High Court · 2007

IN THE HIGH COURT OF JUDICATURE AT MADRASDated : 11.12.2007Coram:THE HONOURABLE MR.JUSTICE K.RAVIRAJA PANDIANandTHE HONOURABLE MRS.JUSTICE CHITRA VENKATARAMANOriginal Side Appeal No.259 of 2003Tamilnadu Small Industries Development Corporation Ltd., Paulwel's Road, Kathipara Junction,Chennai 16, represented by its Chairman & Managing DirectorAppellantv.1. Sathya Constructions, Plot No.1230, 3rd Sector, 15th Street, Anna Nagar Western Extension, Chennai 50, rep. By its partner 2. T.Arulraj, Sole Arbitrator H.M.C.A. Building, 223 NSC Bose Road, Chennai.Respondents Original Side Appeal filed under Order XXXVI Rule 1 of O.S.Rules read with clause 15 of the Letters Patent against the orderof a learned single Judge dated 30.06.2003 made in O.P. No.710 of2002.For appellant:Mr.B.Shantha KumarFor respondent 1:Mr.K.KabirJUDGMENTK.RAVIRAJA PANDIAN, J.The appellant - Tamilnadu Small Industries DevelopmentCorporation Ltd., in this appeal assails the order of the learnedsingle Judge dated 30.06.2003 dismissing the O.P. No.710 of 2002filed under section 34 of the Arbitration and Conciliation Act, https://hcservices.ecourts.gov.in/hcservices/ 1996 for setting aside the award of the arbitrator dated24.05.2002.2. The learned counsel for the appellant, questions theorder of the learned single Judge on the ground that the learnedsingle Judge has not considered the issue that there was nodispute at all. The basic principle that in order to be entitledto ask for arbitration, there must be not only entitlement ofmoney, but also the difference and the dispute arising thebetween the parties exist. The appellant admitted that thefinal bill has not been settled in favour of the respondent. Insuch circumstances, the reference itself is bad in law. Hefurther contended that the award of interest by the arbitrator,when there is a prohibitory clause in the agreement, cannot belegally sustained and the learned single Judge has totally lostsight of the prohibitory clause in the agreement. On these twogrounds, the learned counsel sought to assail the order. He alsoreferred to the provisions of section 28(3) and 31(7)(a) of theAct, 1996 and relied on a division bench judgment of this Courtin the case of Sri Kamatchi Amman Constructions v. DivisionalRailway Manager/Works, (2007) 5 MLJ 257.3. On the other hand, the learned counsel appearing for therespondent argued for sustaining the order of the learned singleJudge. 4. We heard the arguments of the learned counsel on eitherside and perused the materials available on record.5. The material facts culminated in the filing of the aboveappeal are as follows :The first respondent entered into contract for constructionof 73 numbers of staff quarters at Thiru Vi.Ka. Industrial Estateat Guindy on 07.12.1995. On the same day the work order wasissued. The period for completion of the contract was fourmonths from the date of handing over of the site. There wasdelay in handing over of the site and the work was completed on30.09.1996. The respondent filed the final bill for settlement.In spite of the passage of time, the bill was not settled.Hence, the respondent approached this Court to refer the matterfor arbitration for resolving the dispute between the partiesregarding settlement of bills under section 11 (6) of the Act.This Court, by order dated 26.02.1999 referred the matter to beresolved by an arbitrator. 6. Before the arbitrator, the respondent claimed a sum ofRs.36,62,838/- on various heads. The arbitrator by his awarddated 24.05.2002 made an award in a sum of Rs.7,60,104/- andinterest over it in a sum of Rs.4,10,456/- totalling a sum ofRs.11,70,560/- with further interest @ 18% per annum onRs.7,60,104/- from 01.07.1999 till the date of realisation. Theappellant, aggrieved by the award made by the arbitrator, filed https://hcservices.ecourts.gov.in/hcservices/ O.P. No.710 of 2002 under section 34 of the Act to set aside theaward. The learned single Judge, by the impugned order,dismissed the original petition on 30.06.2003. Hence, thepresent appeal.7. The law in the arbitration proceedings has been now wellsettled that the award of the arbitrator is ordinarily final andconclusive as long as arbitrator has acted within his authorityand according to the principles of fair play and the power of theCourt to set aside the award is restricted to the instances setout in section 34 of the Act. As per section 28(3) of the Act,in all cases, the Arbitral Tribunal shall decide in accordancewith the terms of the contract and shall take into account theusage of the Trade applicable to the transaction. Where thefundamental terms of agreement of the parties are ignored by thearbitrator, the arbitrator is held to have exceeded hisjurisdiction, even where the jurisdiction clause itself is widelyworded. It is not open to the Court to re-assess the evidence tofind if the Arbitral Tribunal has committed any error and re-assess the evidence as if it were a Court of appeal. Interestcould be awarded only in the absence of any specific stipulationor prohibition in the contract and in the absence of an agreementby the parties to contract, Arbitral Tribunal may award interestand section 31(7)(a) underlines the discretion of the ArbitralTribunal to award interest it deems reasonable. Awardingpendente lite interest is a matter within the discretion of thearbitrators.8. In respect of the first point, we are afraid, we cannotcountenance the same as we are of the view that the appellant didnot make such a plea either before the arbitraor or beforelearned single Judge for the obvious reason that at the instanceof the respondent this Court by its order dated 26.02.1999referred the matter for arbitration. Hence, the first ground ofattack deserves to be rejected and the same is rejected. 