whether the arbitrator can grant interest inspite of prohibition in the agreement - On 16.05.1988, the respondent was awarded with a contract for the work of Provision of Signaling Arrangements at "C" Class Stations on Igatpuri-Bhusawal Section and 2 "C" Stations on Bhusawal-Badnera Section of Bhusawal Division of Central Railway at the cost of Rs.18,10,400/-. On completion of the contract, the respondent raised certain disputes/claims by filing Suit No. 2822 of 1993 before the High Court and demanded for adjudication through arbitration. The High Court directed the General Manager of the Central Railway to appoint an arbitrator and refer the disputes for adjudication. Since the Arbitrator appointed could not deliberate the matter within the time limit, the respondent invoked the jurisdiction of the Umpire. The Umpire, by order dated 26.04.2005, gave award for Claim Nos. 1, 3, 6, 8, 9, 10, 11, 12 & 13 and rejected Claim Nos. 2, 5, 7 & 14 and

                                                        REPORTABLE


              IN THE SUPREME COURT OF INDIA


               CIVIL APPELLATE JURISDICTION


               CIVIL APPEAL NO. 2005  OF 2007




Union of India                                          .... Appellant (s)



            Versus



M/s Krafters Engineering & Leasing

(P) Ltd.                                           .... Respondent(s)





                         J U D G M E N T


P. Sathasivam, J.


1)    This  appeal  by  Union  of  India  arises  out  of  the  final



judgment and order dated 24.04.2006 passed by the High



Court of Judicature at Bombay in Appeal No. 219 of 2006



in   Arbitration   Petition   No.   274   of   2005   whereby   the



Division Bench of the High Court dismissed their appeal.









                                                                              1


2)     Brief facts:


(a)    On   16.05.1988,   the   respondent   was   awarded   with   a



contract   for   the   work   of   Provision   of   Signaling



Arrangements at "C" Class Stations on Igatpuri-Bhusawal



Section and 2 "C" Stations on Bhusawal-Badnera Section



of   Bhusawal   Division   of   Central   Railway   at   the   cost   of



Rs.18,10,400/-.     On   completion   of   the   contract,   the



respondent   raised   certain   disputes/claims   by   filing   Suit



No. 2822 of 1993 before the High Court and demanded for



adjudication through arbitration.  The High Court directed



the General Manager of the Central Railway to appoint an



arbitrator and refer the disputes for adjudication.     Since



the   Arbitrator   appointed   could   not   deliberate   the   matter



within   the   time   limit,   the   respondent   invoked   the



jurisdiction   of   the   Umpire.     The   Umpire,   by   order   dated



26.04.2005,   gave   award   for   Claim   Nos.   1,   3,   6,   8,   9,   10,



11,   12   &   13   and   rejected   Claim   Nos.   2,   5,   7   &   14   and





                                                                             2


mentioned that a bank guarantee towards security deposit



against claim No. 4 is to be returned.  



(b)    Challenging the award given by the Umpire for Claim



Nos.   11   &   13,   the   appellant   herein   filed   Arbitration



Petition   No.   274   of   2005   before   the   High   Court.     The



learned   Single   Judge   of   the   High   Court,   vide   order   dated



06.12.2005 dismissed their petition.



(c)    Aggrieved   by   the   order   passed   by   the   learned   single



Judge,   the   appellant   herein   filed   an   appeal   being



Arbitration   Appeal   No.   219   of   2006   before   the   Division



Bench   of   the   High   Court.     The   Division   Bench,   by



impugned   order   dated   24.04.2006,   dismissed   the   appeal.



Challenging   the   said   order,   the   Union   of   India   preferred



this appeal by way of special leave before this Court.





3)     Heard   Mr.   A.   S.   Chandhiok,   learned   Additional



Solicitor   General   for   the   Union   of   India   and   Mr.   Ramesh



Babu M.R., learned counsel for the respondent.





                                                                         3


4)    Before   the   High   Court   as   well   as   before   us,   the



appellant projected their case only with regard to interest



that   was   granted   by   the   arbitrator   and   confirmed   by   the



High Court.  Therefore, the only point for consideration in



this   appeal   is   whether   an   arbitrator   has   jurisdiction   to



grant interest despite the agreement prohibiting the same?



5)    Though the appellant has challenged the award of the



Umpire   in   respect   of   Claim   Nos.   11   and   13,   they   are



mainly   concerned   about   grant   of   interest;   hence   there   is



no   need   to   traverse   all   the   factual   details   except   the



required one which we have adverted to.  According to Mr.



A.S. Chandhiok, learned ASG, in view of clause 1.15 of the



General   Conditions   of   the   Contract   between   the   parties,



the   arbitrator   does   not   have   the   power   to   award   interest



pendente lite.  The said clause reads as under:



      "1.15  Interest on Amounts -  No interest will be payable

      upon   the   Earnest   Money   or   the   Security   Deposit   or

      amounts  payable to the Contractor  under  the Contract

      but Government Securities deposited in terms of clause

      1.14.4 will be repayable with interest accrued thereon."





                                                                            4


According   to   the   learned   ASG,   in   view   of   the   above-



mentioned   clause,   no   interest   is   payable   on   the   amount



payable   to   the   Contractor   under   the   contract.     On   the



other   hand,   Mr.   Ramesh   Babu   M.R.,   learned   counsel



appearing   for   the   respondent   submitted   that   irrespective



of   the   bar   in   the   contract   arbitrator   has   power   to   award



interest for which he strongly relied on the decision of this



Court in Board of Trustees for the Port of Calcutta vs.


Engineers-De-Space-Age,   (1996)   1   SCC   516   and


Madnani Construction Corporation Private Limited vs.


Union of India and Others, (2010) 1 SCC 549.


6)    We   have   already   extracted   the   relevant   clause



wherein   the   words   "amounts   payable   to   the   Contractor



under the contract" are of paramount importance.  If there



is   no   prohibition   in   the   arbitration   agreement   to   exclude



the   jurisdiction   of   the   arbitrator   to   entertain   a   claim   for



interest   on   the   amount   due   under   the   contract,   the



arbitrator is free to consider and award interest in respect





                                                                            5


of the period.  If there is a prohibition in the agreement to



pay the interest, in that event, the arbitrator cannot grant



the interest.  Clause 1.15 prohibits payment of interest on



the amount payable to the contractor under the contract.



7)    It   is   not   in   dispute   that   the   provisions   of   the



Arbitration   Act,   1940   alone   are   applicable   to   the   case   on



hand.  Now, let us consider various decisions of this Court



dealing with similar prohibition in the agreement for grant



of   interest.     In  Secretary,   Irrigation   Department,


Government of Orissa and Others vs. G.C. Roy, (1992) 1


SCC 508, the Constitution Bench had considered Section



29   of   the   Arbitration   Act,   1940   which   deals   with   interest



pendente   lite.    After   analyzing   the   scheme   of  the   Act  and



various   earlier   decisions,   the   Constitution   Bench



considered   the   very   same   issue,   namely,   whether   an



arbitrator has power to award interest pendente lite and, if



so,   on   what   principle.         The   relevant   paragraphs   are



extracted hereunder:-





                                                                          6


"43.  The   question   still   remains   whether   arbitrator   has   the

power   to   award   interest   pendente   lite,   and   if   so   on   what

principle.   We   must   reiterate   that   we   are   dealing   with   the

situation where the agreement does not provide for grant of

such interest nor does it prohibit such grant. In other words,

we are dealing with a case where the agreement is silent as

to   award   of   interest.   On   a   conspectus   of   aforementioned

decisions, the following principles emerge:

        (i) A person deprived of the use of money to which he

is legitimately entitled has a right to be compensated for the

deprivation,   call   it   by   any   name.   It   may   be   called   interest,

compensation   or   damages.   This   basic   consideration   is   as

valid   for   the   period   the   dispute   is   pending   before   the

arbitrator   as   it   is   for   the   period   prior   to   the   arbitrator

entering upon the reference. This is the principle of Section

34, Civil Procedure Code and there is no reason or principle

to hold otherwise in the case of arbitrator.

