Holding

The arbitrator did not exceed his jurisdiction; claims based on the final bill measured by the Local Commissioner were within the contract, and the arbitrator was entitled to award interest at 10% per annum, so the award stands with interest at 10% and the deleted claim items are reinstated, while the cost award is set aside.

Summary

The State of Jammu & Kashmir terminated a measurable‑item rate contract with contractor Dev Dutt Pandit after less than 50% of the work was completed and the contractor filed a petition under Section 20 of the Arbitration Act. An arbitrator awarded Rs. 20,08,000 based on a final bill prepared from measurements taken by a Local Commissioner, and granted interest at 10% per annum. The State objected under Sections 30 and 33, claiming the arbitrator entertained fresh claims (idle labour, monsoon damage, deviation) that were outside the contract and that the interest rate was excessive. The High Court reduced the interest to 6% and deleted two claim items; the Division Bench partially upheld that reduction. The Supreme Court held that the final‑bill claims were within the contract, the arbitrator did not exceed his jurisdiction, and the 10% interest was permissible under the Interest Act and CPC, restoring the award with interest and setting aside the cost award. Both appeals were partly allowed.

Issues considered

Whether the arbitrator entertained fresh claims not pleaded in the Section 20 petition or outside the contract terms
Whether such claims, if entertained, were beyond the scope of the reference under Sections 30 and 33 of the Arbitration Act
Whether the award was contrary to the terms of the contract (idle labour, monsoon damage, deviation without written permission)
Whether the arbitrator committed misconduct in granting the award
Whether interest at 10% per annum is permissible under the Interest Act, 1978 and Section 34 of the CPC

Legislation cited

Arbitration Act, 1940s. 20, s. 30, s. 33
Code of Civil Procedure, 1908s. 34
Interest Act, 1978s. 2(b), s. 5

Subjects

ArbitrationNon‑speaking awardInterest rateContractual termsIdle labourForce majeureMeasurement of workFinal billSections 30 and 33Commercial transaction

Judgment

THE STATE OF J & KAND ANR. A
v.
DEV DUTT PANDIT

AUGUST 27, 1999

[D.P. WADHWA AND M.B. SHAH. JJ.] B

Arbitration Act, I 940 :

Sections 30 and 33-Measurable item rate contract-Final Bill based
on measurements of work by local Commissioner-No objection to such C
measurements-Claim based on final bill allowed by the arbitrator-Whether
award against the terms of the contract-Held, under the facts and
circumstances, claim based on final bill not outside the terms of the contract.

Arbitration-Object of-Held, it is an important Alternative Disputes D
Redressal process which should be encouraged-Situations which bring bad
....,
. name to the arbitration process should be avoided.

Interest Act, 1978-Sections 2(b) and 5-Arbitration Award-Interest
at the rate of I 0% awarded-Challenged-Commercial transaction-Held,
under the facts and circumstances, interest at the higher rate than 6% can E
be awarded-Code of Civil Procedure, 1908-Section 34.

Words and Phrases- 'Idle labour'-Meaning of

Appellant-State accepted tender and allotted work of Rs. 12,23,500 to
respondent-contractor which was to be completed within a stipulated time. F
When contractor failed to complete the work within the stipulated time,
contract was terminated by the State and by that time the contractor had
executed less then 50% of the work and had been paid a sum of Rs.
5, 71,900. The contractor filed petition under Section 20 of the Arbitration
.. Act claiming a sum of Rs. 39,47,000 which was allowed and the dispute was G
referred to an arbitrator. In the proceedings under Section 20 the court
appointed a Local CommissiOner, to take meas11rements of the work done at
the site by the contractor and on the basis of the report of the Local
Commissioner, the contractor prepared a final bill for Rs. 14,32,436.62.
The contractor filed a claim of Rs. 63,61,000 before the arbitrator which
H
2 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A included cla~ms on account of final bill, idle labour, damage due to mansoon,
deviation or alteration in work, interest, etc. The arbitrator gave a non-
speaking award for a sum of Rs. 20,08,000 in favour of the contractor with
interest at the rate of 10% per annum from the date of application for
appointment of the arbitrator upto the date of payment.

