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CASE NO.: Appeal (civil)  8052 of 2001

PETITIONER: State of Rajasthan                                               

RESPONDENT: M/s Nav Bharat Construction Co.                          

DATE OF JUDGMENT: 28/03/2005

BENCH: CJI,D.M. Dharmadhikari & P. K. Balasubramanyan

JUDGMENT: J U D G M E N T With

CA No.8053/2001, CA No.8054/2001, CA No.8055/2001  

And

CIVIL APPEAL NO. 1400 OF 2002

M/s Nav Bharat Construction Co.                                   Appellant Thr. Partner                                                 Vs. State of Rajasthan                                                      Respondent

Dharmadhikari J.

       These appeals arise out of an award dated 29.9.1997 passed by  the sole Arbitrator viz. S.S. Mathur, retired Additional Chief Engineer,  Public Works Department, on a reference of dispute concerning civil  construction work awarded to the Contractor by the State of  Rajasthan. The arbitration proceedings were regulated by provisions of  the Arbitration Act, 1940 (for short ’the Act’).  The sole Arbitrator  awarded a sum of Rs.6,68,058.16 with interest @ 18% per annum  from the date of the award till date of decree or payment, whichever is  earlier.

The State of Rajasthan under Section 30(1) of the Act filed  objections to the Award.  The Contractor by application under Section  17 of the Act prayed for passing a decree in terms of the Award.  The   objections of the State were rejected by the Court of the District Judge  who made the Award  Rule of the Court by passing a decree in terms  thereof on 5.10.1999.  In the order making award Rule of the Court  and passing a decree thereon, there was omission of not mentioning  the interest payable on the amount awarded.  On the application under  Section 152 of the Code of Civil Procedure (CPC) filed by the  Contractor for rectification of the decree, the court passed the order on  29.4.2000 and granted a decree of interest @ 12% p.a. on the  awarded sum of Rs. 6,68,058.16 from the date of award i.e. 29.9.1997  till the date of payment.  Pursuant to the above order a modified  decree for the above-mentioned amount with 12% future interest was  passed.

We shall first dispose of the appeals preferred by the State  against the revisional and appellate orders of the High Court arising  out of orders passed by the civil court during proceedings of the  arbitration.

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Civil Appeal No. 8052 of 2001

Civil Appeal No.8052 of 2001 arises from of an order of the  High Court passed in appeal confirming the order of the civil court  dated 24.8.1992 whereby, in exercise of powers under Section 8B read  with Section 41(b) of the Act, in place of the arbitrator initially  appointed,  new arbitrator was substituted on the suggestions and  proposals of the parties.

Learned counsel appearing for the State of Rajasthan invited our  attention to the contents of clause 23 of the Agreement on the basis of  which the arbitration proceedings were initiated.  Clause 23 reads  thus: "Clause 23: Except where otherwise specified in the contract the   decision of the Chief Engineer of the Government of Rajasthan  for the time being shall be final conclusive and binding on all parties  to the contract upon all questions relating to the meaning of the  specifications, decisions, drawings and instructions here-in-before  mentioned and as to the quality of workmanship or materials used on  the work or as to any other question, claim, right, matter or thing  whatsoever in any way arising out of or relating to the contract,  designs, drawings specifications, estimates, instructions, orders or  these conditions, or otherwise concerning the works, or the execution  or failure to execute the same, whether arising during the progress  of the work or after the completion or abandonment thereof, of the  contract by the contractor shall be final, conclusive and binding on  the contractor."

On behalf of the State, it is argued that the aforesaid clause,  making a provision for settlement of questions relating to specification,  design, quality and workmanship and other technical aspects by the  sitting Chief Engineer of the Government, has not been held to be an  arbitration clause in a series of the decisions of this Court.  Reliance is  placed on Executive Engineer, REO vs. Suresh Chandra Panda (d)  through LRs. [1999 (9) SCC 92]; State of UP vs. Tipper Chand  [1980 (2) SCC 341]; State of Madhya Pradesh vs. KK Shukla  [2001 (10) SCC 194]; and Prabartak Commercial Corporation Ltd.  vs. Chief Administrator, Dandakaranya Project [1991 (1) SCC  498].

The submission made on behalf of the State that the above- quoted clause 23 of the Agreement is not an arbitration clause has to  be accepted because exactly similar clause was held to be not an  arbitration clause in the case of  Bharat Bhushan Bansal vs. UP  Small Industries Corporation Ltd [AIR 1999 SC 899].

