed, it would not be true to say that what the Court  is doing is ascertaining a pecuniary liability which already existed. The  Court in the first place must decide that the defendant is liable and then it  proceeds to assess what that liability is. But till that determination there is  no liability at all upon the defendant.”

33. The legal position, however, underwent a change after the enactment  

of Interest Act, 1978. Sub-section (1) of section 3 of the said Act provided  

that a court (as also an arbitrator) can in any proceedings for recovery of any  

debt or damages, if it thinks fit, allow interest to the person entitled to the  

debt or damages at a rate not exceeding the current rate of interest, for the  

whole or part of the following period, that is to say, --

31

(a) if  the  proceedings  relate  to  a  debt  payable  by  virtue  of  a  written  instrument  at  a  certain  time,  then,  from  the  date  when  the  debt  is  payable to the date of institution of the proceedings;

(b) if the proceedings do not relate to any such debt, then, from the date  mentioned in this regard in a written notice given by the person entitled  or the person making the claim to the person liable that interest will be  claimed, to the date of institution of the proceedings.

Sub-section (3) of section 3 made it clear that nothing in that section shall  

apply to any debt or damages upon which interest is payable as of right, by  

virtue of any agreement; or to any debt or damages upon which payment of  

interest is barred, by virtue of an express agreement. The said sub-section  

also made it clear that nothing in that section shall empower the court to  

award interest upon interest. Section 5 of the said Act provides that nothing  

in the said Act shall  affect the provisions of section 34 of Code of Civil  

Procedure 1908.  

34. The position regarding award of interest after the Interest Act, 1978  

came into force, can be stated thus :  

(a) where a provision has been made in any contract, for interest on  any debt or damages, interest shall be paid in accordance with the  such contract.  

(b) where payment of  interest  on any debt  or  damages is  expressly  barred by the contract, no interest shall be awarded.

(c) where there is no express bar in the contract and where there is  also no provision for payment of interest  then the principles  of  

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section 3 of Interest Act will apply in regard to the pre-suit or pre- reference period and consequently interest will be payable :  

(i) where  the  proceedings  relate  to  a  debt  (ascertained  sum)  payable by virtue of a written instrument at a certain time,  then from the date when the debt is payable to the date of  institution of the proceedings;  

(ii) where  the  proceedings  is  for  recovery  of  damages  or  for  recovery of a debt which is not payable at a certain time,  then from the date mentioned in a written notice given by  the person making a claim to the person liable for the claim  that  interest  will  be  claimed,  to  date  of  institution  of  proceedings.   

(d) payment of interest pendente lite  (date of institution of proceedings to  date of decree) and future interest (from the date of decree to date of  payment) shall not be governed by the provisions of Interest Act, 1978  but by the provisions of section 34 of Code of Civil Procedure 1908 or  the provisions of the law governing Arbitration as the case may be.  

35. Therefore,  even  in  regard  to  claims  for  damages,  interest  can  be  

awarded for a prior to the date of ascertainment or quantification thereof if  

(a)  the  contract  specifically  provides  for  such  payment  from  the  date  

provided in the contract; or (b) a written demand had been made for payment  

of interest  on the amount claimed as damages before initiation of action,  

from the date mentioned in the notice of demand (that is from the date of  

demand  or  any  future  date  mentioned  therein).  In  regard  to  claims  for  

ascertained sums due, interest will be due from the date when they became  

due. In this case, interest has been awarded only from 3.9.1990, the date of  

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the petition under Section 20 of the Act for appointment of arbitrator. We  

find no reason to alter the date of commencement of interest.  

36. In regard to the rate of interest, we are of the view that the award of  

interest at 18% per annum, in an award governed by the old Act (Arbitration  

Act, 1940), was an error apparent on the face of the award.  In regard to  

award of  interest  governed by the Interest  Act,  1978,  the rate  of  interest  

could not exceed the  current rate of interest which means the highest of  

the maximum rates at  which interest  may be paid on different  classes of  

deposits  by  different  classes  of  scheduled  banks  in  accordance  with  the  

directions given or issued to banking companies generally by the Reserve  

Bank of India under the Banking Regulation Act. Therefore, we are of the  

view that pre-reference interest should be only at the rate of 9% per annum.  

It is appropriate to award the same rate of interest even by way of pendente  

lite interest and future interest upto date of payment.

Re: Claims 2 and 16, 3 and 15, 5 and 18, 6 and 17, 9 and 19, 11 and 20,  24, 27, and 28, 29, 30, 31, 32, 33, 35 (with 25 and 34) of the contractor.

