Supreme Court of India
UNION OF INDIAversusSARASWAT TRADING AGENCY & ORS.
- Citation
- 2009 INSC 915
- Decided
- 16 July 2009
- Disposal
- Case Partly allowed
- Bench
- TARUN CHATTERJEE
Holding
The State is impliedly liable to reimburse the contractor for statutory wage increases during the contract, but Clause 31 bars any interest for that period; interest is only payable for the post‑termination claim.
Summary
The Union of India awarded a contract to Saraswat Trading Agency for handling goods at railway stations. The contract required the contractor to pay labourers at least the "fair wage" as notified at the time of tender, but statutory wage revisions later increased those rates. The contractor claimed enhanced payments for the contract period (August 1991‑December 1992) and for the post‑termination period (January 1993‑August 1994), and also sought interest on the amounts. The High Court had upheld the arbitrator’s award granting both enhanced payments and interest; the Union appealed. The Supreme Court held that, because the authorities had impliedly required payment of the revised fair wages, the State was obliged to reimburse the contractor for the increased wages during the contract period, but the contract’s Clause 31 expressly barred any interest for that period. Interest was permissible only for the post‑termination claim. Accordingly, the appeal was partly allowed, confirming the enhanced payment award but striking down the interest award for the first period.
Issues considered
- Whether, in the absence of an explicit escalation clause, the contractor is entitled to enhanced payment for statutory wage revisions during the contract period.
- Whether the arbitrator and the High Court were justified in granting the contractor’s claim for enhanced payments for the period when the contract was subsisting.
- Whether interest (pre‑reference, pendente‑lite, and post‑award) is payable despite Clause 31 of the agreement barring interest.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 34, s. 41
Subjects
ArbitrationEscalation clauseWage revisionInterestClause 31Pre‑reference interestPendente‑lite interestContractual wage obligationsRailway contractArbitration award
Judgment
[2009] 10 S.C.R. 1063
UNION OF INDIA A
v.
SARASWAT TRADING AGENCY & ORS.
(Civil Appeal No. 4427 of 2009)
JULY 16, 2009
B
[TARUN CHATTERJEE AND AFTAB ALAM, JJ.)
j
Arbitration and Conciliation Act, 1996:
Escalation - Works contract - Arbitration agreement c
between the parties - In terms of agreement, contractor bound
to pay to the labourers not Jess than the fair wages notified at
the time of inviting tenders for the work - Subsequently
statutory revision in wages - Agreement not containing
.. escalation clause - Contractor's claim for enhanced D
payments - Allowed by arbitrator - High Court upheld the
same - Interference with - Held: Not called for - By asking
the contractor to give tender by taking into account the fair
wages notified at the time of inviting tenders, the authorities
did give an impression that fair wages to be paid would be
E
the one then notified/prescribed - In such a situation, if rates
of fair wages were raised afterwards, the tendered sum cannot
be taken to be agreed amount for completing the contract, in
the face of the directions of the authorities requiring the
contractor to pay revised wages - On this fact situation, the
State had by necessary implication agreed to reimburse the F
increased payment.
Interest - Bar on payment of any interest or .damage to
the contractor in the arbitration agreement - Claim for pre-
reference or pendente lite interest for the period when G
agreement was subsisting and for the period when agreement
was terminated and respondent was carrying on the work on
the request of the appellant -'- Held: No pre-reference or
pendente lite interest was payable for the period when
1063 H
1064 SUPREME COURT REPORTS [~009] 10 S.C.R.
A agreement was subsisting - However, bar on payment of
interest would not apply to the period after the termination of •
agreement.
An arbitration agreement was entered between the
parties. The work contract was given for the period
B
August 3, 1991 to December 31, 1992. At the time of
submission of tender by respondent, the base fair rate of
wages for the casual labourer was Rs.31.15 as per the
circular dated January 17, 1990. The clause 14 stated that •
the contractor was bound to pay to the labourers
c engaged by him not less than the fair wage. It further
provided that 'fair wage' would be the wage including the
allowances, notified at the time of inviting tenders for the
work. During the period of contract, the Railway
authorities issued circulars revising the rates of casual
D labourer from the retrospective dates. The respondent's
claim for enhanced payments was on the ground that
rates stated in the agreement were based on circular
•
-
dated January 17, 1990 that had undergone number of
revisions and as a result the contract became unrealistic
E and unviable.