B State filed objections to the award under Sections 30 and 33 of the
Arbitration Act and alleged misconduct by the arbitrator on the grounds that
the award was against the terms of the contract and that the arbitrator had
travelled beyond the terms of reference in passing the impugned award and
contended that as per the order of reference, new claims based on
C measurements recorded by the Local Commissioner and not mentioned in
the summary of claims filed with the Section 20 petition could not be advanced.
Single Judge of the High Court dismissed the objections but reduced the
rate of interest to 6% per annum from the date of award till payment.
Aggrieved by the order of the Single Judge, the contractor and the State both
filed appeals. Divi~ion Bench partly allowed the appeal of the State by deleting
D the two claims under items 13 and 14 which amounted to Rs. 8,08,250 but
dismissed the appeal of the contractor against reducti~n in the rate of
interest. Against the order of the Division Bench, the contractor and the
State have both appealed to this Court.

E The State reiterated the contentions advanced in the High Court. The
contractor contended that it is a non-speaking award and court cannot go
info the mental process of the. arbitrator in making the award on various
claims; and that "idle employees" as mentioned in clause 69 of the contract
is not the same thing as "'idle labour" and it would only mean regular
employees on the roll of the contractor like engineers etc.
F
Partly allowing the appeals, the Court

HELD : 1. Court has certain limitations while examining a non-speaking
award but there is no complete bar in examining if the award is in terms of
G the reference or the terms of the contract. [13-D)

2. Under the terms of the contract, the contractor could not claim any
loss done to him on account of early onset of monsoon or otherwise; any
claim towards idle labour; and claim for any work done on account of
deviation or alteration without the previous permission in writing of the
H Engineer. When there is no writing for any alteration or deviation the claim
STATEv.D.D. PANDIT 3
could not have been allowed by the arbitrator on that ground. A
[12-G-H; 13-B-C]

3. A restricted construction cannot be put on the term "idle employees"
as not to include idle labour as well. Read as a whole skilled and unskilled
labour are all employees of the contractor under the contract. [13-A-B]
B
4. Local Commissioner measured the work done by the contractor in
presence of both the parties and thereafter he submitted his report. On the
basis of measurement so recorded by the Local Commissioner the contractor
prepared the final bill of claim and after taking out the money already paid
to him, made claim for the balance. There is no objection of measurements C
recorded by the Local Commissioner and the final bill prepared on that basis.
It is difficult how the two claims made under items 13 and 14 could have been
said to be either new claims or outside the terms of the contract. Under
clause 5 of the contract, contractor is to be paid for the work executed by
him under the contract at the rates specified therein. The balance after
deducting from the tif!al bill the amount paid to the contractor would be the D
sum to which in all the contractor would be entitled to under the award which
comes to Rs. 8,60,251. [12-E-F; 13-F-G]

5.1. Under the Interest Act, 1978, which came into force on August 19,
1981, cqurt includes arbitrator. Under Section.5 of the Interest Act Section
... 34 of Code of Civil Procedure, would, therefore, apply to the arbitrator as R
well. Arbitrator is thus entitled to award interest pendente lite and future
interest at the rate not exceeding the current rate of interest which has also
been defined in clause (b) of Section 2 of the Interest Act.[13-H; 14-A-B]

5.2. The arbitrator awarded interest at the rate of 10% per annum
which was reduced by the courts below to 6% per annum. Under Section 34 F
of Code of Civil Procedure interest at the higher rate than 6% can be
awarded where the liability in relation to the sum so adjudged had arisen out
of commercial transaction. There is nothing on the record to show that
interest awarded by the arbitrator at the rate of 10% is in contravention of
Section 34 of Code of Civil Procedure. That being so the courts below were G
not correct in reducing the rate of interest as granted by the arbitrator.
Therefore, the award of interest at the rate of 10% per annum as granted
by the arbitrator from the date the arbitrator entered into reference till
realisation of the amount under the award is restored. [14-&D]

6. Arbitration is considered to be an important Alternative Disputes H
4 . SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A Redressal process which is to be encouraged because of high pendency of
cases in the courts and cost of litigation. Arbitration has to be looked up to
,./
with all earnest so that litigant public has faith in the speedy process of
resolving their disputes by this process. When claims are inflated out of all·
proportions, not only that heavy cost should be awarded to the other party but
B the party making such inflated claim should be deprived of the cost.