        (ii)   An  arbitrator   is  an  alternative  form   (sic  forum)  for

resolution   of   disputes   arising   between   the   parties.   If   so,   he

must have the power to decide all the disputes or differences

arising between the parties. If the arbitrator has no power to

award   interest   pendente   lite,   the   party   claiming   it   would

have to approach the court for that purpose, even though he

may   have   obtained   satisfaction   in   respect   of   other   claims

from   the   arbitrator.   This   would   lead   to   multiplicity   of

proceedings.

        (iii) An arbitrator is the creature of an agreement. It is

open   to   the   parties   to   confer   upon   him   such   powers   and

prescribe such procedure for him to follow, as they think fit,

so   long   as   they   are   not   opposed   to   law.   (The   proviso   to

Section   41   and   Section   3   of   Arbitration   Act   illustrate   this

point).   All   the   same,   the   agreement   must   be   in   conformity

with  law. The arbitrator  must also act and make his award

in   accordance   with   the   general   law   of   the   land   and   the

agreement.

        (iv) Over the years, the English and Indian courts have

acted on the assumption that where the agreement does not

prohibit  and  a   party   to   the   reference   makes   a   claim   for

interest,   the   arbitrator   must   have   the   power   to   award

interest   pendente   lite.  Thawardas  has   not   been   followed   in

the later  decisions of  this  Court.  It has  been  explained   and

distinguished   on   the   basis   that   in   that   case   there   was   no

claim for interest but only a claim for unliquidated damages.

It   has   been   said   repeatedly   that   observations   in   the   said

judgment were not intended to lay down any such absolute




                                                                                     7


      or universal rule as they appear to, on first impression. Until

      Jena   case  almost   all   the   courts   in   the   country   had   upheld

      the   power   of   the   arbitrator   to   award   interest   pendente   lite.

      Continuity and certainty is a highly desirable feature of law.

                (v) Interest pendente lite is not a matter of substantive

      law,   like   interest   for   the   period   anterior   to   reference   (pre-

      reference   period).   For   doing   complete   justice   between   the

      parties, such power has always been inferred.



      44.  Having regard to the above consideration, we think that

      the   following   is   the   correct   principle   which   should   be

      followed in this behalf:

                Where   the   agreement   between   the   parties   does   not

      prohibit  grant   of  interest  and  where   a  party  claims  interest

      and that dispute (along with the claim for principal amount

      or independently) is referred to the arbitrator, he shall have

      the   power   to   award   interest   pendente   lite.   This   is   for   the

      reason that in such a case it must be presumed that interest

      was   an   implied   term   of   the   agreement   between   the   parties

      and therefore when the parties refer all their disputes -- or

      refer the dispute as to interest as such -- to the arbitrator,

      he   shall   have   the   power   to   award   interest.   This   does   not

      mean   that   in   every   case   the   arbitrator   should   necessarily

      award   interest   pendente   lite.   It   is   a   matter   within   his

      discretion   to   be   exercised   in   the   light   of   all   the   facts   and

      circumstances   of   the   case,   keeping   the   ends   of   justice   in

      view."




8)    In      Executive   Engineer,   Dhenkanal   Minor


Irrigation   Division,   Orissa   and   Others                                   vs.      N.C


Budharaj (deceased) by LRs and Others, (2001) 2 SCC


721,   another   Constitution   Bench   considered   payment   of



interest for pre-reference period in respect of cases arising



when   Interest   Act,   1839   was   in   force.     The   following



conclusion in para 26 is relevant which reads thus:



                                                                                             8


      "26.   For   all   the   reasons   stated   above,   we   answer   the

      reference   by   holding   that   the   arbitrator   appointed   with   or

      without   the   intervention   of   the   court,   has   jurisdiction   to

      award interest, on the sums found due and payable, for the

      pre-reference   period,        in   the   absence   of   any   specific

      stipulation   or   prohibition   in   the   contract   to   claim   or   grant

      any such interest. The decision in Jena case taking a contra

      view   does   not   lay   down   the   correct   position   and   stands

      overruled,   prospectively,   which   means   that   this   decision

      shall not entitle any party nor shall it empower any court to

      reopen   proceedings   which   have   already   become   final,   and

      apply only to any pending proceedings. No costs."

                                                         (Emphasis supplied).



9)    In   the   earlier   paras,   we   have   referred   to   the   stand



taken   by   the   learned   counsel   for   the   respondent   and



reliance   based   on   the   decision   reported   in  Board   of


Trustees   for   the   Port   of   Calcutta   (supra).      It   is   true


that   in   that   decision,   this   Court   has   held   that   arbitrator



has   jurisdiction   to   interpret   the   clauses   of   the   contract



and   to   decide   whether   interest  pendente   lite  could   be



awarded   by   him.     The   short   question   that   arose   in   that



case   was   that   the   arbitrator   had   awarded   interest



pendente lite notwithstanding the prohibition contained in



the   contract   against   the   payment   of   interest   on   delayed



payments.   Ultimately, the two-Judge Bench of this Court



has   concluded   that   irrespective   of   the   terms   of   the




                                                                                         9


contract, the arbitrator was well within his jurisdiction in



awarding   interest  pendente   lite.     It   is   useful   to   point   out



that   the   ratio   in   that   decision   was   considered   by   this



Court   in  Sayeed   Ahmed   and   Company  vs.  State   of


Uttar   Pradesh   and   Others,   (2009)   12   SCC   26.     While


considering   the   very   same   issue,   particularly,   specific



clause in the agreement prohibiting interest  pendente lite,



this Court considered the very same decision i.e. Board of


Trustees   for   the   Port   of   Calcutta   (supra).                                         After



adverting to the clause in the  Board of Trustees for the


Port   of   Calcutta   (supra)  and   the   Constitution   Bench   in


G.C. Roy's case (supra), this Court concluded as under:



      "23.  The   observation   in  Engineers-De-Space-Age  that   the

      term         of         the         contract         merely         prohibits         the

      department/employer from paying interest to the contractor

      for   delayed   payment   but   once   the   matter   goes   to   the

      arbitrator,   the   discretion   of   the   arbitrator   is   not   in   any

      manner   stifled   by   the   terms   of   the   contract   and   the

      arbitrator  will be entitled to consider and grant  the interest

      pendente   lite,   cannot   be   used   to   support   an   outlandish

      argument that bar on the Government or department paying

      interest   is   not   a   bar   on   the   arbitrator   awarding   interest.

      Whether   the   provision   in   the   contract   bars   the   employer

      from   entertaining   any   claim   for   interest   or   bars   the

      contractor from making any claim for interest, it amounts to

      a clear prohibition regarding interest. The provision need not

      contain another bar prohibiting the arbitrator from awarding





                                                                                                    10


       interest.   The   observations   made   in   the   context   of   interest

       pendente lite cannot be used out of contract.



