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Wednesday, March 5, 2014

Section 37(1) of Arbitration and & Conciliation Act - Award of interest - “unless otherwise agreed by the parties” categorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to the date of award. Award of interest beyond the agreement clauses by arbitrator is not valid in law- Apex court held that In view of the aforesaid, the appeals are allowed and it is directed that the respondents shall not be entitled to any interest on the amount which was recovered by the appellant, till the date of award and thereafter till the date when the amount awarded was deposited in the High Court, i.e. from 12th July, 1997.= Union of India …Appellant VERSUS M/s. Concrete Products & Const. Co. Etc. ...Respondents = 2014 (March . Part) judis.nic.in/supremecourt/filename=41289

 Section 37(1) of Arbitration and & Conciliation Act - Award of interest - “unless otherwise agreed by the parties”  categorically  clarifies  that the arbitrator is bound by the terms of the contract insofar  as the award of interest from the date of cause of  action  to  the date of award. Award of interest beyond the agreement clauses by arbitrator is not valid in law- Apex court held that In view of the aforesaid, the appeals are allowed and  it  is directed that the respondents shall not be  entitled  to  any interest on the amount which was recovered by the  appellant, till the date of award and thereafter till the date when  the amount awarded was deposited in the  High  Court,  i.e.  from 12th July, 1997.=


By  letter
        dated 12th July, 1997, the railways  administration  informed
        the respondents that the Railway Board had found that  excess
        payments had been made between 1989 and November, 1994  under
        escalation clause for HTS wires.   It  was  stated  that  the
        amounts paid to the contractors were more than the  prevalent
        market price.  Therefore, a  sum  of  Rs.  1,80,92,462/-  was
        recoverable  from  M/s  Concrete  Products  and  Construction
        Company, respondent in C.A. No. ____________ (arising out  of
        SLP(C) No. 5384 of 2013) and a sum  of  Rs.1,78,09,789/-  was
        recoverable from M/s. Kottukulam Engineers  Private  Limited,
        respondent in C.A. No. ______ (arising out of SLP(C) No. 5385
        of 2013). It was also pointed out  that  the  aforesaid  sums
        would be recoverable from the sums due and payable to them in
        the current/running contracts.=
The sole arbitrator directed the appellants  to  refund  the
        amount awarded as follows:-

           “In the result I direct the  Respondents  to  refund  a  sum  of
           Rs.1,78,09,789/- recovered from the Claimants and   interest  of
           Rs.2,38,28,960/-  and  subsequent  interest  at  18%  P.A   from
           1.9.2005 on Rs. 1,78,09,789/- till date of payment in Kottukulam
           Engineers Pvt. Ltd. matter.  Ana a sum of  Rs.1,69,78,883/-  and
           interest of Rs.2,25,25,513/- and subsequent interest at 18%  P.A
           from 1.09.2005 till date of payment in m/s  Concrete  Product  &
           Construction Company Trivalam.” =

Award of interest is challenged later  =

whether  the  contractors  are
        entitled to interest for the amount withheld  and  if  so  at
        what rate. =

Clause 2401 provides that the railways shall be  entitled  to
        withhold and also have a lien to retain any amount  deposited
        as security by the contractor to satisfy any  claims  arising
        out of or  in  the  contract.   In  such  circumstances,  the
        railways can withhold the amount deposited by the contractors
        as  security  and  also  have  lien  over  the  same  pending
        finalization or adjudication of  the  claim.   In  case,  the
        security deposit is insufficient to cover the  claim  of  the
        railways, it is entitled to withhold and  have  lien  to  the
        extent of the amount claimed from any  sum  payable  for  any
        works done  by  the  contractor  thereafter  under  the  same
        contract or any other  contract.   This  withholding  of  the
        money and the exercise of the lien is pending finalization or
        adjudication of any claim.  This clause further provided that
        the  amount  withheld  by  the  railways  over  which  it  is
        exercising lien will not entitle the contractor to claim  any
        interest or damages for such withholding or  retention  under
        lien by the railways.




    16. Clause 2403 again provides that any  sum  of  money  due  and
        payable to the contractor under the contract may be  withheld
        or retained by way of lien by the railway authorities or  the
        Government in respect of payment of a sum  of  money  arising
        out of or under any other contract  made  by  the  contractor
        with the railway authority or the Government.





