Chittaranjan Maity vs Union Of India

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURSIDCITON

CIVIL APPEAL NOS. 15545-15546 OF 2017 (Arising out of SLP (C) Nos.39038-39039 of 2012)

SRI CHITTARANJAN MAITY … APPELLANT

VERSUS

UNION OF INDIA … RESPONDENT

JUDGMENT

S.ABDUL NAZEER, J.

1. Leave granted.

2. The appellant, in these appeals, has challenged the

legality and correctness of the judgment and order dated

Signature Not Verified Digitally signed by 29.9.2011 in A.P.O. No.213/2009 in A.P. No.35/2006 DEEPAK MANSUKHANI Date: 2017.10.03 15:21:57 IST Reason:

whereby the Division Bench of the High Court of Calcutta 2

has set aside the judgment and order of the learned

Single Judge in A.P. No.35/2006 dated 27.1.2009.

3. Brief facts necessary for the disposal of these appeals are

as follows:

4. On 20.3.1991, respondent invited tender for the

execution of balance of earth for formation of banks for

laying railway line, roads, platforms and miscellaneous work

in connection with new goods terminal yard of South-Eastern

Railway at Sankrail in Howrah District. The appellant’s tender

dated 23.3.1991 for Rs.61,24,159/- was accepted by

issuance of Letter of Acceptance dated 17.6.1991. In this

connection, an agreement was entered into between the

appellant and the respondent on 22.8.1991. In the said

agreement, General Conditions of the Contract (for short

‘GCC’) were incorporated and the parties were bound by the

terms and conditions thereof.

5. Various disputes and differences arose between the

parties regarding execution of work and its purported

abandonment. The respondent issued notice dated 3

24.10.1991, seeking termination of the agreement. Another

notice dated 15.11.1991 was issued to the appellant under

Clause 62(1) of the GCC for rescission of the contract.

However, at the request of the appellant through letter dated

2.4.1992, the validity of the contract was extended till

30.6.1992. The respondent further granted extension of

time to complete the work upto July 1993. According to the

appellant, the delay and/or hindrances occurred due to

breaches committed by the Railway Administration. The

remaining work was abandoned by the appellant w.e.f.

3.11.2003.

6. The appellant raised the claim before the respondent by

his letter dated 30.10.1996. By a subsequent letter dated

22.6.1998, the appellant demanded reference of the dispute

to the arbitration. Finally, the appellant filed an application

under Section 11(6) of the Arbitration and Conciliation Act,

1996 (for short ‘the 1996 Act’) for appointment of an

Arbitrator for adjudication of the claims and disputes before

the High Court of Calcutta. The Chief Justice of the High 4

Court of Calcutta passed an order dated 6.12.2001,

whereupon the General Manager, South-Eastern Railway,

was directed to appoint Arbitrators from their panel within

four weeks from the said date. Pursuant to the said order,

the Arbitral Tribunal was constituted which adjudicated the

disputes and claims raised by the appellant, as also the

respondent.

7. The Arbitral Tribunal passed an award on 20.9.2006.

The respondent moved an application, being A.P. No.35 of

2006 under Section 34 of the 1996 Act, for setting aside the

said award. The said application was dismissed by the Single

Judge of the High Court. The respondent assailed the order

of the learned Single Judge by filing an appeal in A.P.O. No.

213 of 2009, wherein it was contended that the appellant

had issued a ‘No Claims Certificate’ to the respondent,

thereby forfeiting his right for any claim from the respondent

in regard to which the dispute could not be adjudicated by

the Arbitral Tribunal. As noticed above, the Division Bench

has set aside the order of the learned Single Judge and also 5

the award and directed holding of fresh reference by the

Arbitral Tribunal.

8. Learned senior counsel appearing for the appellant

submits that the Division Bench failed to appreciate the

question that issuance of ‘No Claims Certificate’ by the

appellant was not urged before the Chief Justice in the

proceedings under Section 11(6) of the 1996 Act. The said

plea was not even urged before the Arbitral Tribunal or

before the learned Single Judge. The issue relating to

existence of any live claim or the arbitrability of the dispute

ought to have been urged in the proceedings under Section

11(6) of the 1996 Act or at least before the Arbitral Tribunal.

The question as to whether there was any arbitral dispute or

not, could not have been entertained by the Division Bench

for the first time. It is further submitted that the Tribunal

has rightly passed an award and granted pre-award and

pendente lite interest from 17.7.1992 till the realization of

the award amount.

6

9. On the other hand, learned Additional Solicitor General

appearing for the respondent submits that having regard to

the ‘No Claims Certificate’ issued by the appellant, the

appellant has no right to make any claim except for security

deposit of Rs.15,000/- from the respondent. There was no

arbitral dispute between the parties. Therefore, the claim

itself was not maintainable. It is further argued that, at any

rate, the appellant was not entitled for any interest having

regard to the terms of the contract. He prays for dismissal

of the appeals.