       24. The learned counsel for the appellant next contended on

       the   basis   of   the   above   observations   in  Engineers-De-Space-

       Age, that even if Clause G1.09 is held to bar interest in the

       pre-reference   period,   it   should   be   held   not   to   apply   to   the

       pendente   lite   period,   that   is,   from   14-3-1997   to  31-7-2001.

       He contended that the award of interest during the pendency

       of   the   reference   was   within   the   discretion   of   the   arbitrator

       and therefore, the award of interest for that period could not

       have been interfered  with by the High  Court.  In view  of the

       Constitution Bench decisions in G.C. Roy and N.C. Budharaj

       rendered   before   and   after   the   decision   in  Engineers-De-

       Space-Age,      it   is   doubtful   whether   the   observation   in

       Engineers-De-Space-Age           in   a   case   arising   under   the

       Arbitration Act, 1940 that the arbitrator could award interest

       pendente   lite,   ignoring   the   express   bar   in   the   contract,   is

       good law. But that need not be considered further as this is

       a case under the new Act where there is a specific provision

       regarding award of interest by the arbitrator."



10)    Considering the specific prohibition in the agreement



as   discussed   and   interpreted   by   the   Constitution   Bench,



we are in respectful agreement with the view expressed in


Sayeed   Ahmed   and   Company   (supra)  and   we   cannot


possibly agree with the observation in Board of Trustees


for the Port of Calcutta (supra)  in a case arising under


the  Arbitration Act,  1940 that  the  arbitrator  could award



interest  pendente   lite  ignoring   the   express   bar   in   the



contract.





                                                                                           11


11)    In  Union   of   India  vs.  Saraswat   Trading   Agency


and Others, (2009) 16 SCC 504, though it was under the


Arbitration   and   Conciliation   Act,   1996,   this   Court   has



considered elaborately about the legal position in regard to



interest   after   adverting   to   all   the   earlier   decisions   and



basing reliance on clause 31 of the agreement held:



   "33.  In   the   case   in   hand   Clause   31   of   the   agreement   is

   materially different.  It bars payment of any interest or damage

   to the contractor for any reason whatsoever. We are, therefore,

   clearly of the view that no pre-reference or pendente lite interest

   was payable to the respondent on the amount under Item 3 and

   the arbitrator's   award  allowing  pre-reference  and pendente  lite

   interest   on   that   amount   was   plainly   in   breach   of   the   express

   terms of the agreement. The order of the High Court insofar as

   pre-reference   and   pendente   lite   interest   on   the   amount   under

   Item 3 is concerned is, therefore, unsustainable."



12)    At   the   end   of   the   argument,   learned   counsel   for   the



respondent   heavily   relied   on   the   recent   decision   of   this



Court   in  Madnani   Construction   Corporation   Private


Limited   (supra)  which   arose   under   the   Arbitration   Act,


1940.     There   also,   Clause   30   of   SCC   and   Clause   52   of



GCC   prohibits   payment   of   interest.     Though   the   Bench



relied on all the earlier decisions and considered the very



same   clause   as   to   which   we   are   now   discussing,   upheld




                                                                                        12


the   order   awarding   interest   by   the   arbitrator  de   hors  to



specific   bar   in   the   agreement.     It   is   relevant   to   point   out



that the decision of  Madnani Construction Corporation


Private   Limited   (supra)  was   cited   before   another   Bench


of   this   Court   in  Sree   Kamatchi   Amman   Constructions



vs.  Divisional Railway Manager (Works), Palghat and


Others,  (2010)   8   SCC   767,   wherein   the   decision   in


Madnani   Construction   Corporation   Private   Limited


(supra)  was   very   much   discussed   and   considered.     After


adverting   to   all   the   earlier   decisions   including   the



Constitution   Bench   judgments,   this   Court   has   analyzed



the effect of Madnani Construction Corporation Private


Limited   (supra).     The   following   discussion   and   ultimate


conclusion are relevant:



      "17.  In  Madnani  the   arbitrator   had   awarded   interest

      pendente   lite,   that   is,   from   the   date   of   appointment   of

      arbitrator   to   the   date   of   award.   The   High   Court   had

      interfered   with   the   same   on   the   ground   that   there   was   a

      specific   prohibition   in   the   contract   regarding   awarding   of

      interest.   This   Court   following   the   decision   in  Engineers-De-

      Space-Age  reversed   the   said   rejection   and   held   as   follows:

      (Madnani case, SCC pp. 560-61, para 39)





                                                                                      13


        "39.   In   the   instant   case   also   the   relevant   clauses,

which have been quoted above, namely, Clause 16(2) of GCC

and Clause 30 of SCC do not contain any prohibition on the

arbitrator   to   grant   interest.   Therefore,   the   High   Court   was

not   right   in   interfering   with   the   arbitrator's   award   on   the

matter  of  interest  on the basis  of  the  aforesaid   clauses.  We

therefore,   on   a   strict   construction   of   those   clauses   and

relying on the ratio in Engineers find that the said clauses do

not impose any bar on the arbitrator in granting interest."



18.  At   the   outset   it   should   be   noticed   that  Engineers-De-

Space-Age and  Madnani arose under the old Arbitration Act,

1940   which   did   not   contain   a   provision   similar   to   Section

31(7) of the new Act. This Court, in Sayeed Ahmed held that

the   decisions   rendered   under   the   old   Act   may   not   be   of

assistance   to   decide   the   validity   of   grant   of   interest   under

the   new   Act.   The   logic   in  Engineers-De-Space-Age  was   that

while   the   contract   governed   the   interest   from   the   date   of

cause   of   action   to   date   of   reference,   the   arbitrator   had   the

discretion   to   decide   the   rate   of   interest   from   the   date   of

reference   to   date   of   award   and   he   was   not   bound   by   any

prohibition   regarding   interest   contained   in   the   contract,

insofar   as   pendente   lite   period   is   concerned.   This   Court   in

Sayeed Ahmed held that the decision in Engineers-De-Space-

Age would not apply to cases arising under the new Act. We

extract   below,   the   relevant   portion   from  Sayeed   Ahmed:

(SCC p. 36, paras 23-24)

        "23.   The   observation   in  Engineers-De-Space-Age  that

the   term   of   the   contract   merely   prohibits   the

department/employer from paying interest to the contractor

for   delayed   payment   but   once   the   matter   goes   to   the

arbitrator,   the   discretion   of   the   arbitrator   is   not   in   any

manner   stifled   by   the   terms   of   the   contract   and   the

arbitrator  will be entitled to consider and grant  the interest

pendente   lite,   cannot   be   used   to   support   an   outlandish

argument that bar on the Government or department paying

interest   is   not   a   bar   on   the   arbitrator   awarding   interest.

Whether   the   provision   in   the   contract   bars   the   employer

from   entertaining   any   claim   for   interest   or   bars   the

contractor from making any claim for interest, it amounts to

a clear prohibition regarding interest. The provision need not

contain another bar prohibiting the arbitrator from awarding

interest.   The   observations   made   in   the   context   of   interest

pendente lite cannot be used out of contract.