The questions which arose for consideration in the
present appeal were whether in the absence of any i
escalation clause in the arbitration agreement the
F respondent's claim for enhanced payments for the period
August 3, 1991 to December 31, 1992 during which the
agreement was in force was sustainable and whether the
arbitrator and Division Bench of High Court were justified
in granting claim for that period and whether the
respondent was entitled to the interest on the amounts
G
arrived at by allowing claim for higher rates for the work
done by it.
Partly allowing the appeal, the Court
H HELD: 1.1. It has to be assumed that when the
r '
UNION OF INDIA v. SARASWAT TRADING AGENCY &1065
ORS.
appellant was required to pay fair wages at increased A
) rates, the authorities did visualize that the appellant
would not do so by cutting down its profit. By asking the
appellant to give tender by taking into account the fair
wages notified at the time of inviting tenders, the
authorities did give an impression that fair wages to be B
paid would be the one then notified/prescribed. In such
a situation, if rates of fair wages were raised afterwards,
the tendered sum cannot be taken to be agreed amount
for completing the contract, in the face of the directions
of the authorities requiring the appellant to pay wages at c
rates higher than those prescribed or notified at the time
of inviting tenders. On this fact situation, the State had
by necessary implication agreed to reimburse this
increased payment. [Para 12] [1075-A-D]
--
. J, Tarapore & Co. vs. State of M.f'., (1994) 3 SCC 521;
Food Corporation of India vs. Mis. A. M. Ahmed & Co. & Anr.,
AIR 2007 SC 829, relied on.
D
1.2. Escalation is normal and routine incident arising
out of gap of time in this inflationary age in performing E
any contract of any type. In this case, the arbitrator found
that there was escalation by way of statutory wage
revision and, therefore, he came to the conclusion that it
was reasonable to allow escalation under the claim. Once
it was found that the arbitrator had jurisdiction to find F
that there was delay in execution of the contract c:;tue to
the conduct of the FCI, the Corporation was liable for the
consequences of the delay, namely, increase in statutory
wages. Therefore, the arbitrator had jurisdiction to go
into this question. He had gone into that question and
G
accordingly passed the award. The Arbitrator by
awarding wage revision did not mis~conduct himself.
[Para 13] [1075-E-H; 1076-A]
2.1. The respondent's claim was in regard to two
H
1066 SUPREME COURT REPORTS [2009] 10 S.C.R.
A periods, claim under item 3 was for the period August 3,
1991 to Decem~er 31, 1992 when the agreement was
subsisting and the parties were bound by its terms, and
the claim under item 4 was for the period January 1, 1993
to August 31, 1994 when the agreement was admittedly
B terminated and the respondent was carrying on the work
on the request of the appellant. The fact that the first
period was covered by the agreement while the second
fell beyond it, is significant and on that score the two
periods must receive different treatments. Clause 31 of
c the agreement bars payment of any interest or damage
to the contractor for any reason whatsoever. Therefore,
no pre-reference or pendente lite interest was payable to
the respondent on the amount under Item No.3 and the
arbitrator's award allowing pre-reference and pendente lite
D interest on that amount was plainly in breach of the ~
""""'"
express term of the agreement. The order of the High
Court insofar as pre-reference and pendente lite interest
on the amount under claim no.3 is concerned is,
therefore, unsustainable. [Paras 17 and 20] [1080-E-G;
1082-D-E]
E
Executive Engineer,Dhenkanal Minor Irrigation Division,
Orissa & Ors. v. N. C. Budharaj 2001 (2) SCC 721; Bhagawati 'I
Oxygen Ltd. v. Hindustan Copper Ltd. 2005 (6) SCC 462,
relied on.
F
Executive Engineer (Irrigation) v. Abhaduta Jena, (1988)
1 SCC 418; Secretary, Irrigation Department, Govt. of Orissa
v. G.C. Roy, (1992) 1 SCC 508; The Board of Trustees for
the Port of Calcutta v. Engineers-De-Space-Age, AIR 1996
SC 2853, referred to.