,--
[14-F-G; 15-A-B]

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3551of1990
Etc.

From the Judgment and Order dated 6.2.89 of the Jammu & Kashmir
C High Court in L.P.A. No. 13of1986.

L.D. Thakur, L.K. Gupta and D.K. Garg for the Appellants, in CA. No.
3552190.

D.D. Thakur, Ms. Pumima Bhat Kak, Mahesh Agrawal, Rishi Agrawal,
D Atul Sharma and E.C. Agrawala for the Respondent. In C.A. No. 3551190.

B.A. Mahanti, Ms. Mamta Tripathy, G.M. Kawoosa and Ashok Mathur
for the State.

The Judgment of the Court was delivered by

E D.P. WADHWA, J. Both the parties are aggrieved by judgment dated
February 6, 1989 of the Division Bench of the High Court of Jammu and
Kashmir passed in an appeal against judgment dated May 10, 1986 by the
learned single Judge of that High Court. While the learned single Judge made
the award given under the Arbitration Act, 1940 a rule of the court and also
F granted interest, the Division Bench in appeal deleted two claims ~om the
award and also reduced the rate of interest. The award was in favour of Dev
Dutt Pandit, the Contractor. He is aggrieved by deletion 9f two claims and
also lowering the rate of interest and the State is aggrieved against the award
itself. Thus two separate appea1s.
G Tender of the contractor for. earth work, excavation, minor drainage
crossing, overhead crossing, road bridges and cement concrete lining of Ravi
Canal Project was accepted by the State Government and by order dated May
6, 1976 work was allotted to him. The work was to be completed within 18
. months, time being the essence of the contract. On May 22, 1976 contractor
\
commenced work. He could not complete the work within the stipulated time.
H The contract was partially terminated in the structural portion of the work on
STATE v. D.D. PANDIT [D.P. WADHWA, J.] 5
· January 12, 1980. On June 6, 1980 the whole of the contract was terminated A
because of default committed by the contractor. The contractor filed a petition
under Section 20 of the Arbitration Act as the contract stipulated arbitration
agreement between the parties. Some of the terms of the contract containing
the arbitration agreement, we may reproduce as under :

"5. CONTRACT RATES: B

The contractor shall be paid for the works executed by him under this
agreement at the rates specified in Annexure I annexed hereto subject
to other terms and conditions embodied in this agreement.
c
8. VARIATION IN QUANTITIES AND EXTRA ITEMS

The quantities shown in the Annexure III to this agreement shall not
be taken as final. The Engineer in-charge shall be authorised to direct
the contractor to execute extra items not shown in the aforesaid
annexure III or increase/decrease the quantities beyond these described D
in the said annexures as may be required to be executed and for such
increase/decrease quantities the contractor shall be paid at the rates
specified in the annexure I.

The quantities shown in the Annexure III may be decreased in detailed E
drawings to be furnished to the contractor during execution and the
contractor shall be paid only for the work done or executed and shall
have no claim for any compensation on account of any profit or
advantage that might have accrued or that may accrue to him otherwise.

14. FORCE MAJOURE F

A. The completion schedule is subject to the operation of the force
Majoure Clause which for the purpose of this contract is defined as
acts of God, Civil, commotion, sabotage, fires, floods, earthquakes
explosions or other catastrophes, epidemics, q_uarantines, restrictions, G
strikes and other labour troubles, embargoes, or other transportation
delays beyond the control of the contractor for which only extension
in time considered reasonable by the department shall be granted and
the contractor shall have no claim for compensation or increase in
rates etc. or charges for restoring damages to the works plant or
material. H
~
6 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A 17. DAMAGE TO WORKS

From the commencement to the taking over of the works by the
Department the contractor shall be responsible for any damage or loss
to the works or part thereof caused due to any reason whatsoever.
The contractor shall ·at his own cost repair and· make good the loss
B or damage in every respect to the satisfaction of the Engineer whose
certificate in this behalf shall be conclusive proof of the defects etc~
·havmg been removed.