    17. Clause 2403(b) further provides that it is an agreed term  of
        the contract that  against  the  sum  of  money  withheld  or
        retained under lien, the contractor shall have no  claim  for
        interest or damages whatsoever provided the  claim  has  been
        duly notified to the contractor.=

We are of the opinion that the sole  arbitrator  in  awarding
        interest to the contractors has failed to take  into  account
        the provisions contained in the aforesaid  two  clauses.   We
        find merit in  the  submission  made  by  learned  Additional
        Solicitor General that award of interest  at-least  from  the
        date when the  amount  was  deposited  in  Court  was  wholly
        unwarranted.  Therefore,  the  High  Court  as  well  as  the
        arbitrator, in  our  opinion,  have  committed  an  error  of
        jurisdiction in this respect.  This view of  ours  will  find
        support from the judgment of this Court in the case of Sayeed
        Ahmed & Company (supra), wherein it has been held as follows:-



           “16. In view of clause (a) of sub-section (7) of Section  31  of
           the Act, it is clear that the arbitrator could not have  awarded
           interest up to the date of the award, as the  agreement  between
           the parties barred payment of interest. The bar against award of
           interest would operate not only during the pre-reference period,
           that is, up to 13-3-1997  but  also  during  the  pendente  lite
           period, that is, from 14-3-1997 to 31-7-2001.”


    19. This view has been reiterated by this Court in Sree  Kamatchi
        Amman Construction (supra),  wherein  it  has  been  held  as
        follows:-

           “19. Section 37(1) of the new Act by  using  the  words  “unless
           otherwise agreed by the parties”  categorically  clarifies  that
           the arbitrator is bound by the terms of the contract insofar  as
           the award of interest from the date of cause of  action  to  the
           date of award. Therefore, where the parties had agreed  that  no
           interest shall be payable, the Arbitral  Tribunal  cannot  award
           interest between the date when the cause of action arose to  the
           date of award.”



    20. From the aforesaid it becomes apparent  that  the  arbitrator
        could not have awarded any interest from the  date  when  the
        recovery was made till the award was made. However,  interest
        would have been payable from the date when the award was made
        till the money was deposited in the High Court and thereafter
        converted to fixed deposit receipts.  Upon the  amount  being
        deposited in the High Court, no  further  interest  could  be
        paid to the respondents.




    21. In view of the aforesaid, the appeals are allowed and  it  is
        directed that the respondents shall not be  entitled  to  any
        interest on the amount which was recovered by the  appellant,
        till the date of award and thereafter till the date when  the
        amount awarded was deposited in the  High  Court,  i.e.  from
        12th July, 1997.


2014 (March . Part) judis.nic.in/supremecourt/filename=41289
SURINDER SINGH NIJJAR, FAKKIR MOHAMED IBRAHIM KALIFULLA

                             REPORTABLE


                        IN THE SUPREME COURT OF INDIA
                        CIVIL APPELLATE JURISDICTION


                      CIVIL APPEAL NO2950-2951 OF 2014
               (Arising out of SLP (C) Nos. 5384-5385 of 2013)


      Union                           of                            India
      …Appellant
      VERSUS
      M/s. Concrete Products & Const. Co. Etc.    ...Respondents


                               J U D G M E N T
      SURINDER SINGH NIJJAR, J.
     1. Leave granted.

     2. These appeals impugn the final judgment and decree dated 21st
        March, 2012 passed by the High Court of Judicature at  Madras
        in OSA No. 44 & 45 of 2012 and M.P. No. 1  of  2012,  whereby
        the letters  patent  appeals  of  the  Union  of  India  were
        dismissed. The appellant had entered into agreements with the
        respondents on 30th January, 1983 and 30th  March,  1984  for
        supply of mono block concrete sleepers (in short “Sleepers”).
         The agreements were renewed from time to  time  under  which
        the Union of India agreed to pay specified rates  for  supply
        of each sleeper.  The agreements/contracts also provided that
        the rates payable shall be based on certain standard rates of
        principal raw materials, such as cement, High  Tensile  Steel
        (HTS)  wires,  molded  steel,  etc.  The  contracts   further
        provided  that  whenever  the  cost  of  the  principal   raw
        materials increased or  decreased,  the  contract  price  for
        sleepers shall also correspondingly be increased or decreased
        with effect from the date of such increase or decrease.   The
        agreements/contracts also provided for escalation, subject to
        certain  conditions  prescribed  under  Clause  11   of   the
        Contract.  The contracts/agreements further provided that the
        respondents must exercise utmost economy in the  purchase  of
        raw materials and that the escalation will be admitted on the
        basis of actual price paid for the respective  raw  material.
        This was subject to the ceiling on the price. As  per  Clause
        12.2(c), ceiling was fixed “in the case of raw materials  not
        covered by  either  of  the  above,  the  lowest  price  (for
        destination) arrived at  on  the  basis  of  at  least  three
        quotations obtained by the Contractor for  each  supply  from
        various established sources of supply of the  respective  raw
        materials”.