G
2.2. The position with regard to the claim no.4 is
quite different. That relates to the period after the
termination of the agreement and hence, the bar of clause
31 would not apply to it in the same way as it would apply
H to Item No.3. There is no infirmity in grant of pre-reference
UNION OF INDIA v. SARASWAT TRADING AGENCY 1067
& ORS.
! and pendente lite interest on the amount under Item No.4. A
The respondent is entitled to interest only on the sum of
Rs.10, 79,456=80, the amount determined under Item
No.4, at the rate of 16% per annum for the. period
November 1, 1994 to September 9, 2000. The final amount
under the award shall be accordingly worked out. The B
consolidated amount of the award after being re-
calculated shall carry,. as provided in the award, interest
at the rate of 18% from the date of the award till the date
of payment. In working out the amount of interest for the
post-award period, the ·period(s) for which the operation c
of the award was stayed by the court would be excluded.
[Paras 21 and 22] [1082-F-H; 1083-A-B]
Case Law Reference:
(1994) 3 sec 521 relied on Para 12 D
AIR 2007 SC 829 relied on Para 13
2001 (2) sec 121 relied on Para 16
2005 (6) sec 462 relied on Para 16
E
(1988) 1 sec 418 referred to Para 18
(1992) 1 sec 508 referred to Para 18
AIR 1996 SC 2853 referred to Para 18
F
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4427 of 2009.
From the Judgment & Order dated 4.7.2006 'of the High
Court of Calcutta in G.A. No. 87 of 2001 APOT No. 792 ·of 2001
with APO No. 362 of 2001. G
S. Wasim A. Qadri, Anil Katiyar and D.S. Mahra for the
Appellants.
H
1068 SUPREME COURT REPORTS [2009] 10 S.C.R.
A H.L. Agrawal, Arjun Agrawal, Saurav Agrawal and Ruby
Singh Ahuja for the Respondents.
The Judgment of the Court was delivered by
AFTAB ALAM, J. 1. Leave granted.
B
2. This appeal, at the instance of Union of India, arises
from an arbitration award dated September 9, 2000 made in
favour of the respondent. The appellant challenged the award
before the Calcutta High Court by filing an application under
c section 34 of the Arbitration and Conciliation Act, 1996. A
learned Single Judge of the High Court upheld the challenge
substantially and by judgment and order dated November 20,
2001 passed in G.A.No.87/01, arising out of AP No.325/98,
sustained the award only on one issue and set it aside on two
D of the three issues under reference. Against the judgment of
the Single Judge the respondent preferred an internal court
* ..
appeal and the Division Bench of the High Court by its judgment
and order dated July 4, 2006 passed in G.A.No.87/01: APOT
No.792/01 with APO No.362/01 allowed the appeal, set aside
the judgment of the Single Judge and fully restored the
E
arbitrator's award in favour of the respondent on all the three
issues in dispute. Against the judgment of the Division Bench·
of the High Court the appellant has come in appeal to this Court. 'I
3. The facts of the case are brief and simple and may be
F stated thus. For the work of "handling of goods, parcels and
booked luggage" at a group of six stations falling in its Nagpur·
Division, the South Eastern Railway, Calcutta, invited tenders
that were opened on May 16, 1990. The tender submitted by
the respondent was the lowest. Hence, after some negotiations
G and extension of the validity of offer the respondent's tender
was accepted on August 2, 1991 and it was given the work for
,.,
..
a period of three years commencing from August 3, 1991. The
grant of the contract was formalized in an agreement executed
by the parties on December 3, 1991. The agreement was
H
UNION OF INDIA v. SARASWAT TRADING AGENCY &1069
ORS. [AFTAB ALAM, J.]