19. SEIT/NG OUT

c ·The contractor shall be responsible for the true and proper setting out
of the works and for the correctness of the positions, levels, bench
marks alignments and dimensions in works and for the provisions and
maintenance of all necessary instruments, appliances, bench marks
and reference marks and labour etc. in connection therewith including
charges therefor shall be borne by him.
D
Reference line and bench marks will be set upon at the site of works
by the site of works by the department at contractor's cost. The
contractor shall at his own cost and responsibility locate and establish
temporary bench marks and reference lines for all the structures as
may be required for the execution of the works according to the
E detailed drawings and specifications and as required by the Engineer.
The contractor shall provide at his own cost all labour and materials
that may be required for checking the works during execution by the
staff of Engineer in-charge. Such checks shall not absolve the contractor
of his responsibility from carrying out the works strictly according to
F the detailed drawings and specifications and as per instructions issued
to him by the Engineer during the execution of the works.

23. RESPONSIBILITY OF CONTRACTOR

Time being the essence of the contract, the responsibility for execution
of works within eighteen (18) months in an efficient and workmen like
G manner and in conformity with the department's "drawings and
specifications shall be of the contractor.

27. DEVIATIONS ALTERATIONS ETC. IN THE WORKS t.,.
~

The contractor shall not in any way a'.lter the works or any part thereof
H in respect of designs, quality, materials or specifications without the
STATE v. D.D .. PANDIT [D.P. WADHWA, J.] 7
previous permission in writing of the Engineer. The contractor shall A
not take advantage of any error or discrepancies occurring in the
drawings, designs or specifications but shall report the same to the
Engineer who shall make or approve the corrections if necessary.

69. CLAIMS NOT ENTERTAINABLE
B
From the date of allotment of works and taking over on completion
by .the department no claim shall be entertained in respect of the
works under this agreement against the department for,

(a) Increase in the cost of POL Railway or road freight

(b) Taxes duties and octroi, etc. c
(c) Increased wages of labour skilled or unskilled and cost of
materials
(d) Rise irl cost of living index
(e) Business or any other losses, and D
.-.-(

(t) Idle employees on any account whatsoever.
74. ARBITRATION

If at any time any doubt, question dispute or difference whatsoever, E
shall arise between the contractor and the Government upon or in
relation to or in connection with this contract, either of the parties
may give to the other notice in writing of the existence of such doubt,
question, dispute or difference and the same shall be referred to a
person mutually agreed upon by the parties failing such agreement by
any officer of the Government as the minister In-charge, P.W. F

- Department Jammu and Kashmir Government may nominate for
arbitration under the Jammu and Kashmir Arbitration Act and rules
framed thereunder. The decision of the Arbitrator shall be final,
conclusive and binding upon the parties.

(b) The contractor s~all not delay the carrying out of works by reason G
of any reference to Arbitration and shall proceed with the works with
all one due diligence and shall until the decision of the Arbitrator,
abide by the decision of the engineer or his representative in-charge
of the works duly conveyed by him."

Petition under Section 20 of the Arbitration Act by the contractor was H
8 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A filed on June 12, 1980. On the following day when the petition was taken up
without any notice to the State the Court appointed Local Commissioner to
take measurements of the work done at the site by the contractor. In the
application for seeking interim relief the contractor prayed that "a commissioner
may be appointed to go on spot and record the measurements of the work
B done by the petitioner in presence of the parties" and till then "the respondents
may be restrained from changing the status quo at site or disturbing the
position of the work already done". Court passed the following order:-

"An application has also been moved on behalf of the petitioner
which is O.M.P. No. 136of1980 with the prayer that measurements
of the work done at site may be got recorded by appointing a
c Commissioner as the work done by him is (?) obliterated. The
application is supported by an affidavit. Shri Bashir Ahmed Shah, Ex.
Engineer, R & B Clo Chief Engineer, P.W.D. Jammu, is appointed as
Commissioner to visit the spot and record the measurements and
submit his report within a week. Till the measurements are recorded
.·~
D the respondent will not execute any fresh work. The Commissioner's
fee is fixed at Rs. 300 to be borne by the petitioner."