     3.  The  respondents/contractors  purchased   HTS   wires   from
        established sources in terms of the various  clauses  of  the
        contract.  The  material  was  used  in  the  manufacture  of
        sleepers.   Payment  for  the  sleepers  was  made   by   the
        contractors at the lowest price quoted by the suppliers.  The
        quotation  was  also  scrutinized  alongwith  the  supporting
        documents.  The Railway authorities release  the  payment  to
        the respondent contractors only upon their satisfaction, upon
        scrutiny of all the relevant documents.



     4. A new contract was entered into between the parties  in  May,
        1997. The  railway  administration  changed  the  policy  and
        allowed  the  respondents/contractors  to  purchase  the  HTS
        wires, subject to escalation as  noticed  above.   By  letter
        dated 12th July, 1997, the railways  administration  informed
        the respondents that the Railway Board had found that  excess
        payments had been made between 1989 and November, 1994  under
        escalation clause for HTS wires.   It  was  stated  that  the
        amounts paid to the contractors were more than the  prevalent
        market price.  Therefore, a  sum  of  Rs.  1,80,92,462/-  was
        recoverable  from  M/s  Concrete  Products  and  Construction
        Company, respondent in C.A. No. ____________ (arising out  of
        SLP(C) No. 5384 of 2013) and a sum  of  Rs.1,78,09,789/-  was
        recoverable from M/s. Kottukulam Engineers  Private  Limited,
        respondent in C.A. No. ______ (arising out of SLP(C) No. 5385
        of 2013). It was also pointed out  that  the  aforesaid  sums
        would be recoverable from the sums due and payable to them in
        the current/running contracts.



     5. The contractors (respondents herein) challenged the aforesaid
        recovery by filing Writ Petition No. 11805 and 10814 of 1999,
        before the High Court of Madras. The  railway  administration
        took up the preliminary objection,  pleading  that  the  writ
        petition is  not  maintainable  as  the  dispute  has  to  be
        referred to arbitration.  The objection of the appellant  was
        accepted.  The High Court appointed a  Former  Judge  of  the
        Madras  High  Court  as  the  arbitrator  to  adjudicate  the
        dispute.  The contractors/respondents herein  challenged  the
        aforesaid  order  of  the  learned  Single  Judge  by  filing
                              Writ Appeal Nos. 251 and 252  of  2000,
        on the plea that the arbitrator had to be appointed in  terms
        of the agreement.  By order dated 22nd March, 2000, the  writ
        appeals were allowed, and the order  of  the  learned  Single
        Judge was set aside.  The matter was  remanded  back  to  the
        Single Judge for disposal in terms of the agreement.

           On remand, the learned Single Judge, instead  of  referring
      matter to arbitration in  terms  of  the  contract  between  the
      parties allowed the writ  petitions  filed  by  the  respondents
      herein and directed the railway authorities to refund the sum of
      Rs.1,69,78,883/- and Rs.1,78,09,789/- to the  respondent  firms,
      respectively with interest thereon from the date of  withholding
      till the date the same is refunded. The order was directed to be
      complied within a period of 4 week from the date of the  receipt
      of the order.  This order was again challenged  by  the  railway
      administration by filing, first of all, Writ  Appeal  Nos.  2822
      and  2823  of  2001.  Subsequently,  writ  appeal  miscellaneous
      petition No. 21103 and 21104 of 2001  were  also  filed  in  the
      aforesaid two writ appeals, seeking stay of the judgments  under
      appeal. On 30th April, 2004, the Division  Bench  dismissed  the
      writ appeals as well as the miscellaneous petitions.