deemed to have come into force with effect from August 3, A
' ~
1991 and it was to remain in force for a period of three years,
till August 2, 1994 unless determined by either of the parties
in terms of clause 1(1) (authorizing the appellant to determine
the contract by giving three months notice) and its proviso
(giving the same right to the contractor, after expiry of the 8
period of one year of the contract). Clause 2 of the agreement
dealt with the nature of the work the contractor was required to
j do. Clause 4 of the agreement along with a detailed schedule
mentioned fixed rates for every piece of work covered by the
contract. Clause 7 stated that the contractor would not be c
entitled to any increase in the accepted rates of remuneration
or compensation due to fluctuations in the traffic (increase or
decrease) due to any reason. Under clause 13 the contractor
indemnified the Railway Administration against all claims that
might be made under the Workmen's Compensation Act, 1923 D
in consequence of any accident or injury sustained by any
labourer/servant or person in his employment and engaged in
the performance of the contract. Clause 14 bound the contractor
to pay to the labourers engaged by him not less than the fair
wage. It further provided that 'fair wage' would be the wage
E
including the allowances, notified at the time of inviting tenders
for the work. Clause 15 made the contractor responsible for
.. compliance with the provisions of the Payment of Wages Act,
1936, and the rules made thereunder in respect of the staff
empioyed by him. Clause 16 similarly made the contractor
responsible for compliance with the provisions of the Contract F
Labour (RegulAtion and Abolition) Act, 1970 and the rules made
thereunder and required him to obtain the statutory license from
the licensing authority. Clause 18 made the contractor
... responsible for compliance with the provision of the Hours of
Employment Regulations in respect of the staff employed by G
-< him in the manner decided upon by the appropriate authorities.
Clause 19 stipulated that no labourer would be unfairly treated
or removed from work except for valid reasons and further
provided that the porters engaged in the handling of goods,
parcels and booked luggage under the terms of the agreement H
1070 SUPREME COURT REPORTS [2009) 10 S.C.R.
A would be deemed as employees of the contractor within the
•
meaning of the Industrial Disputes Act, 1947 or any other
enactment that might be applicable. This clause further stated
that the contractor would comply with all the laws, regulations
and rules for the benefit of labour that were in force or might
B come into force and he would indemnify and keep the Railway
Administration indemnified against all loss, damage, claims
and costs arising in any manner whatsoever. Clause 20
reserved the right of the Railway Administration to deduct from
*"
the moneys due to the contractor or from his security deposit
c any sum required or estimated to be required for making good
the loss suffered by the labour or labourers or any other person
in his employment for the reasons of non-fulfillment of the
conditions for the benefit of the labourers, non-payment of
wages or deductions mad~ from him or their wages which were
unjustified or illegal. Clause 31 stipulated that no interest or
D
damage would be paid to the contractor for delay in payment
of the bill 'for any reason whatsoever'. Clause 32 with its
various sub-clauses contained the provision for arbitration and
provided that the General Manager of the South Eastern
Railway or a person appointed by him would be the sole
E arbitrator in respect of any dispute as to the respective rights,
duties and obligations of the parties to the agreement or as to
the construction or interpretation of any of the terms and "
conditions of this agreement or as to its applications.
F 4. We next come to what is at the root of the dispute
between the parties. It needs to be noted that at the time of
submission of tender by the respondent the base fair rate of
wages for the casual labour was Rs.31=15 paise as per the
Circular dated January 17, 1990. During the period of the
G contract the Railway authorities are said to have issued
circulars/guidelines revising the rates of casual labourers from r
retrospective dates. The manner in which rates were revised
by the circulars/guidelines issued by the Railway authorities is
noted in the arbitrator's award as follows:
H
UNION OF INDIA v. SARASWAT TRADING AGENCY 1071
& ORS. [AFTAB ALAM, J.]