                                                                                     14


       24.   The   learned   counsel   for   the   appellant   next

contended   on   the   basis   of   the   above   observations   in

Engineers-De-Space-Age, that even if Clause G 1.09 is held to

bar interest in the pre-reference period, it should be held not

to apply to the pendente lite period, that is, from 14-3-1997

to   31-7-2001.   He   contended   that   the   award   of   interest

during   the   pendency   of   the   reference   was   within   the

discretion   of   the   arbitrator   and   therefore,   the   award   of

interest   for   that  period   could   not   have   been   interfered   with

by   the   High   Court.   In   view   of   the   Constitution   Bench

decisions in G.C. Roy and N.C. Budharaj rendered before and

after   the   decision   in  Engineers-De-Space-Age,   it   is   doubtful

whether the observation in Engineers-De-Space-Age in a case

arising   under   the   Arbitration   Act,   1940   that   the   arbitrator

could award interest pendente lite, ignoring the express bar

in the contract, is good law. But that need not be considered

further as this is a case under the new Act where there is a

specific   provision   regarding   award   of   interest   by   the

arbitrator."

The same reasoning applies to the decision in  Madnani  also

as that also relates to a case under the old Act and did not

independently consider the issue but merely relied upon the

decision in Engineers-De-Space-Age.



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.  We   are   of   the   view   that   the   decisions   in  Engineers-De-

Space-Age  and  Madnani  are   inapplicable   for   yet   another

reason.   In      Engineers-De-Space-Age           and      Madnani       the

arbitrator had awarded interest for the pendente lite period.

This Court upheld the award of such interest under the old

Act   on   the   ground   that   the   arbitrator   had  the   discretion   to

decide whether interest should be awarded or not during the

pendente   lite   period   and   he   was   not   bound   by   the

contractual terms insofar as the interest for the pendente lite

period.   But   in   the   instant   case   the   Arbitral   Tribunal   has

refused to award interest for the pendente lite period. Where

the Arbitral Tribunal has exercised its discretion and refused




                                                                                   15


       award   of   interest   for   the   period   pendente   lite,   even   if   the

       principles   in   those   two   cases   were   applicable,   the   award   of

       the   arbitrator   could   not   be   interfered   with.   On   this   ground

       also   the   decisions   in  Engineers-De-Space-Age  and  Madnani

       are inapplicable..."



13)    Inasmuch as we have already expressed similar view



as   mentioned   above   and   conveyed   our   inability   to   apply



the   reasoning   in  Madnani   Construction   Corporation


Private   Limited   (supra),   we   fully   endorse   the   view


expressed   in  Sree   Kamatchi   Amman   Constructions


(supra).


14)    In   the   light   of   the   above   discussion,   following



conclusion emerge:



       Reliance based on the ratio in Board of Trustees for


the   Port   of   Calcutta   (supra)  is   unacceptable   since   the


said   view   has   been   overruled   in  Sayeed   Ahmed   and


Company   (supra)  and   insofar   as   the   ratio   in  Madnani


Construction   Corporation   Private   Limited   (supra)


which   is   also  unacceptable   for   the   reasons   mentioned   in



the earlier paras, we reject the stand taken by the counsel



for the respondent.  On the other hand, we fully accept the




                                                                                           16


stand of the Union of India as rightly projected by Mr. A.S.



Chandhiok,   learned   ASG.     We   reiterate   that   where   the



parties   had   agreed   that   no   interest   shall   be   payable,   the



arbitrator cannot award interest for the amounts payable



to   the   contractor   under   the   contract.     Where   the



agreement   between  the   parties   does   not  prohibit   grant  of



interest   and   where   a   party   claims   interest   and   the   said



dispute   is   referred   to   the   arbitrator,   he   shall   have   the



power to award interest pendent elite.  As observed by the



Constitution Bench in  G.C. Roy's case  (supra), in such a



case,   it   must   be   presumed   that   interest   was   an   implied



term of the agreement between the parties.  However, this



does   not   mean   that   in   every   case,   the   arbitrator   should



necessarily   award   interest          pendente   lite.         In   the



subsequent  decision  of  the  Constitution  Bench,  i.e.,  N.C.


Budharaj's   case  (supra),   it   has   been   reiterated   that   in


the   absence   of   any   specific   stipulation   or   prohibition   in



the   contract   to   claim   or   grant   any   such   interest,   the





                                                                         17


arbitrator is free to award interest.



15)    In the light of the above principle and in view of the



specific   prohibition   of   contract   contained   in   Clause   1.15,



the   arbitrator  ceases   to  have   the   power   to  grant   interest.



We   also   clarify   that   the   Arbitration   Act,   1940   does   not



contain   any   specific   provision   relating   to   the   power   of



arbitrator to award interest.  However, in the Arbitration &



Conciliation   Act,   1996,   there   is   a   specific   provision   with



regard   to   award   of   interest   by   the   arbitrator.     The   bar



under   clause   1.15   is   absolute   and   interest   cannot   be



awarded without rewriting the contract.  



16)    For the aforesaid reasons, we set aside the award of



the   arbitrator   granting   interest   in   respect   of   the   amount



payable to the contractor under the contract as well as the



order of the learned Single Judge and the Division Bench



of the High Court confirming the same.



17)    Consequently,   the   appeal   is   allowed   to   the   extent



pointed out above with no order as to costs.          





                                                                        18


                                 ..........................................J.

                                      (P. SATHASIVAM)




                                ..........................................J.

                                   (A.K. PATNAIK)



NEW DELHI;

JULY 12, 2011.





                                                          19

in the Civil Services Examination, 2004 conducted by the Union Public Service Commission, Avinash Mohanty and Vikrama Varma amongst others were selected for appointment to the Indian Police Service (for short `the IPS') and were offered appointments to the IPS in 2005. By notification dated 19.01.2006 of the Government of India, Ministry of Home Affairs, the candidates who had been selected and appointed to the IPS on the basis of the results of the Civil Services Examination, 2004 were allocated to different State cadres. By this notification, Avinash Mohanty, who had secured the 45th rank in the Civil Services Examination, 2004 was allocated to the Chhattisgarh cadre, whereas Vikrama Varma, who had secured 201st rank in the Civil Services Examination, 2004 was allocated to the Andhra Pradesh cadre. Avinash Mohanty made representations to the authorities against his allotment to the Chhattisgarh cadre and claimed that he should have been allocated to the Andhra Pradesh cadre.

                                                             Reportable


              IN THE SUPREME COURT OF INDIA



               CIVIL APPELLATE JURISDICTION


              CIVIL APPEAL NO. 2550 OF 2010


C.M. Thri Vikrama Varma                                   ...     Appellant



                               Versus



Avinash Mohanty & Ors.                             ... Respondents



                                WITH


              CIVIL APPEAL NO. 2551 OF 2010


Union of India & Ors.                                    ...     Appellants



                               Versus



Avinash Mohanty & Anr.                             ... Respondents





                         J U D G M E N T


A. K. PATNAIK, J.



      These two appeals by way of special leave under Article



136 of the Constitution are against the impugned judgment



of   the   Division   Bench   of   the   Andhra   Pradesh   High   Court



dated 22.03.2007 in Writ Petition No. 458 of 2007.