     6. The railway administration challenged the aforesaid order  of
        the Division Bench, before this Court by filing SLP No. 18244
        and 18245 of 2004.  Special leave was  granted  in  both  the
        special leave petitions and the same were converted to  Civil
        Appeal Nos. 2999 and 3000 of 2005.  By a short  order  passed
        on 2nd May, 2005,  the  disputes  between  the  parties  were
        referred by this court for  adjudication  by  an  Arbitration
        Tribunal consisting solely of Mr. Justice K. Venkataswami,  a
        former Judge of this Court.  This order  was  passed  without
        going into the merits of the  disputes  and  the  submissions
        made by the  learned  Solicitor  General  on  behalf  of  the
        railways, that in view of the specific condition contained in
        the contract, the dispute cannot be referred to an arbitrator
        other than the authority referred to in the  contract.   This
        Court directed that the  matter  shall  be  referred  to  Mr.
        Justice Venkataswami.  It was, however, made clear  that  the
        order shall not be treated as a precedent.  Pursuant  to  the
        aforesaid order of this Court, the matter ultimately  reached
        the  arbitrator.   At  the   conclusion   of   the   arbitral
        proceedings, the final award was rendered on 24th June, 2006.
         The sole arbitrator directed the appellants  to  refund  the
        amount awarded as follows:-

           “In the result I direct the  Respondents  to  refund  a  sum  of
           Rs.1,78,09,789/- recovered from the Claimants and   interest  of
           Rs.2,38,28,960/-  and  subsequent  interest  at  18%  P.A   from
           1.9.2005 on Rs. 1,78,09,789/- till date of payment in Kottukulam
           Engineers Pvt. Ltd. matter.  Ana a sum of  Rs.1,69,78,883/-  and
           interest of Rs.2,25,25,513/- and subsequent interest at 18%  P.A
           from 1.09.2005 till date of payment in m/s  Concrete  Product  &
           Construction Company Trivalam.”




           The counter claims made by the appellants  were  dismissed.
      The railway administration  challenged  the  common  arbitration
      award in O.P. No. 142 & 143 of 2007  under  Section  33  of  the
      Arbitration and Conciliation Act,  1996  before  High  Court  of
      Madras.  The learned  Single  Judge  dismissed  the  arbitration
      petitions filed by the railway administration by its order dated
      30th  November,  2010.    Thereafter   the   contractors   filed
      applications before the High Court for direction to the railways
      to make payments of the amount.   Thereafter  Application   Nos.
      780 & 781 of 2011 were filed in the O.P. Nos. 142 & 143 of  2007
      by the contractors seeking a direction from the Court  directing
      that the amounts awarded by the learned Sole Arbitrator be  paid
      from the amount deposited by the railway administration with the
      High Court along with the accrued interest as  on  date  on  the
      aforesaid amount.  These  applications  were  allowed  by  order
      dated 24th February, 2011.  The High  Court  directed  that  the
      awarded amount deposited  by  the  railways  in  the  Court  for
      satisfying the outcome  of  the  original  petitions  which  was
      subsequently converted into fixed deposit receipts, be dispersed
      to the respondent contractors.




     7. Again the railway administration filed  intra  court  appeals
        challenging the order of the learned Single Judge principally
        on the ground that the railway administration was not  liable
        to pay any interest for the period subsequent to the  deposit
        of the principal amount into Court.  The appeals filed by the
        railway administration were dismissed by the  High  Court  by
        the impugned order dated 21st March, 2012.   The  High  Court
        held that railway administration had not questioned the power
        of the sole arbitrator to award  interest.   The  issue  with
        regard to the award of interest was also  not  raised  before
        the learned Single Judge.  For  the  first  time  before  the
        Division Bench, a plea was raised that the award of  interest
        was contrary to  Clause  No.  2401  of  the  Indian  Railways
        Standard Conditions of Contract.  The Division Bench  of  the
        High Court came to the conclusion that the  aforesaid  clause
        has no application at all as  it  applies  only  to  amounts,
        which have been withheld or retained under lien.  The amounts
        having  already  been  paid  were  sought  to  be   illegally
        recovered from the contractors.  The  sole  arbitrator  found
        that such order of recovery can not be sustained in  law  and
        the  recoveries  affected  were  illegal.  The  High   Court,
        however,  concluded  that  Clause   No.   2401   would   have
        application only in respect of amounts  which  had  not  been
        paid to the contractors.  The railway administration can  not
        exercise  lien  over  the  amounts  already   paid   to   the
        contractors.  Therefore, award  of  the  arbitrator  did  not
        suffer from any error apparent.  It was further held that the
        learned Single Judge having upheld  the  award,  the  appeals
        deserve to be dismissed.