PARTICULARS A
- 4
Circular No. Circular Effect Average
dated from rate of
unskilled
labour B
P/EN/C-RAT/1/90 17.1.90 1.7.89 Rs.31.15
.•
P/EN/NGP/P/EN/ 16.4.92 1.7.91 Rs.42.40
c
NGP/Casual Labour 10.2.93 1.1.92 Rs.47.45
90-91
P/EN/NGP
D
Casual
Labour/MS/92 10.2.93 1.7.92 Rs.50.50
P/EN/NGP 15.2.94 1.1.93 Rs.51.10
Casual Labour 93 15.2.94 1.7.93 Rs.53.50 E
P/EN/NGP/MS/94 16.3.95 1.1.94 Rs.57.45
1.7.94 Rs.62.0
5. On August 25, 1992, the respondent wrote a letter to F
the Railway authorities demanding enhancement of rates under
the contract on the ground that the rates stated in the agreement
were based on the circular dated January 17, 1990 that had
undergone a number of revisions and as a result the contract
rates had become unrealistic and unviable. The Railway G
authorities rejected the respondent's demand for enhancement
and/or revision of rates taking the stand that the contract was
a "fixed price contract" and it had no clause for enhancement
of rates. Faced with the authorities' refusal to revise the contract
rates the respondent terminated the contract by giving three
H
1072 SUPREME COURT REPORTS [2009] 10 S.C.R.
A months notice as provided under the proviso to clause 1(1) of
the agreement. The Railway authorities accepted the
termination of the contract with effect from December 31, 1992
but in order to avoid any dislocation requested the respondent
I
-
to carry on the work on the same terms and conditions,
B promising that !ts claim would receive due consideration. On
the appellant's request the respondent continued with the work
under the contract, though under protest, till august 1994.
~
6. At the time of the final settlement of the respondent's
claims the Railway authorities offered to it a sum of
c Rs.6,848=00 as additional payment for the period January
1993 to August 1994. The respondent naturally declined to
accept the paltry amount offered by the authorities and
requested for a proper consideration of its claim as earlier
promised. Finally, the Railway authorities appointed a high level ,...
D committee to consider the respondent's ~laim for enhanced t -
payment for the period January 1, 1993 to August 31, 1994.
The committee fixed the respondent's claim at Rs.3, 61,058=00
but it was not acceptable to the respondent.
E 7. A departmental arbitrator was then appointed in order
to resolve the disputes and differences arising between the
parties. The departmental arbitrator gave.his award on June
4, ~998. Not being satisfied with the award the respondent
challenged it by filing an application under section 34 of the Act
F before the High Court. The High Court by its order dated
February 12, 1999 upheld the award on items 1 & 2 but set it
aside in respect of items 3, 4 & 5 and appointed a certain
advocate, a member of the bar to decide afresh in regard to
the respondent's claim under those three items. On an
application made under section 11, the Acting Chief Justice of
G the High Court, by order dated July 1, 1999, substituted another
advocate as arbitrator in place of the one appointed by the ...
Court on the application under section 34 of the Act.
8. The three issues/claims that came up before the
H
UNION OF INDIA v. SARASWAT TRADING AGENCY &1073
ORS. [AFTAB ALAM, J.]
arbitrator appointed by the High Court were as follows: A
- ~
"Claim No.3: Claim for increase in rates from
3.8.91 to 31.12.92 during the
Contractual period being sum of
Rs.10,74,408/- B
Claim No.4: Claim for increase in rates from
1.1.93 to 31.8.94 during the
·~
extended period being sum of
Rs.14, 454,581/-
c
Claim No.5: Payment of 18% interest on
Claim of cpntractor claim No.3
and 4 on the (sic and) from
1.11.94 till the (sic)date."
.•. .,, D
9. The arbitrator appointed vide order dated July 1, 1999
passed by the Court took up the proceedings on August 3, 1999
and made and published his award on September 9, 2000. The
award held the respondent entitled to receive from the appellant
the sum of Rs. 32, 71,774=00 along-with interest on that amount
@ 18% per annum from the date of the award till the date of E
payment.
'(
10. The appellant challenged the award by filing an
..:' application under section 34 of the Act before the High Court
on January 2, 2001. As noted above, a learned Single Judge F
of the High Court substantially upheld the appellant's challenge
and set aside the award on items 1 and 3, upholding it only
insofar as the respondent's claim under item 4 was concerned.
Against the judgment and order passed by the learned Singe
- ...
Judge the respondent preferred an appeal before the Division
Bench of the High Court. Here it is significant to note that the
appellant did not prefer any appeal against the judgment of the
Single Judge insofar as it upheld the arbitrator's award on item
no.4. Thus before the Division Bench of the High Court there
G
H
1074 SUPREME COURT REPORTS [2009] 10 S.C.R.
A was no challenge to the arbitrator's award in regard to the
respondent's claim for enhanced payment from January 1, ~ ~
1993 to August 31, 1994, that is to say, for the period after the
parties had agreed on the cancellation of the agreement.