37. Claims 9 & 19, 27 & 28, 29, 33, 35 (with 25 & 35) are for payment  

for work done by the contractor. Claims 2 & 16, 3 & 15, 5 & 18, 24, 30, 31  

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and 32 are  for  release/refund  of  amounts  withheld  or  excess  deductions.  

Claims  6  &  17  are  for  escalation  in  prices.  Claims  11  &  20  are  for  

compensation for slow progress due to reduction of width of trench. The  

arbitrator has awarded certain amounts against these claims by examining  

the  material  placed  before  him  and  the  terms  of  contract.  He  has  also  

assigned reasons for awarding the amount against these claims. Courts can  

not sit in judgment over the award of the arbitrator, nor re-appreciate the  

evidence. The awards on these claims do not suffer from any infirmity which  

can be the basis for interference either under Section 30 or under Section 16  

of  the  Arbitration  Act,  1940.  Neither  want  of  jurisdiction,  nor  legal  

misconduct,  nor  any  inconsistency  nor  error  apparent  on  the  face  of  the  

award are made out in regard to awards made in regard to these claims. The  

awards in regard to these claims are therefore upheld.

Re : Claims 4, 7, 8, 10, & 21, 14, 22, 23, 26, 38, 39, 40, 41 & 41A, 42 &  

42A, 43 of the contractor

38. These claims of the contractor have been examined and rejected by  

the Arbitrator and upheld by the courts below. No ground is made out to  

interfere with the same.  

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Re: Counter claims of the employer  

39. Out  of  the  five  counter-claims of  the  employer,  the  Arbitrator  has  

allowed only counter-claim no.(3). Counter-claim no. (3) was for refund of  

mobilization  advance  (Rs.79,87,846)  with  interest  and  the  Arbitrator  has  

awarded Rs.59,42,275/- with interest at the contract rate of 18% per annum  

up to the date of decree/payment whichever was earlier. Counter-claims 1, 2,  

4 and 5 made by the appellant against  the contractor have been rejected.  

They are:

Counter  claim No.

Brief description of counter claim Amount of counter claim

1 Liquidated damages Rs.99,19,460/- 2 Extra cost in getting work completed through  

another agency Rs.6,66,62,000/-

4. Interest  on payments  made to the  contractor  and not utilized  

Rs.2,17,42,168/-

5. Costs Rs.2,50,000/-

Counter-claims 1, 2, & 4 have been considered by the arbitrator and rejected  

by the arbitrator on the ground that the delays/breaches were on the part of  

the appellant and therefore, the question of claiming these amounts does not  

arise. Rejection of counter-claim (5) is consequential. As noticed above, the  

court does not sit in appeal over the award of the arbitrator and cannot re-

appreciate  the evidence to arrive at a different conclusion. The award on  

these items do not attract any of the grounds on which award could be set  

aside. Therefore, rejection of these claims is also not open to interference.  

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40. We therefore allow these appeals in part and modify the judgments of  

the courts below as indicated above. Resultantly:  

(A) The award of Arbitrator on claim no.(1) (Rs.33,06,500/-) and  

claim  37A  (Rs.12,072/-  per  day  from 21.9.1994  till  date  of  

payment) are set aside.

(B) The award of Arbitrator on claims 2 and 16, 3 and 15, 5 and 18,  

6 and 17, 9 and 19, 11 and 20, 24, 27 and 28, 29, 30, 31, 32, 33,  

35 (with 25 & 24) aggregating to Rs.1,34,24,407/- is upheld.   

(C) Interest shall  be payable at 9% p.a. on Rs.1,34,24,407/- from  

3.9.1990 till date of payment.  The award on claims 12 & 13 is  

modified accordingly.  

(D) Award of Rs.59,42,275/- in respect of counter-claim no.(3) of  

appellant with interest at the rate of 18% per annum from the  

respective dates of release upto the date of payment is upheld.  

(E) The direction for adjustment of the amount due under counter-

claim no.(3)  calculated as  on 21.9.1994, against  the  amounts  

found  due  to  the  contractor  calculated  as  on  21.9.1994  is  

upheld. Consequently, the appellant shall release the title deeds  

deposited  in  regard  to  the  plant/machinery  of  the  contractor.  

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The contractor will be entitled to remove the plant, if it is not  

already done.  

(F) Rejection of claims 4, 7, 8, 10 & 21, 14, 22, 23, 26, 38, 39, 40,  

41 & 41A, 42 & 42A and 43 of the contractor and counter-

claims 1, 2, 4, and 5 of the employer are upheld.   

(G) Parties to bear their respective costs.

………………………..J. (R. V. Raveendran)

New Delhi; ………….…………….J. April 22, 2009. (Lokeshwar Singh Panta)

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