Learned counsel for the State then argued that both the  award  and the decree having been passed on a reference under clause 23,  which is not an arbitration clause, are liable to be set aside on that  short ground.

We have heard the Contractor appearing in person.  It is not  disputed that the sitting Chief Engineer, on reference of dispute in  terms of clause 23, failed to decide the dispute, therefore, an  application under Section 8 of the Act was made to the civil court to  substitute him by an arbitrator.  The record of the proceedings before  the civil court, (copies of which are before us) show that on the  application seeking substitution of the arbitrator, the Contractor and  the State through their counsel were heard.  Suggestion of names for  new arbitrator were taken from the parties.  The court on 14.3.1995  passed a consent order appointing Shri SS Mathur, retired Additional  Chief Engineer as the sole arbitrator to adjudicate upon the disputes  and decide the claims made by the Contractor.  The relevant part of  the order of the civil court made on 14.3.1995 reads: "The Advocates of the concerned parties have given their consent for

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appointment of Shri SS Mathur retired Additional Chief Engineer,  Udaipur as Sole Arbitrator.  The advocate of the applicant has no  objection.

Hence, the application of the applicant is accepted.  Shri SS Mathur  retired Additional Chief Engineer, Udaipur is appointed Arbitrator  for deciding the dispute in accordance with the agreement No.75 of  77-78 executed between the parties.  The arbitrator shall pass the  award after hearing the parties in accordance with the provisions of  the Act and the terms and conditions of the agreement.

The arbitrator be informed accordingly."

The sole arbitrator, thus, substituted on consent of parties  conducted and concluded the arbitration proceedings. The State  participated in the arbitration proceedings without any demur or  protest.

We asked the learned counsel appearing for the State whether in  their objection petition  filed against the award under Section 30 of the  Act, any objection on the competence of the substituted arbitrator to  make the award in terms of clause 23 was raised. The copy of the  application under Section 30 of the Arbitration Act raising objection to  the award filed by the State has been made part of record in these  appeals.  We have gone through the objection petition preferred under  the said Section 30 of the Act.  We find that no objection was raised on  the competence of the arbitrator or the validity of the arbitration  proceedings under Clause 23 of the agreement.   Clause 23 of the Agreement is undoubtedly not an arbitration  clause and the sitting Chief engineer, to whom earlier reference was  made, could not have acted as an arbitrator and made the award.  The  sitting Chief Engineer to whom initial reference was made did not  complete the arbitration proceedings.  The substituted arbitrator was a  retired Chief Engineer and parties agreed to his appointment and  submitted to his jurisdiction. By consent of parties, he was chosen   sole arbitrator and disputes were referred to him.  The State, without  demur or protest, submitted to the jurisdiction of the arbitrator and  participated in the proceedings.  The State is estopped on the doctrine  of acquiescence and waiver from raising objection to the competence  of the substituted arbitrator and validity of the arbitration proceedings  by taking recourse to clause 23 of the agreement on the basis of which  initial reference was made to sitting Chief Engineer.  See following  observations in the case of Prasun Roy vs. Calcutta Metropolitan  Devlopment Authority [1987 (4) SCC 217]:

"The principle is that a party shall not be allowed to blow hot and cold  simultaneously.  Long participation and acquiescence in the  proceedings preclude such a party from contending that the  proceedings were without jurisdiction...Basically the principle of  waiver and estoppel is not only applicable where the award had been  made but also where a party challenges the proceedings in which he  participated."

Therefore, this appeal i.e. CA No.8052 of 2001, preferred by the  State, also deserves to be dismissed.

Civil Appeal No. 1400 of 2002

CA 1400 of 2002 has been preferred by the Contractor whereby  its civil revision petition against the order granting 12% and not 18%

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future interest on the awarded sum under his application under  Section 152 CPC, was dismissed.  This court issued notice on the SLP  and subsequently granted leave to appeal on a limited question as to  why the decree drawn up in conformity with the order  making award  rule of the court should not direct payment of interest pendente  lite  and future at the rate of 18% per annum.  During pendency of this  appeal,  IA No.4 of 2002 has been made by the Contractor  seeking  permission to argue the appeal on the additional ground that interest  awarded by the arbitrator on pre reference period, pendente lite, and  post award should in aggregate be deemed as principal amount  awarded for the purpose of awarding future interest on the composite  sum at the rate of 18% per annum.  