                                                                       2




2.         The   facts   very   briefly   are   that   in   the   Civil   Services



Examination,   2004   conducted   by   the   Union   Public   Service



Commission,   Avinash   Mohanty   and   Vikrama   Varma



amongst others were selected for appointment to the Indian



Police   Service   (for   short   `the   IPS')   and   were   offered



appointments   to   the   IPS   in   2005.     By   notification   dated



19.01.2006   of   the   Government   of   India,   Ministry   of   Home



Affairs,   the   candidates   who   had   been   selected   and



appointed to the IPS on the basis of the results of the Civil



Services Examination, 2004 were allocated to different State



cadres.     By   this   notification,   Avinash   Mohanty,   who   had



secured   the   45th  rank   in   the   Civil   Services   Examination,



2004   was   allocated   to   the   Chhattisgarh   cadre,   whereas



Vikrama   Varma,   who   had   secured   201st  rank   in   the   Civil



Services   Examination,   2004   was   allocated   to   the   Andhra



Pradesh   cadre.     Avinash   Mohanty   made   representations   to



the   authorities   against   his   allotment   to   the   Chhattisgarh



cadre and claimed that he should have been allocated to the



Andhra   Pradesh   cadre.     When   his   representations   did   not



yield   any   results,   Avinash   Mohanty   filed   O.A.   No.   286   of



2006 before the Central Administrative Tribunal, Hyderabad





                                                                 


                                                                       3




Bench   (for   short   `the   Tribunal')   on   03.05.2006   contending



that   the   guidelines   and   norms   in   the   letter   dated



31.05.1985 of the Secretary, Government of India, Ministry



of   Personnel   and   Training   (for   short   `the   letter   dated



31.05.1985')   have   not   been   followed   while   making   the



allocations   and   the   allocation   of   Vikrama   Varma   to   the



Andhra   Pradesh   cadre   was   arbitrary   and   in   his   place   he



should   have   been   allocated   to   the   Andhra   Pradesh   cadre.



After   considering   the   pleadings   of   the   parties   and   hearing



learned   counsel   for   the   parties,   the   Tribunal   by   its   order



dated   24.11.2006   dismissed   the   O.A.     Aggrieved,   Avinash



Mohanty   filed   Writ   Petition   No.   458   of   2007   under   Article



226   of   the   Constitution   before   the   Andhra   Pradesh   High



Court   and   by   the   impugned   judgment,   the   High   Court



allowed   the   Writ   Petition,   quashed   the   allocation   of   the



Vikrama   Varma   to   the   Andhra   Pradesh   cadre   and   directed



the   Union   of   India   to   reconsider   the   allocation   of   Avinash



Mohanty and Vikrama Varma in accordance with law.



3.         Mr. M.S. Ganesh, learned counsel for Vikrama Varma,



the appellant in C.A. No. 2550 of 2010, submitted that this



Court   in  Union   of   India  vs.  Rajiv   Yadav,   IAS   and   Others





                                                                 


                                                                       4




[(1994) 6 SCC 38] while considering the allocation of officers



appointed   to   the   Indian   Administrative   Services   (for   short



`the   IAS')   has   held   that   under   Rule   5   of   the   Indian



Administrative   Service   (Cadre)   Rules,   1954,   the   Central



Government   is   under   no   obligation   to   have   options   or



preferences from the officers concerned and this Rule made



the   Central   Government   the   sole   authority   to   allocate   the



members   of   the   service   to   various   cadres   and   therefore   a



person   appointed   to   an   All   India   Service,   having   various



State   cadres,   has   no   right   to   claim   allocation   to   a   State   of



his   choice   or   to   his   home   State.     He   submitted   that   this



position of law has been reiterated by this Court in Union of



India  vs.  Mh
                            athung  Kithan  and  Others,
                                                                               etc.  [(1996) 10 SCC



562].     He   also   relied   upon   the   judgment   of   the   Division



Bench of the Andhra Pradesh High Court in G. Srinivas Rao



vs.  Union   of   India   &   Ors.  (2005   (2)   ALT   728   (D.B.)   which,



while   referring   to   the   law   laid   down   in  Rajiv   Yadav's  case



(supra),   has   further   observed   that   the   Union   of   India   was



required to operationalise a plurality of Government choices



in   the   matter   of   allocation   of   officers   to   different   State



cadres   and   in   the   very   nature   of   things,   it   is   not   always





                                                                 


                                                                       5




possible to fulfill all the policy objectives of Union of India in



every   factual   circumstance   and   in   every   recruitment   year.



He   also   referred   to   the   observations   made   in   the   Division



Bench   judgment   of   the   Andhra   Pradesh   High   Court   in   the



case   of  G.   Srinivas  Rao   (supra)   that   considering   the



complexities   of   accommodating   the   multitude   of   federal



policy   choices,   allocation   is   a   daunting   task   and   there   are



no ready solutions which can perfectly be tailored to fit such



complex   problems.     Considering   all   these   multiple   factors



which have to be kept in mind while making the allocations



of members of the IPS to different cadres, the High Court in



the present case should not have quashed the allocation of



Vikrama   Varma   to   the   Andhra   Pradesh   cadre.     He



submitted that the main reason given by the High Court in



the   impugned   judgment   is   that   in   the   current   roster   (3rd



Cycle)   already   nine   OBC   candidates   had   been   allocated   to



the Andhra Pradesh cadre before the  allocation  of Vikrama



Varma,   who   was   an   OBC   candidate,   and   allocation   of



Vikrama Varma to the Andhra Pradesh cadre would make a



total   of   ten   OBC   candidates   in   the   30   point   roster   which



was   6%   excess   over   the   27%   reservation   in   favour   of   OBC





                                                                 


                                                                       6




candidates.     He   submitted   that   this   Court   has   held   in   the



case of Rajiv Yadav (supra) that allocation is not to be tested



by   the   reservation   provision   under   Article   16(4)   of   the



Constituion and therefore 27% reservation in favour of OBC



candidates was not relevant in the matter of allocation and



the   reasoning   given   by   the   High   Court   in   the   impugned



judgment is erroneous.



4.         Mr.   Mohan   Parasaran,   learned   Additional   Solicitor



General   appearing   for   the   Union   of   India,   the   appellant   in



C.A.   No.   2551   of   2010,   submitted   that   the   direct



recruitment in the  IPS is  done  on  an All India basis under



the   Indian   Police   Service   (Recruitment)   Rules,   1954   (for



short   `the   Recruitment   Rules')   and   hence   reservation   in



such   direct   recruitment   is   also   on   All   India   basis.   He



submitted   that   after   direct   recruitment   is   over   and   the



selected   general   and   reserved   candidates   are   appointed   to



the   IPS   under   Rule   5   of   the   Indian   Police   Service   (Cadre)



Rules,   1954,   the   Central   Government   makes   allocation   of



cadres   to   the   members   of   the   IPS   and   Rule   5   does   not



provide for  reservation.   He submitted   that this  Court  has,



therefore, held in the case of  Rajiv Yadav  while interpreting





                                                                 


                                                                       7




Rule   5   of   the   Indian   Police   Service   (Cadre)   Rules,   1954,



which   is   similarly   worded,   that   the   principles   of   allocation



contained in the letter dated 31.05.1985 do not provide for



reservation   on   appointments   or   posts   and   the   question   of



testing the principles of allocation on the anvil of Article 16



(4) of the Constitution does not arise.  Relying on Para 32 of



the   counter   affidavit   filed   by   the   Union   of   India   before   the



Tribunal in O.A. No. 286 of 2006, he submitted that at the



time   of   allocation   of   cadres   to   the   candidates   for



appointment   to   IPS   on   the   basis   of   the   Civil   Services



Examination 2004, a total of 8 candidates were allocated to



the   Andhra   Pradesh   cadre   from   the   last   five   Civil   Services



Examinations (1999-2003), out of which 2 (27%) were OBC



and hence there was neither any excess nor any shortfall in



respect of allocation of OBC candidates in the IPS cadre of



Andhra   Pradesh.     He   submitted   that   from   Civil   Services



Examination   2004   a   total   number   of   2   candidates   were   to



be   allocated   to   the   Andhra   Pradesh   cadre   and   as   per



prescribed percentage, one vacancy each had to be filled up



from   General   category   and   OBC   category   and   as   per   30



point roster prepared as per the letter dated 31.05.1985, the





                                                                 


                                                                       8




OBC vacancy was meant for an insider OBC candidate and



thus   the   same   has   been   filled   up   by   allocating   Vikrama



Varma,   an   OBC   candidate.     He   submitted   that   the   High



Court   in   the   impugned   judgment   has   not   correctly



appreciated   the   roster   maintained   by   the   Government   and



has   instead   observed   that   there   was   clear   arbitrariness   in



the   operation   of   the   roster   system.     Mr.   Parasaran   finally



submitted   that   the   directions   of   the   High   Court   in   the



impugned judgment for reconsideration of cadre allocation if



followed will have a cascading effect on the service.