     8. The appeals having been dismissed, the  Union  of  India  has
        approached this Court in these Civil Appeals.





     9. We have heard Mr. Mohan Jain,  learned  Additional  Solicitor
        General, appearing for the appellants.



    10. It is submitted that  the  only  question  which  arises  for
        consideration of this Court is whether  the  contractors  are
        entitled to interest for the amount withheld  and  if  so  at
        what rate.  The contractors had claimed interest @18 per cent
        from the date of recovery till payment.   Mr. Jain  submitted
        that the High Court has wrongly held that the  appellant  had
        no authority to exercise lien  on  the  current  payments  in
        relation to the amount already released to  the  contractors.
        It is submitted by  Mr.  Jain  that  the  arbitrator  had  no
        authority to  award  interest  in  view  of  the  prohibition
        contained under Section 31(7) of the Arbitration  Act,  1996.
        Learned Additional Solicitor General  pointed  out  that  the
        contract entered into between the parties did not provide for
        any payment of interest.  Mr.  Jain  also  pointed  out  that
        under Clause 2403, the railway administration has a  lien  on
        all the amounts of money that may be due to the  contractors,
        in  praesenti  or  in  the  futuro.   Therefore,   when   the
        contractors were paid in excess of the amounts actually  due,
        the appellants were fully justified in recovering the  amount
        from the respondents by exercising the lien over  the  future
        bills in terms of               Clause No. 2403.  He  submits
        that the sole arbitrator was wholly unjustified  in  awarding
        interest, as under Clause No.  2403(b),  it  is  specifically
        provided  that  the  contractors  shall  have  no  claim  for
        interest or damages whatsoever, for the  amount  so  retained
        even in  case  the  arbitration  award  or  any  other  legal
        proceeding subsequently holds that the  amount  was  withheld
        illegally.  Mr. Jain submits that the  learned  Single  Judge
        erred in holding that the award did not suffer from an  error
        apparent on this short ground.  In support of the submission,
        he relies on judgment of this Court in the case  of  Himachal
        Pradesh Housing and Urban Development Authority  &  Anr.  Vs.
        Ranjit Singh Rana.[1]




    11. Mr. Jain further submitted that the principal amount  awarded
        was deposited in Court in 2007.  This amount was released  to
        the contractors on 24th April, 2011 alongwith  the  interest,
        but 30 per cent of the amount was duly withheld.  This was in
        agreement with the respondents.  He also pointed out that  in
        fact  the  recovery  of  the  amount   was   deferred   after
        discussions with the respondents.  In view of the agreements,
        the  respondents  had  no  justification  for  claiming   any
        interest and the award granting such relief  suffer  from  an
        error apparent as it was contrary to the contract. In support
        of this submission, he relies on judgment of  this  Court  in
        Sree  Kamatchi  Amman  Construction  Vs.  Divisional  Railway
        Manager (Works), Palghat & Ors.[2]  He also relied on  Sayeed
        Ahmed & Company Vs. State of Uttar  Pradesh  &  Ors.[3]   and
        Union of India Vs. Krafters Engineering and  Leasign  Private
        Limited[4].




    12. Mr. C.S. Vaidyanathan, learned senior counsel  appearing  for
        the respondents,  on  the  other  hand,  submitted  that  the
        payments have been made to the  contractors  from  1989  till
        November,  1994.   The  High  Court  judgment  in  the   writ
        petitions challenging the recovery notice were set  aside  by
        the High Court.  The respondents had agreed to the  deduction
        of 30 per cent only  because  the  contractors  required  the
        money for execution of further works.  He submitted that  the
        appellants can not possibly be permitted to  claim  that  the
        respondents had agreed to the deduction of 30 per cent of the
        amount due.  He  pointed  out  that  the  recovery  was  made
        against   the   supplies   made    under    the    agreements
                of 9th December, 1991 in relation  to  the  contracts
        which were  being  performed  in  the  year  1996.   In  such
        circumstances, the appellants had no  authority  to  exercise
        lien on the amounts that accrued due to the  works  performed
        subsequent  to                  9th  December,   1991   under
        Clause(s) 2401 or 2403 of  the  Contract.   Mr.  Vaidyanathan
        emphasized that such recovery of the time  barred  claims  is
        clearly without any  justification.   The  appellants  having
        failed to notify that 30 per cent of the amount due had  been
        withheld, the invocation of  Clause       No.  2401  or  2403
        would be wholly  illegal.   Learned  senior  counsel  further
        submitted that the appellant can not justify the recovery  on
        the basis of the letter dated 22nd October, 1997  as  it  was
        written without prejudice to the rights of  the  contractors.
        The counter claims made by the appellant  were  clearly  time
        barred and hence, disallowed by  the  sole  arbitrator.   Mr.
        Vaidyanathan relied on a Constitution Bench decision of  this
        Court  in  Executive  Engineer,  Dhenkanal  Minor  Irrigation
        Division, Orissa & Ors. Vs. N.C. Budharaj (Deceased) by  LRs.
        & Ors.[5] Reliance was also placed upon Secretary, Irrigation
        Department, Government of Orissa & Ors. Vs.  G.C.  Roy[6]  in
        support of the submission that a person deprived of his money
        is entitled to be compensated by way of interest,  therefore,
        any provision in the contract which seeks to take away such a
        right has  to  be  strictly  construed.   The  ratio  in  the
        aforesaid  judgment   has   been   subsequently   reiterated,
        according to Mr. Vaidyanathan, in the case of  Sree  Kamatchi
        Amman Construction (supra).  Mr. Vaidyanathan submitted  that
        the railway administration  had  no  authority  either  under
        Clause 2401 or 2403 of the contract to  recover  the  amounts
        allegedly overpaid for the work done prior to 1991  from  the
        amounts  due  to  the  contractors   for   the   works   done
        subsequently.