Subsequently Local Commissioner was changed. Local Commissioner
submitted his report on December 9, · 1980 which formed part of the record.
In his petition under Section 20 of the Arbitration Act the contractor claimed
E a sum of Rs. 39,47,000 under various heads. This petition was allowed by
order dated April 9, 1982. We quote the operative portion of the order as
under:

"The disputes mentioned in the application U/s 20 of the Arbitration
Act as well as the objections filed thereto by the other side ate,
F therefore, referred to the aforesaid Arbitrator with a direction that he
shall enter upon the reference and make his award within four months
thereafter in accordance with law. The parties shall be at liberty to
raise any further disputes before him provided it is not against the
temi of the agreement. The parties, however, shall be mpossession
G of the original agreement, shall produce the same before the Arbitrator.
Copy of the application, the objections filed thereto and a copy of this
order shall be provided to the arbitrator. Arbitration petition No. 72 of
1980 stands finally disposed of."

Before arbitrator the contractor now claimed a sum of Rs. 63,61,000. On
H the basis of the report of the Local Commissioner giving details of the
STATEv. D.D. PANDIT [D.P. WADHWA,J.] 9
measurements of the work done by the contractor a final bill was prepared A
• by the contractor which amounted to Rs. 14,32,436.62. He claimed this bill to
be based on the terms of the contract.

The arbitrator gave his Award on February 2, 1983. It is a non-speaking
Award. He awarded a sum of Rs. 20,08,000 to the contractor with interest at
the rate of 10% per annum from the date of application for appointment of B
the arbitrator upto the date of payment. It was also provided that the "interest
on the amount awarded against claim Nos. 16 and 18 shall start and will be
computed from the date of the publication of the Award". Claims I 6 and 18
respectively were claims of interest at the rate of 24% per annum by the
contractor respectively on recoveries made and delay in release of illegally C
deducted amounts for excess consumption of cement. Awards on claims 16
and 18 were restricted to Rs. 20,400 and Rs. 9,524. Lastly, it was directed that
if the amount awarded was not paid within three months from the date of the
Award interest payable shall be I 8% per annum on the amount so awarded
upto the date of realisation.
D
As noted above, the contract was for a total sum of Rs. 12,23,500. The
contractor allegedly committed breach of the contract. It was partially terminated
on January 12, I 980 in respect of structural portion of the work and the
contract was finally terminated on June 6, I 980. By this time the contractor
had executed less than 50% of the work and had been paid a sum of Rs.
5,71,900. E
The matter now again came to the court. This time for making the Award
rule of the court. State filed objections to the Award under Sections 30 and
33 of the Arbitration Act and alleged misconduct by the arbitrator. It was on
the grounds that the Award was against the terms of the contract and the
arbitrator travelled beyond the order of reference. It was submitted that new F
claims were introduced before the arbitrator which were not made in the
petition under Section 20 of the Arbitration Act and, therefore, could not be
taken cognizance of by the arbitrator. What the contractor claimed in Section
20 petition was given in the annexure thereto and this is how the claims were
advanced:- G
"Similarly numerous other items in which the petitioner either was not
J paid at all or was not paid have been comprehensively indicated in
the Annexure to this petition which may kindly be treated as a part
and parcel of the present petition. The petitioner has tentatively
assessed the various claims on various accounts which he is entitled H
IO SUPREME COURT REPORTS (1999] SUPP. 2 S.C.R.

A to from the said department which may be referred to for the purpose
of convenience."

