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  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

J U D G M E N T

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

29.9.2011  in  A.P.O.  No.213/2009  in  A.P.  No.35/2006

whereby the Division Bench of the High Court of Calcutta

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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

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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

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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

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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.  

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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

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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 AMOUNT (RS.)

AWARDED AMOUNT (RS.)

1.Balance  amount payable

45,37,230/- 2,39,657/-

2.Claim  for  price variation  due  to rise  in  price  of materials,  labour and fuel

21,82,719.58 1,17,060/-

3.Claim  for security deposit.

15,000/- 15,000/-

4.Claim on account of  advance payment  towards labour supplier

51,000/- 15,300/-

5.Claim  for advance  payment to  the  earth supplier.

1,80,000/- 54,000/-

6.Claim  for remaining  idle wage payment.

1,80,000/- 54,000/-

7.Claim  for overhead  charges, i.e., staff salary and house rent

22,000/- 15,000/-

8.Claim  for 12,75,000/- 6,03,119/-

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blockage  of  capital and business loss  9.Claim  for interest

1,58,23,193.16 12,44,546/-

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.

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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:

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“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

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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.”

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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

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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

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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

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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.

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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.

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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.