5.         Mr. Sunil Kumar, appearing for Avinash Mohanty, the



respondent   no.1   in   the   two   appeals,   on   the   other   hand,



submitted that in Rajiv Yadav's case (supra) this Court has



held   that   the   roster   system   in   the   letter   dated   31.05.1985



ensures equitable treatment to both the general candidates



and   the   reserved  candidates.     He   submitted   that   the   table



indicating  the  correct  position   of  vacancies  filled  from   Civil



Services Examination 1994 to 2003 furnished in Para 28 of



the counter affidavit dated 22.03.2007 of the Union of India



filed in the High Court has been extracted in the impugned



judgment of the High Court, which will go to show that four





                                                                 


                                                                       9




vacancies   had   been   assigned   to   insider   OBCs   and   five



vacancies   had   been   assigned   to   outsider   OBCs   and   thus



nine   OBC   candidates   had   already   been  allocated   in   a  total



of 29 vacancies in the Andhra Pradesh cadre and there was



already   an   excess   over   27%   reserved   in   favour   of   the   OBC



candidates.   He   submitted   that   for   this   reason   the   High



Court   took   the   view   that   the   10th  vacancy   in   the   Andhra



Pradesh cadre in the 30 point roster, if allocated to an OBC



candidate   would   be   clearly   a   violation   of   the   equitable



principle   of   allocation   contained   in   the   letter   dated



31.05.1985 and would be arbitrary.   He submitted that the



directions   of   the   High   Court   for   reconsideration   of   cadre



allocation   of   Avinash   Mohanty   and   Vikrama   Varma   are



justified in the facts of the case and the directions are to be



followed in their cases only and will not have any cascading



effect on the service.



6.         Rules   3   and   5   of   the   IPS   (Cadre)   Rules,   1954,   are



quoted herein below:


                 "3.   Constitution   of   Cadres-   3(1)   There   shall

                 be constituted for each State or group of States

                 an Indian Police Service Cadre.





                                                                 


                                                                       10




                 3(2) The Cadres so constituted for a State or a

                 group of States are hereinafter referred to as a

                 `State Cadre' and a `Joint Cadre' respectively.


                 5. Allocation of members to various cadres-

                 5(1)   The   allocation   of   cadre   officers   to   the

                 various   cadres   shall   be   made   by   the   Central

                 Government   in   consultation   with   the   State

                 Government or State Governments concerned.



                 5(2)   The   Central   Government   may,   with   the

                 concurrence   of   the   State   Governments

                 concerned,   transfer   a   cadre   officer   from   one

                 cadre to another cadre."




It will  be  clear from Rule 3 that each State and a group of



States will have a State cadre or Joint Cadre respectively of



the   IPS   and   it   will   be   further   clear   from   Rule   5   that   the



Central   Government   in   consultation   with   the   State



Government or State Governments concerned has the power



to make allocation of IPS officers to various cadres.



7.         The   broad   principles,   which   are   to   be   followed   for



allocation, have been indicated in Para 3 of the letter dated



31.05.1985 and are extracted herein below:



              "(1)   The   vacancies   in   every   cadre   will   be

              earmarked   for   'outsiders'   and   'insiders'   in   the

              ratio   of  2:1.     In  order   to  avoid  problems  relating

              to   fractions   and   to   ensure   that   this   ratio   is

              maintained,   over   a   period   of   time,   if   not   during

              every   allocation,   the   break-up   of   vacancies   in   a

              cadre   between   'outsiders'   and   'insiders'   will   be





                                                                 


                                                                       11




              calculated   following   the   cycle   of   'outsider',

              'insider', 'outsider'



              (2)   The   vacancies   for   Scheduled   Castes   and

              Scheduled   Tribes   will   be   reserved   in   the   various

              cadres   according   to   the   prescribed   percentage.

              For purpose of this reservation, Scheduled Castes

              and   Scheduled   Tribes   will   be   grouped   together

              and the percentage will be added. Distribution of

              reserved   vacancies   in   each   cadre   between

              'outsiders' and 'insiders' will be done in the ratio

              2:1. This ratio will be operationalised by following

              a cycle 'outsider, 'insider', 'outsider' as is done in

              the case of general candidates.




              (3) Allocation of 'insiders', both men and women,

              will be strictly according to their ranks, subject to

              their   willingness   to   be   allocated   to   their   home

              States




              (4)   Allocation   of   'outsiders',   whether   they   are

              general   candidates   or   reserved   candidates,

              whether   they   are   men   or   women,   will   be

              according   to   the   roster   system   after   placing

              'insiders'   at   their   proper   places   on   the   chart   as

              explained below:



              (i)   All   the   State   Cadres/Joint   Cadres   should   be

              arranged   in   alphabetical   order   and   divided   into

              groups which, on the basis of the average over a

              period   of  time,   are   taking  roughly   equal  number

              of   candidates   each.   On   the   basis   of   average

              intake during the last 4 years, the group could be

              as follows:



              Group I :      Andhra Pradesh, Assam-Meghalaya,

                                          Bihar and Gujarat



              Group II :    Haryana, Himachal Pradesh, Jammu

                                 & Kashmir Karnataka, Kerala and




                                                                 


                                                                       12




                                 Madhya Pradesh



              Group III:    Maharashtra, Manipur-Tripura,

                                         Nagaland, Orissa, Punjab, Rajasthan

                                         and Sikkim



              Group IV :   Tamil Nadu, Union Territories, Uttar

                                    Pradesh and West Bengal.



              (ii)   Since   the   number   of   Cadres/Joint   Cadres   is

              21, the  cycles  will be 1-21,  22-42, 43-63  and so

              on.



              (iii) The 'insider' quota should then be distributed

              among the States and assigned to different cycles

              of   allotment.   For   example,   if   a   State   gets   4

              'insider'   candidates,   they   should   go   to   the   share

              of the State in their respective cycles and if there

              are   2   'insider'   candidates   from   the   same   cycle,

              they   should   be   treated   as   going   to   the   State   in

              two successive and so on.




              (iv) The 'outsider' candidates should be arranged

              in order of merit and allotted to the State cadres

              in cycles as described in (v) below




              (v)   In   the   first   cycle,   State   Cadre/Joint   Cadre

              which   have   not   received   'insider'   candidates

              should   be   given   one   candidate   each   in   order   of

              merit of 'outsider' candidates. The process should

              be repeated in successive cycles, each successive

              cycle beginning with the next successive group of

              States,   e.g.,   the   second   cycle   should   begin   from

              Group   II   States,   the   third   cycle   with   Group   III

              States and the fourth cycle with Group IV States

              and   the   first   cycle   again   with   Group   I   States.