11. The Division Bench of the High Court after an
B
elaborate consideration of the matter and after referring to a
host of decisions of this Court and the Calcutta High Court
allowed the appeal, set aside the judgment and order passed
by the learned Single Judge and restored the arbitrator's award ,.
fully on all the three items.
c
12. Mr. S. Wasim Qadri, learned counsel appearing on
behalf of the appellant, submitted that in the absence of any
escalation clause in the agreement the respondent's claim for·
enhanced payments for the period August 3, 1991 to
D December 31, 1992 during which the agreement was in force ,•
was quite unfounded and both the arbitrator and the Division
Bench of the High Court were in error in granting the claim for
that period. The submission made by Mr. Qadri is fully
answered by the decision of this Court in Tarapore & Co. vs.
E State of M.P., (1994) 3 SCC 521, (noticed both by the arbitrator
and the Division Bench of the High Court). In paragraph 27 of
the judgment this Court observed as follows:
~
"27. But then, the terms at hand did require the appellant
F
(who is the contractor) not to pay less than fair wages as
would appear from what has been stated in Para 2.10 and
--
Para 1 of Annexure-B. The Explanation to latter Para
states that where fair wages have not been notified these
wages would be the one "prescribed by the PWD
(Irrigation Department) for the division in which the work
G is done". Now these wages were being increased from
time to time as would appear from the decisions of the
wage committee referred to above; and if the appellant
was being required to pay wages as per these decisions,
we do read a meeting of mind insofar as the claim of
,..
-
H
UNION OF INDIA v. SARASWAT TRAD.ING AGENCY 1075
& ORS. [AFTAB ALAM, J.]
escalated payment on account of increase of fair wages A
,.,. -i is concerned. It has to be assumed that when the appellant
was required to pay fair wages at increased rates, the
authorities did visualize that the appellant would not do so
by cutting down its profit. By asking the appellant to give
tender by taking into account the fair wages notified at the B
time of inviting tenders, the authorities did give an
impression that fair wages to be paid would be the one
then notified/prescribed, a 1a the explanation to para 1.
~
In such a situation, if rates of fair wages were raised
afterwards, the tendered sum cannot be taken to be
agreed amount for completing the contract, in the face of
c
the directions of the authorities requiring the appellant to
pay wages at rates higher than those prescribed or notified
at the time of inviting tenders. On this fact situation, we hold
that the State had by necessary implication agreed to
- ...
reimburse this increased payment." D
_ 13. In a more recent decision in Food Corporation of India
vs. Mis. A. M. Ahmed & Co. & Anr., AIR 2007 SC 829, the
Court reiterated the same view and in paragraph 32 of the
judgment observed as follows: E
"Escalation, in our view, is normal and routine incident
arising out of gap of time in this inflationary age in
performing any contract of any type. In this 'Case, the
arbitrator has found that there was escalation by way of
F
statutory wage revision and, therefore, he came to the
conclusion that it was reasonable to allow escalation under
the claim. Once it was found that the arbitrator had
jurisdiction to find that there was delay in execution of the
contract due to the conduct of the FCI, the Corporation was
.. ...
liable for the consequences of the delay, namely, increase
in statutory wages. Therefore, the arbitrator, in our opinion,
had jurisdiction to go into this question. He has gone into
G
that question and has awarded as he did. The Arbitrator
H
1076 SUPREME COURT REPORTS [2009] 10 S.C.R.
A by awarding wage revision has not mis-conducted himself.
,.
The award was, therefore, made rule of the High Court, ~
rightly so in our opinion."
14. Mr. Qadri next questioned the grant of interest on the
amounts arrived at by allowing the respondent's claim for higher
B rates for the work done by it. Learned counsel submitted that
clause 31 of the agreement expressly barred the claim of any
interest by the contractor and hence, the award was clearly
unsustainable insofar as the grant of interest was concerned. +
c 15. The arbitrator gave to the respondent pre-reference,
pendente lite and post-award interest on both its claims under
items 3 & 4 as would be evident from the following passages
from the award:
"However, I am allowing interest to the claimant at the rate
D
of 16% per annum on and from 1st November, 1994 till
9th September, 2000 the date of award amounting to
Rs.15, 85,359.85 on the following basis.
Interest calculated from 1.11.94 to 9.9.2000 as per
E demand notice dated 19th September, 1994 till the date
of award on Rs.16, 85,234.14 being the total amount of
claim item Nos.3 and 4."