9. In respect of the second ground of granting interest,clause 64 of the agreement read as follows :"Payment will be made to the contractor under thecertificates to be issued at reasonably frequentintervels by the Executive Engineer or the Sub DivisionalOfficer within 14 days of the date of each certificateand intermediate payment will be made by the ExecutiveEngineer or the Sub-Divisional Officer of a sum equal to95 per cent of the value of work as so certified and thebalance of 5 per cent will be withheld and retained assecurity for the due fulfilment of the contract.Under the certificate to be issued by the ExecutiveEngineer or Sub Divisional Officer on the completion ofthe entire works, the contractor will receive the finalpayment by virtue of the contract except security depositand the withheld amount equal to 2.5 per cent of the https://hcservices.ecourts.gov.in/hcservices/ total value of the work done provided is no recovery fromor forfeiture by the contractor to be made under clause37. The amount withheld from the final bill will beretained under 'Deposits' and paid to the contractortogether with the security deposit after six monthsreckoned from the date of completion of work or as soonafter the expiration of such period of six months as alldefects shall have been made good according to the trueintent and the meaning thereof whichever shall lasthappen. In the event the final bill remains unpaid even.(emphasis supplied)..............64.1ANotwithstanding the above clause, the withheld amount of2.5 per cent from the final bill in respect of contractfor construction of original building will be retained bythe Government for a total period of two years in lieu ofsix months period referred to in clause 64.1 (above) andwill be released after the expiry to two years' period onexecution of an indemnity bond by the contractor to thesatisfaction of the Executive Engineer for a furtherperiod of three years to ensure structural stability ofthe building under clause 26.1.A. (emphasis supplied)Clause 65 needs to be referred in this case which read as :65.1 No omission by the Executive Engineer or thesub-divisional officer to pay the amount due uponcertificates shall vitiate or make void the contract, norshall the contractor be entitled to interest upon anyguarantee found or payments in arrear, nor upon anybalance which may, on the final settlement of hisaccounts, be found to be due to him.Thus, it could be seen that in respect of the earnest moneydeposit of Rs.79,066/- interest can be levied only after expiryof six months from the date of completion of work (clause 64).For the with-held amount as per the agreement in a sum ofRs.97,823/- interest can be levied only after two years reckonedfrom the date of completion of work (clause 64-1A). For the restof the period, the above referred to clause cannot be put intoservice to contend otherwise. 10. The learned single Judge has referred to the judgment ofAPSRTC, rep. By its General Manager (Now redesignated asManaging Director) Mushirabad, Hyderabad v. P.Ramanareddi, 1989(1) ALT 195 wherein an identical clause which read as ..."69. Interest on money due to the contractor (a) Noomission by the Executive Engineer or the sub-divisionalofficer to pay the amount due upon certificates shallvitiate or make void the contract, nor shall thecontractor be entitled to interest upon any guaranteefound or payments in arrear, nor upon any balance whichmay, on the final settlement of his accounts, be found tobe due to him." -- https://hcservices.ecourts.gov.in/hcservices/ has been considered and held that the clause was intended toreally prevent any claim for interest during the running periodwhen final bill was not settled and also in respect of theEarnest Money Deposit or the sum equal to 2 ½ % of the totalvalue of the work done till the expiry of the period of sixmonths. This six months period was called the 'observationperiod', so that the department could see whether the work wasdone satisfactorily or not. The said clause could not beconstrued as a total prohibition, but it operates a limitedperiod of six months from the date of the completion of the work.11. Likewise, the Supreme Court in the case of State of UttarPradesh v. Harish Chandra and Co (1999) 1 SCC 63 has held thatthe claim for damages or claim for payment for the work done andwhich was not paid for would not obviously cover any money whichmay be said to be lying with the Government. Consequently, therewas no prohibition which could be culled out against therespondent-contractor that he could not raise the claim forinteret by way of damages before the arbitrator on the relevantitems placed for adjudication. A comparable provision, which hasbeen construed by a three Judge Bench judgment of the SupremeCourt has also been referred to in that case to sustain the claimof interest. In that case, the Interest Act was also taken intoconsideration. So is the judgment of the Supreme Court in thecase of ONGC v. Ms/ M.C. Clelland Engineers, S.A. (1999) 4Supreme 235 wherein it was held that merely because award itselfwas on claim of interest for delayed payment, interest awarded onaward amount till realisation could not be said to beunjustified. 12. In view of the law declared by the apex Court, we are ofthe view that the appellant has not made out any case forinterference in awarding of interest except for the period asindicated in paragraph 9 above in respect of earnest moneydeposit and withheld amount. With this modification, the appealis disposed of. No costs.Sd/-Asst. Registrar./true copy/Sub Asst. Registrar.mf https://hcservices.ecourts.gov.in/hcservices/ ToThe Sub Assistant RegistrarOriginal Side, High Court,Madras.1 cc to Mr.B. Shanthakumar, Advocate, Sr. 729641 cc to Mr.A. Dhiraviyanathan, Advocate, Sr. 72864O.S.A No.259 of 2003 JRG (CO)kk 28/12