Annexure contained summary of claims which included claims on
account of earth work cutting as the original alignment was later abandoned,
idle labour, illegal recoveries, interest on illegal recoveries, etc.
B
It was submitted by the State that the order dated April 9, 1982 referring
the disputes to arbitration did not allow lhe contractor to advance additional
claims not mentioned in the summary of claims annexed to the petition. The
objection was to the claim made by the contractor of Rs. 14,32,436 which was
based on the measurements recorded by the Local Commissioner of the work
C done by the eontractor under the contract. This amount is reflected in claims
13 and 14 before the arbitrator.

Learned single Judge of the High Court by order dated May l 0, 1986
dismissed the objections raised by the State and made the Award rule of the
D Court. He, however, reduced the· rate of interest and now the interest was
payable at the rate of 6% per annum from the date of the Award till payment.
Award of penal interest at the rate of 18% was deleted. Matter was then taken
to the appellate Bench of the· High Court in appeal. Same objections to the
Award were repeated by the State. Contractor objected to that part of the
~rder of learned single Judge by which i~terest awarded by the arbitrator was
E reduced. The Division Bench upheld the order of the learned single Judge
except that claims under items 13 and 14 were deleted which amounted to Rs.
8,08,250. The appeal of the State was thus allowed in part. Plea of the
contractor against reducing the interest by the learned single Judge was
rejected. While deleting the claims under items 13 and 14 the Division Bench
F observed as under:

"The work done by the contractor was duly measured and the final
bill prepared in accordance with paragraph 40 (measurements and
tenns of payment) of the Agreement enclosed by the contractor with
his statement. of facts and claim before the arbitrator amounting to Rs.
14,32,436.62 paise out of which deducting the amount of Rs. 5,71,915.60
G
paise paid to the contractor leaves the balance of Rs. 8,60,521.02 paise
only over and above this amount any measurement subsequently
done by the commissioner cannot form part of the agreement and
could not be allowed to be multiplied to an unlimited extent beyond
the rates and work prescribed in the agreement. Even the summary of
H claims submitted before the court for reference do not include the
STATE v. D.D. PANDIT [D.P. WADHWA, J.] 11
amount claimed under this head. The other heads of claim overlap the A
claim No. 20 on which item 13 is awarded. In consideration of the
foregoing circumstances we have no doubt in our mind to hold, that
the arbitrator made these items of the award No. 13 granting Rs.
95,400.00 based on claim No. 20 (due to escalation Rs. 2,86,487 - claim
rejected by arbitrator) of the subsequent statement of facts and claim, B
exceeded his jurisdiction which is against the terms of the agreement
and thus invalid in view of the reference. The items No. 13 and 14 of
the Award being independent of the entire award are separable, there
can be no legal impediment in deleting the two items based on claim
No. 20 from the Award. The appeal to this extent, in our opinion,
deseI"Ves to be allowed to disallow the claims of Rs. 7,12,850.00 and C
Rs. 95,500.00 totalling to Rs. 8,08,250.00 (Eight lacs, eight thousand
two hundred and fifty only) and the award to that extent is set aside."

State still felt aggrieved. Contractor became more aggrieved because of
deletion of his two claims and rejection of his plea for enhancement of the
interest as awarded by the Arbitrator. D
We have noted the relevant terms of the contract. It is not necessary
for us to set out the claims made by the contractor in detail· except to note
that out of23 claims under different heads claims 2, 6, 19, 20, 21 and 22 were
rejected py the arbitrator; claims 1 and 3 relate to the alteration of the work E
being excavation done at original site abandoned, refilling of the original
excavation, fresh excavation on new alignment and shifting of centre line and
consequent refilling compacting and lean concrete lining; claims 4, 5, 10 (in
part} and 11 are for damage due to monsoon; claims 8, 9, IO (in part) and 12
are on account of idle labour; cJaims 7, 13, 14 and 17 are by and large under
the terms of the contract; claims 15, 16 and 18 are for interest which were not F
mentioned in the summary of claims annexed with Section 20 petition and
claim 23 is for the cost of arbitration.