              Occasionally   it   may   happen   that   a   candidate's

              turn   may   come   in   such   a   way   that   he   may   get

              allocated   to   his   own   home   State.   When   that





                                                                 


                                                                       13




              happens, the candidate next below him should be

              exchanged with him.



              (vi)   For   the   succeeding   year,   the   State   cadres

              should   be   arranged   again   in   alphabetical   order

              but   with   Group   I   of   the   previous   year   at   the

              bottom,   i.e.,   the   arrangement   will   begin   with

              Group  II on top.  In the third  year, Group III will

              come on top and so on



              (vii)   In   the   case   of   candidates   belonging   to   the

              reserved   category,   such   of   those   candidates,

              whose position in the merit list is such that they

              could have been appointed to the service even in

              the absence of any reservation, will be treated on

              par   with   general   candidates   for   purposes   of

              allotment   though   they   will   be   counted   against

              reserved vacancies. In respect of other candidates

              belonging   to   the   reserved   category   a   procedure

              similar   to   the   one   adopted   for   general   category

              candidates   would   be   adopted.   In   other   words,   a

              separate   chart   should   be   prepared   with   similar

              grouping of States and similar operational details

              should   be   followed.   If   there   is   a   shortfall   in

              general 'insiders' quota it could however be made

              up by 'insider' reserved candidates."




8.         It will be clear from a reading of clause (1) of the broad



principles   of   allocation   in   the   letter   dated   31.05.1985



quoted above, that vacancies in every cadre are required to



be  earmarked  for  outsiders and insiders in  the  ratio of 2:1



and  in  order  to  avoid  problems  relating  to  fractions  and  to



ensure that this ratio is maintained, over a period of time, if



not   during   every   allocation,   the   breakup   of   vacancies   in   a





                                                                 


                                                                       14




cadre   between   outsiders   and   insiders   will   have   to   be



calculated   following   this   cycle   of   `outsider',   `insider',



`outsider'.  Clause (2) of the broad principles of allocation in



the   letter   dated   31.05.1985   further   provides   that   the



vacancies for Scheduled Castes and Scheduled Tribes are to



be   reserved   in   the   various   cadres   according   to   the



prescribed   percentage   and   for   the   purpose   of   this



reservation, Scheduled  Castes and Scheduled  Tribes  are  to



be   grouped   together   and   the   percentage   to   be   added   and



distribution   of   reserved   vacancies   in   each   cadre   between



outsiders and insiders are to be done in the ratio of 2:1 and



this   ratio   is   to   be   operationalised   by   following   a   cycle



outsider, insider, outsider as is done in the cases of general



candidates.



9.         In Rajiv Yadav's  case (supra), Rajiv Yadav appeared in



the   Civil   Services   Examination   held   in   1988   and   he   was



selected   for   appointment   to   the   IAS   and   he   was   placed   at



Serial No.16 in the order of merit.  Though he belongs to the



Union   Territory   of   Delhi   and   he   opted   for   the   Union



Territory's   cadre,   he   was   allocated   to   the   Manipur-Tripura



cadre.     He   challenged   the   order   allocating   him   to   the





                                                                 


                                                                       15




Manipur-Tripura   cadre   before   the   Central   Administrative



Tribunal,   New   Delhi,   raising   various   contentions   and   the



Tribunal   held   that   the   power   conferred   by   Article   16(4)   of



the Constitution is only for making provision for reservation



of appointment or posts in favour of any backward class of



citizens   not   adequately   represented   in   the   services   under



the State and cannot be extended to allocation of members



of   the   IAS   to   different   cadres.     The   Tribunal   further   held



that clause (2) of the principles of allocation gave an added



benefit   to   IAS   probationers   belonging   to   Scheduled   Castes



and   Scheduled   Tribes   and   this   was   not   permissible   under



Article 16(4) of the Constitution.  This Court did not approve



of   this   reasoning   of   the   Tribunal   and   held   that   the



principles   of   allocation   as   contained   in   clause   (2)   of   the



letter   dated   31.05.1985   do   not   provide   for   reservation   for



appointments   or  posts and   as such   the   question   of  testing



the principles of allocation on the anvil of Article 16(4) of the



Constitution   does   not   arise.     In   Para   6   of   the   judgment   in



Rajiv  Yadav's  case, the Court explained that in compliance



with the statutory requirements and in terms of Article 16(4)



of the Constitution, 22= % reserved category candidates are





                                                                 


                                                                       16




recruited to the IAS and having done so, both the categories



are to be justly distributed amongst the States.     The Court



also   held   that   when   a   person   is   appointed   to   the   All   India



Service,   having   various   State   cadres,   he   has   no   right   to



claim allocation to a State of his choice or to his home State



and the Central Government is under no legal obligation to



have options or even preferences from the officer concerned



and   Rule   5   of   the   Indian   Administrative   Service   (Cadre)



Rules,   1954,   made   the   Central   Government   the   sole



authority   to   allocate   the   members  of  the   service   to   various



cadres.   This   position   of   law   was   reiterated   in  Mhathung



Kithan   and   Others  (supra).     The   Court,   however,   has   not



held in  Rajiv  Yadav  or in  Mhathung Kithan  and Others  that



such authority of the Central Government can be exercised



arbitrarily   or   in   a   manner   which   is   not   equitable   to   the



general   or   reserved   category   candidates   selected   for



appointment   to   an   All   India   Service.     On   the   contrary,   the



Court   has   held   in  Rajiv   Yadav  that   the   roster   system   as



contained  in  the   letter   dated   31.05.1985  ensures  equitable



treatment   to   both   the   general   candidates   and   the   reserved



candidates.





                                                                 


                                                                       17




10.              In   fact,   the   object   of   the   principles   of   allocation



indicated in different clauses in the letter dated 31.05.1985



is not only to implement the policy having 2 outsiders and 1



insider   in   each   cadre,   but   also   to   ensure   that   general   and



reserved candidates selected and appointed to the All India



Service   get   a   fair   and   just   treatment   in   the   matter   of



allocation to different cadres.  This will be clear from clause



(2)   of   the   letter   dated   31.05.1985   which   states   that   the



vacancies for Scheduled Castes and Scheduled Tribes in the



various   cadres   should   be   according   to   the   prescribed



percentage   and   from   clause   (3)   which   states   that   the



allocation of insiders, both men and women, will be strictly



according   to   their   ranks,   subject   to   their   willingness   to   be



allocated to their home States.   This will also be clear from



clause 4(vii) which explains how the candidates belonging to



the reserved category and the general category will be dealt



with.     These   principles   have   been   laid   down   in   the   letter



dated   31.05.1985   because   while   making   allocations   of



different   candidates   appointed   to   the   service   to   different



State   cadres   or   Joint   cadres,   the   Central   Government   has



also to discharge its constitutional obligations contained in





                                                                 


                                                                       18




the   equality   principles   in   Articles   14   and   16(1)   of   the



Constitution.   A member appointed to the  All India  Service



has   no   right   to   be   allocated   to   a   particular   State   cadre   or



Joint   cadre,   but   he   has   a   right   to   a   fair   and   equitable



treatment in the matter of allocation under Articles 14 and



16(1) of the Constitution.  