**** **** ****
F Therefore, I, hereby award to the claimant (1) a sum of
Rs.6,05,777.34 for the claim item No.3 (ii) a sum of
Rs.10,79,456.80 for the claim Item No.4 and (iii) a sum of
Rs.15,86,539.85 towards interest on Item No.3 and 4 for
the claim Item No.5. The aggregate sum of Rs.32,
-
G 71,773.99 (Rupees Thirty two lacs seventy one thousand
seven hundred seventy three and ninety nine paise only) ..
rounded to Rs.32, 71,774/-. I further award an interest@
18% per annum on the aforesaid sum till the date of
payment."
H
UNION OF INDIA v. SARASWAT TRADING AGENCY &1077
ORS. [AFTAB ALAM, J.]
It is thus to be seen that the arbitrator allowed interest on the A
. ~ amounts determined under Items Nos.3 and 4 both for the pre-
reference period and pendente lite at the rate of 16%. per
annum. He further allowed interest on the consolidated amount
for the post-award period at the rate of 18% per annum till the
date of payment. B
16. The question of interest for the pre-reference period
stands settled by the Constitution Bench decision in Executive
Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors.
Vs. N. C. Budharaj, 2001 (2) SCC 721. The majority judgmen~
(3:2) in that case held in paragraph 26 as follows:
c
"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 pr~-reference D
- " 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 E
shall not entitle any party nor shall it employer any court to
reopen proceedings which have already become final, and
apply only to any pending proceedings. No costs."
(emphasis added)
F
The legal position in regard to interest for the different periods
has been summed up, with reference to the earlier decisions,
in the decision in Bhagawati Oxygen Ltd. Vs. Hindustan
Copper Ltd., 2005 (6) SCC 462. In paragraphs 38, 39 and 40
of the judgment it was observed as follows: G
-. "38. So far as interest for pre-reference period is
•'
I concerned, in view of the conflicting decisions of this Court,
the matter was referred to a larger Bench in Executive
Engineer, Dhenkanal Minor Irrigation Division vs. N.C.
H
1078 SUPREME COURT REPORTS [2009] 10 S.C.R.
A Budharaj, 2001 (2) SCC 721. The Court, by majority, held
that an arbitrator has power to grant interest for pre-
reference period provided there is no prohibition in the
arbitration agreement excluding his jurisdiction to grant
interest. The forum of arbitration is created by the consent
B of parties and is a substitute for conventional civil court. It
is, therefore, of unavoidable necessity that the parties be
deemed to have agreed by implication that the arbitrator
would have power to award interest in the same way and
same manner as a court."
c "39. Regarding interest pendent lite also, there was
cleavage of opinion. The question was, therefore, referred
to a larger Bench in Secy., Irrigation Deptt., Govt. of
Orissa vs. G. C. Roy, 1992 (1) SCC 508. The Court
considered several cases and laid down the following
D principles: (pp.532-33, para 43) i
43. The question still remains whether arbitrator has
the power to award the interest pendente lite, and
if so on what principle. We must reiterate that we
E 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
F 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
G 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
H
UNION OF INDIA v. SARASWAT TRADING AGENCY &1079
ORS. [AFTAB ALAM, J.]
. ~ entering upon the reference. ThLS is the A
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 forum for
B
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
c
court for that purpose, even though he may
have obtained satisfaction in. respect of other
claims from the arbijrator. 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 E
Section 41 and Section 3 of the 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 F
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 G
• -.
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 . H
,.,
'
1080 SUPREME COURT REPORTS [2009] 10 S.C.R. ..
A there was no claim for interest but only a J
claim for unliquidated damages. It has been
said repeatedly that observations in the said
judgment were not intended to lay down any
such absolute or universal rule as they
B 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.
c (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
;.
D inferred."
~
"40. As to post-award interest, the point is covered by the
decision of this Court in Hindustan Construction Co. Ltd.
vs. State of J & KI 1992 (4) sec 217. It was held there
E that an arbitrator is competent to award interest for the
period from the date of the award to the date of decree or
date of realization, whichever is earlier."
17. In the case in hand, the respondent's claim was in
regard to two periods; one from August 3, 1991 to December
F 31, 1992 when the agreement was subsisting and the parties
were bound by its terms, and the other from January 1, 1993
to August 31, 1994 when the agreement was admittedly
tenninated and the respondent was carrying on the work on the
request of the appellant. In our view the fact that the first period
G was covered by the agreement while the second fell beyond it
is significant and on that score the two periods must receive
,..
different treatments.