    13. We have  considered  the  submissions  made  by  the  learned
        counsel for the parties.



    14. Clause Nos. 2401 and 2403 are as under:-

           “2401.     Whenever any claim or claims for payment of a sum  of
           money  arises  out  of  or  under  the  contract   against   the
           Contractor, the Purchaser shall be entitled to withhold and also
           have a lien to retain such sum or sums in whole or in part  from
           the security, if any, deposited by the Contractor  and  for  the
           purpose aforesaid, the Purchaser shall be entitled  to  withhold
           the  said  cash  security  deposit  or  the  security,  if  any,
           furnished as the case may be and also have a lien over the  same
           pending finalization or adjudication of any such  claim. In  the
           event of the security being insufficient to  cover  the  claimed
           amount or amounts or if no security  has  been  taken  from  the
           Contractor, the Purchaser shall be entitled to withhold and have
           lien to retain to the extent  of  the  such  claimed  amount  or
           amounts referred to supra, from any sum or sums found payable or
           which  at  any  time-thereafter  may  become  payable   to   the
           Contractor under the same contract or any  other  contract  with
           the  Purchaser  or  the  Government  pending   finalization   or
           adjudication of any such claim.

           

           It is an agreed term of the contract that the sum  of  money  or
           moneys so withheld or retained under the lien referred to above,
           by the Purchaser will be kept withheld or retained  as  such  by
           the Purchaser till  the  claim  arising  out  of  or  under  the
           contract is determined by the Arbitrator  (if  the  contract  is
           governed by the arbitration clause) or by the competent court as
           prescribed under Clause 2703 hereinafter provided, as  the  case
           may be, and that the Contractor will have no claim for  interest
           or  damages  whatsoever  on  any  account  in  respect  of  such
           withholding or retention under the lien referred  to  supra  and
           duly notified as such to the contractor.”

           




           “2403. Lien in respect of Claims in other Contracts:




                 a) Any sum of money due  and  payable,  to  the  Contractor
                    (including the  security  deposit,  returnable  to  him)
                    under the contract may withhold or retain by way of lien
                    by the Purchaser or Government against any claim of  the
                    Purchaser or Government in respect of payment of  a  sum
                    of money arising out of or under any other contract made
                    by the Contractor with the Purchaser or Government.




                 b) It is an agreed term of the contract  that  the  sum  of
                    money so withheld or retained under this clause  by  the
                    Purchaser  or  Government  will  be  kept  withheld   or
                    retained as such by the Purchaser or Government till his
                    claim arising out of the  same  contract  or  any  other
                    contract is either mutually settled or determined by the
                    arbitrator,  if  the  contract  is   governed   by   the
                    arbitration clause  or  by  the  competent  court  under
                    Clause 2703 hereinafter provided, as the  case  may  be,
                    and that the Contractor shall have no claim for interest
                    or damages whatsoever on this account or  on  any  other
                    ground in respect  of  any  sum  of  money  withheld  or
                    retained under this clause and duly notified as such  to
                    the Contractor.”