11.          Coming now to the facts of this case, we find that the



High   Court   has   in   the   impugned   judgment   extracted   the



table of vacancies filled up from Civil Services Examination



1994   -   2003,   as   furnished   in   Para   28   of   the   counter



affidavit dated 22.03.2007 filed by the Union of India before



the High Court, which is extracted hereunder :



                                     Total
 S.No.         CSE                                                           Insider               Outsider
                                 Vacancies

                                                              GE                             GE
                                                                             OBC    SC/ST          OBC    SC/ST
                                                               N                             N

                  1
    1.                                   7                      -             1         1    3       1         1
               994

                  1
    2.                                   5                      1             1         -    1       1         1
               995

                  1
    3.                                   6                      2              -        -    1       2         1
               996

                  1
    4.                                   2                      -              -        -    2       -         -
               997

                  1
    5.                                   1                      -             1         -    -       -         -
               998

                  1
    6.                                   1                      -              -        -    1       -         -
               999

                  2
    7.                                   1                      -              -        -    1       -         -
               000

                  2
    8.                                   1                      -              -        1    -       -         -
               001

                  2
    9.                                   1                      -              -        -    -       1         -
               002





                                                                 


                                                                       19




                  2
   10.                                   4                      -            1    -    2     -    1
               003

 Tota
                                        29                      3            4    2    11    5    4
     l





After considering this table, the High Court has held in the



impugned   judgment   that   even   according   to   the   Union   of



India, as against a total of 29 vacancies  9 OBC candidates



(4 insiders + 5 outsiders) had been allocated to the Andhra



Pradesh   cadre   from   amongst   the   successful   candidates   of



Civil Services Examinations from 1994-2003 and if Vikrama



Varma, an insider OBC candidate, was to be allocated to the



Andhra   Pradesh   cadre   from   the   selected   candidates   of   the



Civil   Services   Examination,   2004,   a   total   of   10   OBC



candidates would be allocated to the Andhra Pradesh cadre



in   the   30   point   roster,   making   the   percentage   of   OBC



candidates to 33 1/3, which was a variation of 6% in excess



and by any standard was not a marginal variation.



12.           The Union of India, in para 32 of its counter affidavit



before   the   Tribunal   in   O.A.No.286   of   2006,   has,   however,



stated that from the five Civil Services Examinations (1999-



2003)   a   total   of   8   candidates   appointed   to   the   IPS   were



allotted   to   the   Andhra   Pradesh   cadre,   out   of   which   2   were



OBC   candidates   and   2  out   of   8  does   not  exceed   27%   and,




                                                                 


                                                                       20




therefore, there was neither any excess nor any shortfall of



allocation   of   OBC   candidates   in   the   Andhra   Pradesh   IPS



cadre.   We fail to appreciate this calculation of percentages



on   reserved   category   candidates   allotted   to   the   Andhra



Pradesh   cadre   worked   out   on   the   basis   of   number   of



candidates   allotted   to   the   Andhra   Pradesh   cadre   from   the



five Civil Services Examinations, from 1999 - 2003, when in



the   very   same   counter   affidavit   of   the   Union   of   India   filed



before the Tribunal in O.A. No. 286 of 2006, in para 21, it is



clearly   stated   that   a   30   point   roster   in   respect   of   Andhra



Pradesh was being maintained for allocation of insider and



outsider,   as   well   as,   reserved   and   general   candidates   in



accordance with clauses (1) and (2) of Para (3) of the letter



dated 31.05.1985.  It appears to us that only with a view to



somehow  justify   the   allocation   of  Vikrama   Varma,   an   OBC



candidate,   to   the   Andhra   Pradesh   cadre   from   the   Civil



Services   Examination,   2004,   the   Union   of   India   has   taken



the figures of allocation of candidates selected for the IPS in



the five Civil Services Examinations of 1999 to 2003 instead



of taking the figures of appointments to the vacancies in the



30   point   roster   starting   from   the   1994   Civil   Services





                                                                 


                                                                       21




Examination till 2003 Civil Services Examinations.



13.          Admittedly,   Avinash   Mohanty   had   secured   a   higher



rank   than   Vikrama   Varma   in   the   Civil   Services



Examination, 2004 and both Avinash Mohanty and Vikrama



Varma are insiders.   Clause (3) of Para 3 of the letter dated



31.05.1985 states that allocation of insiders, both men and



women,   will   be   strictly   according   to   their   ranks,  subject  to



their   willingness   to   be   allocated   to   their   home   States.



Hence, Avinash Mohanty was required to be considered for



allocation  to  the  Andhra  Pradesh  cadre  if  he  had given  his



willingness   for   being   allocated   to   his   home   State,   Andhra



Pradesh,   before   Vikrama   Varma   could   be   considered   for



such   allocation.     If,   however,   the   vacancy   for   which



consideration was being made was a vacancy for an insider



OBC   candidate   in   the   30   point   roster,   Vikrama   Varma



would have preference over Avinash Mohanty.  But the High



Court has come to a finding that the number of vacancies in



the   30   point   roster   filled   up   by   OBC   candidates   from   Civil



Services Examinations 1999-2003 were 9 and had exceeded



the   27%   reservation   for   OBC   candidates   and   hence   there



could   not   be   an   insider   OBC   vacancy   in   which   Vikrama





                                                                 


                                                                       22




Varma   could   have   been   allocated.     The   High   Court   was,



therefore,   right   in   coming   to   the   conclusion   that   allocation



of   Vikrama   Varma   to   the   Andhra   Pradesh   cadre   was   in



violation   of   the   guidelines   contained   in   the   letter   dated



31.05.1985 and was clearly arbitrary and not equitable.



14.           In our view, complexity of a decision making process



cannot   be   a   defence   when   a   grievance   is   made   before   the



Court by a citizen that his fundamental right to equality has



been   violated.     When   such   a   grievance   is   made   before   the



Court,   the   authorities   have   to   justify   their   impugned



decision   by   placing   the   relevant   material   before   the   Court.



As  has been  held  by  a Constitution Bench of this  Court  in



M. Nagaraj  vs.  Union of India  [(2006) 8 SCC 212] at 277 in



Para 118:



                 "The   constitutional   principle   of   equality   is

                 inherent in the rule of law. However, its reach is

                 limited because its primary concern is not with

                 the content of the law but with its enforcement

                 and   application.   The   rule   of   law   is   satisfied

                 when laws are applied or enforced equally, that

                 is,   even-handedly,   free   of   bias   and   without

                 irrational   distinction.   The   concept   of   equality

                 allows   differential   treatment   but   it   prevents

                 distinctions   that   are   not   properly   justified.

                 Justification   needs   each   case   to   be   decided   on

                 case-to-case basis."





                                                                 


                                                                       23




We   are   also   of   the   considered   opinion   that   the   impugned



order of the High Court quashing the allocations of Vikrama



Varma and Avinash Mohanty and directing reconsideration



of   their   allocation   will   not   have   cascading   effects   on   the



service   because   the   High   Court   has   only   quashed   the



allocation of only two members of the IPS, namely, Avinash



Mohanty and Vikrama Varma, and not of other members of



the IPS and directed reconsideration of their allocation.  



15.            We, therefore, do not find any merit in these appeals



and   we   dismiss   the   same   and   vacate   the   interim   orders



staying the operation of the impugned judgment.   No order



as to costs.





                                                                             .............................J.

                                                           (R. V. Raveendran)




                                                                             .............................J.

                                                           (A. K. Patnaik)

New Delhi,

July 12, 2011.