The civil court on the application of the Contractor under Section  152 CPC had modified the decree by directing payment of interest @  12% on the awarded principal amount specified to be Rs. 6,68,058.16.  The period for which interest has been awarded is from the date of the  award 29.9.1997 till the date of payment.   

The Contractor who appeared in person submitted that for  carrying out the work awarded under the contract he had to raise loan  and borrow money from banks and financial institutions at the rate of  interest ranging between 18% per annum to 21% per annum   The arbitrator has awarded interest at the rate of 18% p.a. from the  date of award till the date of decree or payment.  When the  award was made rule of the court, the civil court could not, without  assigning any reason, reduce the rate of future interest from 18% to  12% on the awarded amount of Rs.6,68,058.16  by treating it to be  the total principal sum.  Reliance is placed on the five Judges Bench  decision of this Court in the case of Central Bank of India vs.  Ravinndra [2002 (1) SCC 367].

The submission of the contractor is that on the aggregate  amount that is principal sum plus pendente lite and future interest   from date of award to the date of decree or payment whichever  is  earlier, he was entitled to grant of decree by civil court of future  interest @ 21% as claimed by him and in any case @ 18% as awarded  by the arbitrator.  

On behalf of the State, the award of interest on the aggregate  sum, that is, the principal sum plus all interests payable, upto the date  of decree or payment has been questioned on the ground that it would  amount to directing payment of interest on amount of interest which is  not permissible under section 29 of the Act. It empowers the court to  award future interest only on the ’principal sum’ excluding the interest  amount.  

On the question of rate of future interest from the date of decree  to the date of payment, Section 29 of the Act empowers the Court to  order payment of interest at such rate as the court deems reasonable  to be paid on the principal sum as adjudged by the award and  confirmed by the decree.  The decision in the case of Central Bank of  India vs. Ravindra (supra) was based on Section 34 of the Code of  Civil Procedure as it stood prior to and after its amendment by Act  No.66 of 1956 and has no direct application to the rate of future  interest payable on the principal sum awarded by the arbitrator in the  proceedings under the Arbitration Act.  The interest @ 12% awarded  on the principal sum by the court cannot be held to be so low as to  treat it as unreasonable.  We decline to interfere under Article 136 of  the Constitution in the rate of interest awarded by the civil court  treating it to be a reasonable rate.  The appeal, preferred by the  Contractor claiming future interest at higher rate, is dismissed.

Civil Appeal No. 8053 of 2001

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Civil Revision Petition filed by the State of Rajasthan against the  order rejecting objection under Section 30 of the Act was dismissed by  the High Court by impugned order dated 21.12.2000 on the ground  that  Revision was barred by limitation and there was no sufficient  cause to condone the delay under Section 5 of the Limitation Act.   

We have perused the impugned order whereby application  seeking condonation of delay was rejected and the Revision Petition  was dismissed as barred.  The cause for the delay stated was long  strike of government employees.  In the application seeking  condonation of delay there was no mention as to when the strike  commenced and terminated.  The application was completely vague  and the High Court committed no error in rejecting it.  We find no  ground to interfere in the said order.   Civil Appeal No.8053 of 2001 is,  therefore, dismissed.

Civil Appeal No. 8055 of 2001:

Against the order of the Civil Court rejecting objection under  Section 30 of the Act and making award rule of the Court, an appeal  was also filed by the State. The said appeal was also barred by time  and the cause shown for seeking condonation of delay was same that  there was strike of government employees.  For the same reason on  which the connected civil revision was dismissed by the High Court,   the appeal against rejection of objection under Section 30 of the Act  and passing decree in terms thereof was also dismissed as barred by  time.  Since we have found no error in the order of the High Court  dismissing the revision petition as barred by time, the dismissal of  appeal as barred by limitation on the same ground also deserves to be  maintained. This appeal stands dismissed.

Civil Appeal No. 8054 of 2001

Civil Appeal 8054 of 2001 has been preferred by the State of  Rajasthan against the order whereby the High Court has upheld the  modification of the decree passed by the civil court in terms of the  award which directs payment of future interest on the awarded  amount from the date of award till the date of payment.  The High  Court in dismissing the appeal against the said order has stated that  merely an accidental error or an omission in the initial decree passed,  was corrected and that too with the consent of the parties.  This  appeal preferred against the order of the High Court passed on  consent of parties cannot be interfered with.  It is also, accordingly,  dismissed.

In the conclusion, all the appeals preferred by the State and the  appeal and the interlocutory application preferred by the Contractor  are dismissed.  We direct the parties to bear their own costs in these  appeals.