M/S. DURGA RAM PRASADversusGOVT. OF ANDHRA PRADESH

                        MIS DUGRA RAM PRASAD                                  A
                                   v.
                       GOVT. OF ANDHRA PRADESH

                             NOVEMBER23, 1994

          [K. RAMASWAMY AND K. JA YACHANDRA REDDY, JJ.]                       B

        Arbitration Act, 1940-Contract to execute work-Amount due to
    contractor withheld-Claim of State that work not executed as per
    contract-Arbitration-Entitlement of interest on amounts withheld by
    State-Held: Party not entitled to interest.
,                                                                             c
         The appellant had entered into a contract to construct foodgrains
    godown. In execution thereof, a dispute had arisen whether the
    appellant had executed the work as per the contract and was entitled to
    certain sums of money withheld by the engineer and also to the interest
    payable thereon. The dispute had been referred to the Arbitrator, who D
    in his Award awarded a sum of money with interest on the amounts
    wrongfully withheld by the engineer. The State challenged the
    entitlement of interest on the amounts withheld by the engineer. The
    High Court negatived the claim for interest. These appeals by special
    leave arise from the judgment of the High Court.

         The appellant contended that when the appellant had executed the
                                                                              E
    work within the period, in terms of the contract, and the officials of the
    respondent had wrongfully withheld the due payment, on the respective
    dates, the appellant was entitled to the interest on the amounts
    wrongfully withheld. It further contended that Clause 69 of the M.D.
    S.S. was inapplicable to the facts of this case.                           F

       The questions which arose for consideration were whether the
    appellant was entitled to payment of interest from the respective dates
    on which the amounts were withheld by the concerned engineer and
    whether the dispute was arbitrable.
                                                                              G
        Dismissing the appeal, this Court
                                                              ----
        HELD: I.I. The claim of the State appears to be that the appellant
    had not constructed the godown in accordance with the specifications
    and that, therefore, they withheld the payment. Unless the dispute is
    resolved and the amount is found due, the contractor is not entitled to H
    2                       SUPREME COURT REPORTS           (1994] SUPP. 6 S.C.R

A   the payment of it. The interest in terms of clause 69 of MDSS is
    contracted out. When such be the position, then mere reference does
    give jurisdiction to the arbitrator to award interest for the period prior
    to the reference. [4G & H, 5 A]

         A.P. S.R.T.C. v. P. Ramana Reddi, (1989) 1ALT195, Distinguished.
B
         1.2. In this case the contractor is not entitled to payment of interest
    in terms of clause 69 of MDSS for the period anterior to the reference
    for arbitration until the final settlement of the amount due to the
    contractor of his account is determined. In this case that dispute was
    determined by the arbitrator in his award. Therefore, from the date of
C   withholding till the date of award the appellant is not entitled to the
    payment of interest. The arbitrator has no jurisdiction to arbitrate that
    dispute. The High Court, therefore, rightly negatived the claim for
    interest. [SE & F]

         Executive Engineer (Irrigation) v. Abhaduta Jena, [1988] 1 SCC 418;
D   State of Orissa v. Niranjan Swain, [1989) 4 SCC 269; Secretary, Irrigation
    Department v. G.C. Ray, [1992)-1 SCC 508; Distinguished.

        CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 2262-63 of
    1977.

E       From the Judgment and Order dated 23.4.75 of the Andhra Pradesh
    High Court in Memo of Cross-Objection in C.M.A. No. 191of1973.

        B. Kanta Rao for the Appellant.

        A.K. Ganguli, T. V.S.N. Chari and Nikhil Nayyar for the Respondent.
F       The following Order of the Court was delivered:

       . These appeals by special leave arise from the judgment of the Division
    Bench of the Andhra Pradesh High Court in Memo of, Corss Objection in
    C.M.A. No. 191/75 dated 23.4.75. The appellant had entered into a contract
    on 16.3.65 to construct foodgrains godown at Karimnagar. In execution
G   thereof, a dispute had arisen whether the appellant had executed the work as
    per the contract and is intitled to certain sums of money withheld by the
    engineer and also to the interest payable thereon at 12% etc. The dispute
    has been referred to the Arbitrator, a retired Chief Engineer, who in his
    Award dated 12.4.72 awarded a sum of Rs. 27, 776 with interest at 12% on
H   the amounts wrongfully withheld by the Engineer. We are concerned in
                           D.R. PRASAD v. GOVT. OF A.P.                     r   )3

    these appeals only with the entitlement of interest on the amounts withheld A
    by the engineer. The Division Bench concluded, while negativing the claim
    for interest, thus:

                    "We are, however, inclined to agree with the first ground
                  . given by the Court below in negativing the claim for interest.
                    Under clause 69 of M.D.S.S. which has to be treated as part B
                    of the contract, it is provided "nor shall the contractor be
                    entitled to interest upon any guarantee fund or payments in
                    arrears, nor upon any balance which may, on the final
                    settlement of his accounts, be found to be due to him." Even
                    if it is assumed that the recoveries from the bills were
I                   wrongfully made, such sums would be sums which would be C
                    found due to the contractors on the final settlement of
                    accounts."