Before the learned single Judge four issues were framed arising out of
the pleadings of the parties. These are:
G
"(I} Whether any fresh claims were entertained by the Arbitrator
during the course of arbitration proceedings?
J
(2) In case issue no. 1 is proved in affirmative whether any such
claim was beyond the scope of reference made to the arbittator
by the court, if so how? H
12 SUPREME COURT REPORTS [1999) SUPP. 2 S.C.R.

A (3) Whether the award made by the Arbitrator was against the terms
of the agreement? If so, whether the same amounts to
misconduct?
(4) Whether the arbitrator committed misconduct legal or otherwise
in making of the Award? If so, how?"
B
The court allowed the parties to lead evidence on the issues so framed.

The contract has been entered into on the basis of measurable item rate
contract and the rates of each items were quoted accordingly. According to
the measurements, as quoted, the contract was for a total value of
c Rs. 12,23,500.

Mr. Mahanti, senior advocate for the State of -Jammu and Kashmir
reaffumed the arguments advanced in the High Court that the Award travelled
-
beyond the terms of reference and was also against the terms of the contract.
He said claims 13 and 14 could not have been advanced before the arbitrator
D as these claims were not mentioned in the summary of claims· flied with the
Section 20 petition. He said High Court was right in deleting these two claims.
The order referring the disputes to arbitration allows those claims to be raised
before the arbitrator which fell within the terms of the contract.

The contractor has to be paid on the basis of measurement of the work
E done by him. Local Commissioner measured the work done by the contractor
in presence of both the parties and thereafter he submitted his report. On the
basis of measurement so recorded by the Local Commissioner the contractor
prepared the final bill of claim for Rs. 14,32,436 and after taking out the amount
already paid fo him, made claim for the balance. It is difficult to see how claims
F made under items 13 and 14 could be said to be either new claims or outside
the terms of the contract. Under clause 5 of the contract, contractor is to be
paid for the work executed by him under the contract at the rates specified
therein.

Under clause 17 of the contract it is the contractor, who is responsible
G for any damage or loss to the works or part thereof caused due to any reason f'
whatsoever and he at his own cost is required to repair and to make good
of loss or damage. Contractor, therefore, could not claim any loss done to him
on account of early onset of monsoon or otherwise. Similarly under the terms l
of the contract he cannot claim any amounts towards idle labour. As a matter
of fact under clause 69 ·these claims are not entertainable at all. Mr. Thakur
H /for the contractor said that "idle employees" as mentioned in clause 69 of the
STATEv. D.D. PANDIT (D.P. WADHWA,J.J 13
contract is not the same thing as "idle labour". According to him, the term A
"idle employees" would mean regular employees on the roll of the contractor
like engineers etc. We do not think such a restricted construction can be put
on the term "idle employees" as not include idle labour as well. Read as a
whole skilled and unskilled labour are all employees of the contractor under
the contract.
B
Any work done on account of deviation or alteration could not be
undertaken without the previous permission in writing of the engineer. It is
admitted case of the contractor himself that there is no writing though it was
promised to him orally. In view of clause 27 of the contract claims 1 and 3

- could not have been accepted. When the principal claims were wrongly
awarded there is no question of any award of interest on the amounts claimed
under those heads.

It was submitted before us that it is a non-speaking Award and this
C

Court cannot go into the mental process of the arbitrator in making the award
on various claims. Court has certain limitations while examining a non-speaking D
award but there is no complete bar in examining if the award is in terms of
the reference or the terms of the contract. Regarding the claims made before
the arbitrator in respect of items 1 and 3 evidence was also recorded by the
learned single Judge. Admittedly when there is no writing for any alteration
or deyiation no claim could be allowed by the arbitrator. To accept the claim
of the contractor on claims 1 and 3 without examining the pre-condition of E
there being any writing of any alteration or deviation would not be legal.