    15. Clause 2401 provides that the railways shall be  entitled  to
        withhold and also have a lien to retain any amount  deposited
        as security by the contractor to satisfy any  claims  arising
        out of or  in  the  contract.   In  such  circumstances,  the
        railways can withhold the amount deposited by the contractors
        as  security  and  also  have  lien  over  the  same  pending
        finalization or adjudication of  the  claim.   In  case,  the
        security deposit is insufficient to cover the  claim  of  the
        railways, it is entitled to withhold and  have  lien  to  the
        extent of the amount claimed from any  sum  payable  for  any
        works done  by  the  contractor  thereafter  under  the  same
        contract or any other  contract.   This  withholding  of  the
        money and the exercise of the lien is pending finalization or
        adjudication of any claim.  This clause further provided that
        the  amount  withheld  by  the  railways  over  which  it  is
        exercising lien will not entitle the contractor to claim  any
        interest or damages for such withholding or  retention  under
        lien by the railways.




    16. Clause 2403 again provides that any  sum  of  money  due  and
        payable to the contractor under the contract may be  withheld
        or retained by way of lien by the railway authorities or  the
        Government in respect of payment of a sum  of  money  arising
        out of or under any other contract  made  by  the  contractor
        with the railway authority or the Government.





    17. Clause 2403(b) further provides that it is an agreed term  of
        the contract that  against  the  sum  of  money  withheld  or
        retained under lien, the contractor shall have no  claim  for
        interest or damages whatsoever provided the  claim  has  been
        duly notified to the contractor.



    18. We are of the opinion that the sole  arbitrator  in  awarding
        interest to the contractors has failed to take  into  account
        the provisions contained in the aforesaid  two  clauses.   We
        find merit in  the  submission  made  by  learned  Additional
        Solicitor General that award of interest  at-least  from  the
        date when the  amount  was  deposited  in  Court  was  wholly
        unwarranted.  Therefore,  the  High  Court  as  well  as  the
        arbitrator, in  our  opinion,  have  committed  an  error  of
        jurisdiction in this respect.  This view of  ours  will  find
        support from the judgment of this Court in the case of Sayeed
        Ahmed & Company (supra), wherein it has been held as follows:-



           “16. In view of clause (a) of sub-section (7) of Section  31  of
           the Act, it is clear that the arbitrator could not have  awarded
           interest up to the date of the award, as the  agreement  between
           the parties barred payment of interest. The bar against award of
           interest would operate not only during the pre-reference period,
           that is, up to 13-3-1997  but  also  during  the  pendente  lite
           period, that is, from 14-3-1997 to 31-7-2001.”


    19. This view has been reiterated by this Court in Sree  Kamatchi
        Amman Construction (supra),  wherein  it  has  been  held  as
        follows:-

           “19. Section 37(1) of the new Act by  using  the  words  “unless
           otherwise agreed by the parties”  categorically  clarifies  that
           the arbitrator is bound by the terms of the contract insofar  as
           the award of interest from the date of cause of  action  to  the
           date of award. Therefore, where the parties had agreed  that  no
           interest shall be payable, the Arbitral  Tribunal  cannot  award
           interest between the date when the cause of action arose to  the
           date of award.”



    20. From the aforesaid it becomes apparent  that  the  arbitrator
        could not have awarded any interest from the  date  when  the
        recovery was made till the award was made. However,  interest
        would have been payable from the date when the award was made
        till the money was deposited in the High Court and thereafter
        converted to fixed deposit receipts.  Upon the  amount  being
        deposited in the High Court, no  further  interest  could  be
        paid to the respondents.




    21. In view of the aforesaid, the appeals are allowed and  it  is
        directed that the respondents shall not be  entitled  to  any
        interest on the amount which was recovered by the  appellant,
        till the date of award and thereafter till the date when  the
        amount awarded was deposited in the  High  Court,  i.e.  from
        12th July, 1997.



    22. The appeals are allowed in the aforesaid terms.






                                             ...………………….….….J.
                                                      [Surinder  Singh
                                             Nijjar]








                                                       ………….……….……………………….J.
                                          [Fakkir Mohamed Ibrahim Kalifulla]


      New Delhi;
      March 3, 2014.




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[1]   (2012) 4 SCC 505
[2]    (2010) 8 SCC 767
[3]    (2009) 12 SCC 26
[4]    (2011) 7 SCC 279
[5]    (2001) 2 SCC 721
[6]    (1992) 1 SCC 508

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