Clause 31 of the agreement provided as follows:
H
UNION OF INDIA v. SARASWAT TRADING AGENCY &1081
ORS. [AFTAB ALAM, J.]
"31. No interest or damage for delay in payment - No A
interest or damage shall be paid to the Contractor for
delay in payment of the bill or any other amount due to the
contractor for any reason whatsoever. The Railway
Administration will, liowever, make every endeavour for
payment of the bills or other amount due to the contractor B
within a reasonable time."
(emphasis added)
18. The Division Bench of the High Court took the view that
Clause 31 of the agreement operated as a bar only between C
the parties but it would not affect the authority of the arbitrator
to grant interest for the pre reference period and pendente lite.
In this connection the High Court has referred to the decisions
of this Court in Executive Engineer, Dhenkanal Minor
Irrigation Division, Orissa (supra), Executive Engineer D
(Irrigation) vs. Abhaduta Jena, (1988) 1 SCC 418 (which was
overruled by Executive Engineer, Dhenkanal} and. Secretary,
Irrigation Department, Govt. of Orissa vs. G.C. Roy, (1992) 1
SCC 508, (which was referred to in Executive Engineer,
Dhenkana~. But in Executive Engineer, Dhenkanal it is not E
even remotely said that a clause in the agreement like clause
31 (quoted above) would only act as a bar between the parties
to the agreement and would not restrict the powers of the
arbitrator to allow interest for pre-reference period and
pendente lite. The High Court has then relied upon another F
decision of this court in The Board of Trustees for the Port of
Calcutta vs. Engineers-De-Space-Age, AIR 1996 SC 2853.
The High Court has observed that in this case a similar clause
in the agreement was held not restrictive of the arbitrator's
powers to allow interest pendente lite and for pre reference G
period. We have closely examined the decision in Engineers-
De-Space-Age and we find that the relevant clause in the
agreement in that case was completely differently worded and
the view taken by the High Court cannot be supported on the
basis of that decision. In Engineers-De-Space-Age the court H
1082 SUPREME COURT REPORTS [2009] 10 S.C.R.
...
A was dealing with a case in regard to award of interest for the
post-reference period and clause 13(g), the relevant clause in i-.
the agreement, was as follows:
"No claim for interest will be entertained by the
Commissioners with respect to any money or balance
B
which may be in their hands owing to any dispute between
themselves and the Contractor or with respect to any delay
on the part of the Commissioners in making interim or final
payment or otherwise."
c 19. In that context this court held that clause 13(g) of the
agreement merely prohibited the Commissioners from
entertaining any claim for interest and did not affect the
arbitrator's powers to award interest.
0 20. 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 No.3
E and the arbitrator's award allowing pre-reference and pendente
lite interest on that amount was plainly in breach of the express
term of the agreement. The order of the High Court insofar as
pre-reference and pendente lite interest on the amount under
Item No.3 is concerned is, therefore, unsustainable.
F 21. The position with regard to the claim under Item No.4
is quite different. That relates to the period after the termination
of the agreement and hence, the bar of clause 31 would not
apply to it in the same way as it would apply to Item No.3. We,
therefore, find no infirmity in grant of pre-reference and
G pendente lite interest on the amount under Item No.4.
22. In light of the discussions made above, the respondent
shall be entitled to interest only on the sum of Rs.10, 79,456=80,
the amount determined under Item No.4, at the rate of 16% per
H annum for the period November 1, 1994 to September 9, 2000.
UNION OF INDIA v. SARASWAT TRADING AGENCY &1083
ORS. [AFTAB ALAM, J.]
The final amount under the award shall be accordingly worked A
out. The consolidated amount of the award after being re-
calculated shall carry, as provided in the award, interest at the
rate of 18% from the date of the award till the date of payment.
In working out the amount of interest for the post-award period,
the period(s) for which the operation of the award was stayed B
by the court would be excluded.
23. In the result the appeal is allowed to the limited extent
indicated above. There shall be no order as to costs.
D.G. Appeal partly allowed. C
'
- y
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