Now it does appear to us that the final bill amounting to Rs. 14,32,436.62
encompasses all the works done by the contractor which were measured by
the Local Commissioner in presence of both the parties and which perhaps F
also includes the work for which contractor could not raise any claim under
the contract. In the evidence which has been led thefe is no objection to
measurements recorded by the Local Commissioner and the fmal bill prepared
on that basis. That is all the amount contractor is entitled to. By raising other
claims he is merely trying to create confusion with the hope that he may be
able to get s~me payment outside the contract for which he un~ortunately G
succeeded. Out of the final bill of Rs. 14,32,436.62 the contractor has been
paid Rs. 5,71,915.60 thus leaving a balance of Rs. 8,60,521.02 to which in all
the contractor would be entitled to under the Award.

Under the Interest Act, 1978, which came into force on August 19, 1981,
court includes arbitrator. Under Section 5 of the Interest Act Section 34 of H
14 SUPREME COURT REPORTS [1999] SUPP. 2 S.C.R.

A Code of Civil Procedure would, therefore, apply to the arbitrator as well.
Arbitrator is thus entitled to award interest pendente lite and future interest
at the rate not exceeding the current rate of interest which has also been
defined in clause (b) of Section 2 of the Interest Act.

In the present case arbitrator awarded interest at the rate of 10% per
B annum which was reduced by the learned single Judge to 6% per annum and
upheld by the Division Bench. Under Section 34 of Code of Civil Procedure
interest at the higher rate than 6% can be awarded where the liability in
relation to the sum so adjudged had arisen out of commercial transac!ion.
There is nothing on the record to show that interest awarded by the arbitrator
C at the rate of 10% is in contravention of Section 34 of Code of Civil Procedure.
That being so we do not think either the learned single Judge or Division
Bench were correct in reducing the rate of interest as granted by the arbitrator.
We would, therefore, restore the award of interest at the rate of 10% per
annum as granted by the arbitrator from the date the arbitrator entered futo
reference till realisation of the amount under the award.
D
When the appeal filed by the State of Jammu and Kashmir came up for
admission before this Court it was ordered on May 1, 1989 that the State
Government shall "pay 1/2 of the decretal amount payable under the order of
the High Court against bank guarantee to the respondent. The bank guarantee
E shall be given to the satisfaction of the Deputy Registrar of the High Court.
Issue stay of further execution proceedings". If by the order dated May 1,
1989 excess amount has been paid by the State to the contractor the same
-
shall be refunded to the State by the contractor with interest at the rate of
10% per annum from the date the contractor got the excess amount till it is
refunded to the State Government.
F
Arbitration is considered to be an important Alternative Disputes
Redressal process which is to be encouraged because of high pendency of
cases in the courts and cost of litigation. Arbitration has to be looked up to
with all earnest so that litigant public has faith in the speedy process of
G resolving their disputes by this process. What happened in the present case
is certainly a paradoxical situation which should be avoided. Total contract
is for Rs. 12,23,500. When the contractor has done less than 50% of the work
the contract is terminated. He has been paid Rs. 5, 71,900. In Section 20
petition he makes a claim of Rs. 39,47,000 and before the arbitrator the claim (.. ~
is inflated to Rs. 63,61,000. He gets away with Rs. 20,08,000 with interest at
H the rate of 10% per annum and penal interest at the rate of 18% per annum.
STATEv. D.D. PANDIT [D.P. WADHWA, J.] 15
Such type of arbitration become subject of witticism and do not help the A
institution of arbitration. Rather it brings bad name to the arbitration process
as a whole. When claims are inflated out of all proportions not only that
heavy cost should be awarded to the other party but the party making such
inflated claim should be deprived of the cost. We, therefore, set aside the
award of cost of Rs. 7,500 given in favour of the contractor and against the B
State of Jammu and Kashmir.

Both the appeals are partly allowed. Judgment and decree passed by the

I
•• learned single Judge making the Award dated February 9, 1983 Rule of the
Court and as modified by the impugned judgment is further modified. Now
Award is made Rule of the court to the extent of Rs. 8,60,521 with interest at C
the rate of 10% per annum from the date of reference till payment is made.
There shall be no order as to costs in both the appeals. The exact amount
payable/due to any of the parties shall be worked out while drawing up the
decree keeping in view the order dated May 1, 1989 of this Court
•
A.KT. Appeals partly allowed. D