10. Having regard to the contentions urged, the first

question for our consideration is whether the Division Bench

was justified in considering the arbitrability of the dispute for

the first time in the appeal. It is evident from the materials

on record that the dispute had arisen between the parties in

relation to the contract in question. Therefore, the appellant

filed an application before the Chief Justice of the High Court

of Calcutta under Section 11(6) of the 1996 Act, for

appointment of an Arbitrator in terms of the contract which 7

was allowed and an Arbitral Tribunal was constituted for

adjudication of the dispute. The Arbitrator after giving the

parties opportunities of hearing and after considering the

materials placed on record made and published the award.

The amounts claimed and the amounts awarded against

each item of the claim are briefly mentioned as follows:

CLAIM CLAIMED AWARDED AMOUNT (RS.) AMOUNT (RS.) 1.Balance amount 45,37,230/- 2,39,657/- payable 2.Claim for price 21,82,719.58 1,17,060/- variation due to rise in price of materials, labour and fuel 3.Claim for 15,000/- 15,000/- security deposit. 4.Claim on account 51,000/- 15,300/- of advance payment towards labour supplier 5.Claim for 1,80,000/- 54,000/- advance payment to the earth supplier. 6.Claim for 1,80,000/- 54,000/- remaining idle wage payment. 7.Claim for 22,000/- 15,000/- overhead charges, i.e., staff salary and house rent 8.Claim for 12,75,000/- 6,03,119/- 8

blockage of capital and business loss 9.Claim for 1,58,23,193.16 12,44,546/- interest

11. Learned Single Judge had dismissed the application

filed by the respondent for setting aside the said award. The

issue relating to arbitrability of the dispute was not raised in

the proceeding under Section 11(6) of the 1996 Act. One of

the issues which can be considered by the Chief Justice

under this provision is whether the claim is a live claim.

This issue can also be kept open to be decided by the

Arbitral Tribunal provided the said plea is urged before the

Chief Justice. [(See : National Insurance Company

Limited vs. Boghara Polyfab Private Limited (2009) 1

SCC 267)]. The respondent had not raised the said plea

before the Chief Justice. Be that as it may, the respondent

has not urged the said plea either before the Arbitral

Tribunal or before the learned Single Judge in the

proceedings under Section 34 of the 1996 Act. 9

12. This Court, in Mcdermott International Inc. vs.

Burn Standard Co. Ltd. and Others (2006) 11 SCC 181,

has held that the party questioning the jurisdiction of the

Arbitrator has an obligation to raise the said question before

the Arbitrator. It has been held as under:

“51. After the 1996 Act came into force, under Section 16 of the Act the party questioning the jurisdiction of the arbitrator has an obligation to raise the said question before the arbitrator. Such a question of jurisdiction could be raised if it is beyond the scope of his authority. It was required to be raised during arbitration proceedings or soon after initiation thereof. The jurisdictional question is required to be determined as a preliminary ground. A decision taken thereupon by the arbitrator would be the subject-matter of challenge under Section 34 of the Act. In the event the arbitrator opined that he had no jurisdiction in relation thereto an appeal thereagainst was provided for under Section 37 of the Act.”

13. It is also necessary to observe that intervention of the

court is envisaged only in few circumstances like fraud or

bias by the Arbitrators, violation of natural justice. The court

cannot correct the errors of the Arbitrators. That is evident

from para 52 of the judgment in Mcdermott International

Inc (supra), which is as under:

10

“52. The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. The court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court’s jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it.”

14. Therefore, the Division Bench was not justified while

considering the arbitrability of the disputes for the first time,

particularly, when the respondent has not urged the issue

relating to ‘No Claims Certificate’ before the Chief Justice,

Arbitral Tribunal or before the learned Single Judge.

15. The next question for consideration is whether the

Arbitral Tribunal was justified in awarding interest on the

delayed payments in favour of the appellant. The total

interest awarded by the Arbitral Tribunal is Rs.12,44,546/-

which includes interest for the pre-reference period and also 11

pendente lite interest. Section 31(7)(a) of the 1996 Act

provides for payment of interest, as under:

“31(7)(a) - Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.”

In this Section, a specific provision has been created,

whereby if the agreement prohibits award of interest for the

pre-award period (i.e. pre-reference and pendente lite

period), the Arbitrator cannot award interest for the said

period.