         We are not concerned with the correctness of the views expressed on
    other issues as the State did not file appeals. Shri Kanta Rao, the learned D
    counsel for the appellant contended that when the appellant had executed
    the work within the period, in terms of the contract, and the officials of the
    respondent had wrongfully withheld the due payment, on the respective ·
    dates, the appellant is entitled to the interest on the amounts wrongfully
    withheld. He further contends that clause 69 of the M.D.S.S. is inapplicable
    to the facts of this situation. In support thereof, he places reliance on the E
    judgment ofa learned single Judge of that Court reportedA.P.S.R.T.C. v. P.
    Ramana Reddi, (1989) 1ALT195.

         The question, therefore, is whether the appellant is entitled to payment
    of interest from the respective dates on which the amounts were withheld
    by the concerned engineer and the dispute is arbitrable?                         F

        Clause 69 ofM.D.S.S. reads thus:

            "69. Interest on money due to the contractor:-

            (a)    No omission by the Executive Engineer or the Sub- G
                   Divisional officer to pay the amount due upon certificates
                   shall vitiate or make void the contract, nor shall be contractor
                   be entitled to interest upon any gaurantee found or payments
                   in arrear, nor upon any balance which may, on the final
                   setlement of his accounts, be found to be due to him."
                                                                                     H
    4                        SUPREME COURT REPORTS             [1994] SUPP. 6 S.C.R

A        A reading of this clause gives an indication that interest on money due
    to the contractor was negatived in the following circumstances:

        (1) the omission by the Executive Engineer or Sub-Divisional officer to
    pay the amount due upon certificates shall not vitiate or make the contract
    void:
B
        (2) the contractor shall not be entitled to interest upon:

        (a) any guarantee found;

        (b) payments in arrears; and
c        (c) upon any balance which may on final settlement of his account to
    be found to be due to him. The question is whether the contractor is entitled
    to the payment of interest on the amounts wrongfully withheld from the
    respective dates. Clause (c) of the second part of clause 69 of the MDSS
    would indicate that there should be a final settlement of the account and
    upon its settlement, if it is found to be due and payable to the contractor, on
D   such amount also the contractor is not entitled to the payment of interest as
    contracted under clause 69 of the MDSS. When such is the position,
    whether the contractor is entitled to payment of interest on mere makeing a
    claim and reference made to the arbitrator and whether the arbitrator gets
    jurisdiction to award interest on the amount due from the respective dates
    on which the payments were withheld by the concerned engineer?
E
         It is true that the learned single Judge of the A.P. High Court appears to
    have considered the question and the construction of clause 69 was put up
    is in favour of the contractor as contended for. It is not a correct approach.
    The construction put up on clause 69 of MDSS is not correct. However, on
F   the facts in that case there does not appear to be any dispute as to the
    amount due. Therefore, the learned Judge had proceeded that since the
    contract provides for withholding the payment for a suspended period of six
    months, if the amount is withheld beyond that period, the contractor would
    be entitled to the payment of interest. That is not the factual scenario in this
    case. The very dispute is whether the appellant is entitled to the payment of
G   the amount pursuant to the contract. The claim of the State appears to be
    that the appellant had not constructed the godown in accordance with the
                                                                                       '
    specifications and that, therefore, they withheld the payment. Unless the
    dispute is resolved and the amount is found due, the contractor is not
    entitled to the payment of it. Thereon interest in terms of clause 69 of the
    MDSS is contracted out. When such be the position, then mere refere~ce
H
                          D.R. PRASAD v. GOVT. OF A.P.                        5

    does give jurisdiction to the arbitrator to award interest to the period prior A
    to the reference.

         This Court in Executive Engineer (Irrigation) v. Abhaduta Jena,
    [ 1988] 1 sec 418, in para 20 held that:

                  "In the remarnrng cases which arose before the B
                  commencement of the Interest Act, 1978, the respondents are
                  not entitled to claim interest either before the commencement
                  of the proceedings ..... They are nor entitled to claim interest
                  for the period prior to the commencement of the arbitration
I                 proceedings for the reason that the Interest Act, 1839 does
                  not apply to their cases and there is no agreement to pay C
                  interest or any usage of trade having the force of law or any
                  other provision of law under which the claimants were
                  entitled to recover interest."

         This ratio was followed by another Bench of this Court in State of
     Orissa v. Niranjan Swain, [1989] 4 SCC 269. In Secretary, Irrigation D
    Department v. G.C. Roy, [1992] 1 SCC 508, the Constitution Bench was
    concerned with the case whether the contractor is entitled to interest
    pendente lite. The controversy, therefore, centres round the question
    whether the contractor is entitled to the interest pendente lite. The ratio
    therein, therefore, has no relevance for the purpose of this case. The ratio in
    Jena's case on the above quoted ratio is still good law. Accordingly, we are E
    of the view that the contractor is not entitled to payment of interest in terms
    of clause 69 of MDSS for the period anterior to the reference for arbitration
    until the frnal settlement of the amount due to the contractor of his account
    is determined. In this case that dispute was determined by the arbitrator in
    his award. Therefore, from the date of withholding till the date of award the
    appellant is not entitled to the payment of interest. The arbitrator has no F
    jurisdiction to arbitrate that dispute. The Division Bench, therefore, rightly
    negatived the claim for interest.

        The appeals are accordingly dismissed, but in the circumstances,          G
    without costs.

    A.G.                                                    Appeals dismissed.