16. Admittedly, the GCC, governing the contract between

the parties, contains a clause which bars the payment of

interest, which is as under:

“16(2) – 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 deposit in terms of sub-clause (1) of this clause will be repayable (with) interest accrued thereon.” 12

17. Relying on a decision of this Court in M/s. Ambica

Construction vs. Union of India (2017) SCC OnLine SC

678, (C.A.No.410 of 2008, disposed of on 26.04.2017)

learned senior counsel for the appellant submits that mere

bar to award interest on the amounts payable under the

contract would not be sufficient to deny payment on

pendente lite interest. Therefore, the Arbitrator was justified

in awarding the pendente lite interest. However, it is not

clear from M/s. Ambica Construction (supra) as to

whether it was decided under The Arbitration Act, 1940 (for

short ‘the 1940 Act’) or under the 1996 Act. It has relied on

a judgment of Constitution Bench in Secretary, Irrigation

Department, Government of Orissa and Others. vs.

G.C. Roy (1992) 1 SCC 508. This judgment was with

reference to the 1940 Act. In the 1940 Act, there was no

provision which prohibited the Arbitrator from awarding

interest for the pre-reference, pendente lite or post award

period, whereas the 1996 Act contains a specific provision

which says that if the agreement prohibits award of interest 13

for the pre-award period, the Arbitrator cannot award

interest for the said period. Therefore, the decision in M/s.

Ambica Construction (supra) cannot be made applicable to

the instant case.

18. Learned Additional Solicitor General appearing for the

respondent submits that the position of law for cases

covered under the 1996 Act, i.e. if agreement prohibits

award of interest then the grant of pre-award interest is

impermissible for the Arbitrator, has been reiterated by this

Court in various judgments.

19. In Sayeed Ahmed and Company vs. State of Uttar

Pradesh and Others (2009) 12 SCC 26, this Court noted

that the 1940 Act did not contain any provision relating to

the power of the Arbitrator to award interest. However, now

a specific provision has been created under Section 31(7)(a)

of the 1996 Act. As per this Section, if the agreement bars

payment of interest, the Arbitrator cannot award interest

from the date of cause of action till the date of award. The

Court has observed that in regard to the provision in the 14

1996 Act, the difference between pre-reference period and

the pendente lite interest has disappeared insofar as award

of interest by the Arbitrator is concerned. Section 31(7)(a)

recognizes only two periods, i.e. pre-award and post-award

period.

20. In Sree Kamatchi Amman Constructions vs.

Divisional Railway Manager (Works), Palghat and

Others (2010) 8 SCC 767, this Court was dealing with an

identical case wherein Clause 16 of the GCC of Railways had

required interpretation. This is the same Clause 16(2) of the

GCC prohibiting grant of interest which is also applicable in

the facts of the present case. The Court held that where the

parties had agreed that the interest shall not be payable, the

Arbitral Tribunal cannot award interest between the date on

which the cause of action arose to the date of the award.

21. In Union of India vs. Bright Power Projects

(India) Private Limited (2015) 9 SCC 695, a three-Judge

Bench of this Court, after referring to the provisions of

Section 31(7)(a) of the 1996 Act, held that when the terms 15

of the agreement had prohibited award of interest, the

Arbitrator could not award interest for the pendente lite

period. It has been held thus:

“10. Thus, it had been specifically understood between the parties that no interest was to be paid on the earnest money, security deposit and the amount payable to the contractor under the contract. So far as payment of interest on government securities, which had been deposited by the respondent contractor with the appellant is concerned, it was specifically stated that the said amount was to be returned to the contractor along with interest accrued thereon, but so far as payment of interest on the amount payable to the contractor under the contract was concerned, there was a specific term that no interest was to be paid thereon.

11. When parties to the contract had agreed to the fact that interest would not be awarded on the amount payable to the contractor under the contract, in our opinion, they were bound by their understanding. Having once agreed that the contractor would not claim any interest on the amount to be paid under the contract, he could not have claimed interest either before a civil court or before an Arbitral Tribunal.”

Therefore, it is clear that the appellant is not entitled for any

interest on the amount awarded by the Arbitral Tribunal.

16 22. The Arbitral Tribunal had determined the amount

payable to the appellant in a sum of Rs.11,13,136/- and

interest of Rs.12,44,546/-. A sum of Rs.38,82,150/- was

deposited by the respondent which includes the award

amount, interest for the pre-reference period, pendente lite

and post-award interest. We have held that the appellant is

not entitled for any interest. The appellant has already

withdrawn 50% of the amount deposited by the respondent,

which is in excess of the award amount exclusive of interest.

Having regard to the facts and circumstances of the case,

we deem it proper to direct the respondent not to recover

the excess amount withdrawn by the appellant. Ordered

accordingly.

17

23. The appeals are partly allowed and disposed of in the

aforesaid terms without any order as to costs.

………………………………..J. (J. CHELAMESWAR)

………………………………..J. (S. ABDUL NAZEER)

New Delhi;

October 03, 2017.