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NON-REPORTABLE IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NOS.1393-1394 OF 2003

P. RADHAKRISHNA MURTHY … APPELLANT

VS.

M/S. N.B.C.C. LTD.  … RESPONDENT

J U D G  M E N T

V. Gopala Gowda, J.

The  appellant  contractor  filed  these  Civil  Appeals  questioning  the  

common judgment and order passed by the High Court of Karnataka dated  

29th August 2002 in Misc. First Appeal No. 4377 of 2000 (AA) alongwith  

cross Objection No.34/2001 wherein the appeal of the National Buildings  

Construction Corporation Ltd (hereinafter referred to as ‘NBCC’) was partly  

allowed and award passed by the Arbitrator was modified in regard to claims  

1(a),  (b),  (c) and 2(a),  (c),  (e),  (f)  and (g).  The High Court set  aside the  

award of Rs. 8,16,412/- in regard to claim Nos.1(a),(b), (c) and 2(a), (c), (e),  

(f) and (g). Also, the rejection of claims under 1(d) and 1(e) is upheld and  

award of  Rs.13,050/-  and 10,204/-  against  claims 2(c)  and (d)  are   also

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upheld.   Cross objection filed by the contractor regarding grant of certain  

items of claims made by him is dismissed and consequently it is held that the  

contractor will be entitled to Rs.9,01,871.53 with interest at the rate of 12%  

per annum from 28.12.1987 till the date of deposit of payment by NBCC.  

Also, the amount paid by the NBCC in pursuance of the interim order passed  

by the High Court will be adjusted to the amounts payable and if excess has  

been received by the contractor, then he shall repay the same within three  

months to NBCC. This Order of the High Court is under challenge in these  

appeals  urging various  facts  and legal  contentions.    For  the  purpose  of  

appreciating the rival legal contentions urged on behalf of the parties the  

brief facts are stated hereunder.  

2. NBCC is a public sector company with its headquarters in New Delhi  

and  is  engaged  in  the  business  of  (i)  project  management  consultancy  

services  for  civil  construction  projects  (ii)  civil  infrastructure  for  power  

sector and (iii) real estate development etc. It has 10 regional/zonal offices  

across  the  country,  with  one  such  zonal/regional  office  at  Bangalore,  

Karnataka.

3. A notice was published in the newspapers by NBCC, Bangalore on  

12.1.1985 with the purpose of inviting tenders for construction of five 5000  

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Metric  Ton  food  storage  godowns  comprising  of  Group-I  (Civil  and  

Structural  Works)  and  Group-II  (internal  and  external  electrification  and  

sanitary work), structures at Bhimavaram, Phase II, West Godawari District,  

Andhra Pradesh.  Pursuant to the said tender notice, the contractor submitted  

his tender for the said works and the offer of tender was accepted by NBCC.

4. It is the case of the contractor that in terms of the tender notification,  

percentage of  rate for  tender works of  Group-I  and item rate  tenders for  

works of Group II referred to above were required to be submitted.   The  

tender  contained  basic  rate  for  work  based  on  Central  Public  Works  

Department  (CPWD) Delhi  Schedule  of  Rates,  1981,  which  is  called  as  

‘DSR-1981’ for brevity.

5. It is the case of the contractor that for any construction work, schedule  

of rates plays an important role in pre-construction stage like preparation of  

estimate.  To meet this objective, CPWD is publishing DSR since 1931 on  

regular intervals based on the experiences and latest technologies which can  

be adopted in the construction sector.   The DSR were revised many times in  

the subsequent years 1977, 1981, 1985, 1989, 1993, 1997, 2002, 2007 and  

2010 based on the market rates of materials and labour prevailing during the  

period.    The  CPWD  Manual  is  a  reference  document  of  CPWD  and  

provides  a  basic  frame  work  for  planning,  designing  and  execution  of  

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construction works in CPWD.  He further contends that the offer made by  

the contractor pursuant to the tender notice was accepted and works were  

awarded  in  his  favour  by  NBCC  on  the  basis  of  DSR-1981  and  the  

provisions of CPWD Works Manual apply with all vigor to the case in hand.  

The contractor entered into a detailed agreement with NBCC on 26.6.1985  

incorporating  therein  certain  terms  and  conditions  agreed  upon  by  the  

parties.  The following terms and conditions were agreed upon between the  

parties:

(a) The rates of Group-I works are governed by DSR-1981. (b) Tender was accepted at 58.5% above DSR-1981. (c) Appellant to be sanctioned an interest free mobilization advance of  

Rs.5 lakhs against bank guarantee, for which NBCC could avail  1% rebate.

(d) Additional rebate of 0.1% could be availed by NBCC for prompt  payment of bills submitted by the appellant.

(e) Work to be completed within 10 months from the date of work  order, i.e. 18.6.1985.

6. Pursuant to the said agreement, the contractor commenced the work  

and completed the same.  The NBCC had failed to pay the amounts due to  

him in terms of the agreement referred to above for all the works performed  

by  him.   In  response  to  the  various  representations  submitted  by  the  

Contractor to the NBCC, it had appointed Shri N.S.L. Rao as sole Arbitrator,  

in  terms  of  letter  No.Engg.  (CC/Gen/A/87-1363)  dated  15.12.1987  to  

examine the claims made by the contractor by invoking Clause 25 of the  

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agreement which empowered NBCC to appoint an Arbitrator of their choice.  

The contractor had submitted the statement of Claims on 25.1.1988 before  

the Arbitrator claiming under various heads under Claim No. 1 and Claim  

No.2 and Claim Nos. 3, 4, 5 and 6 and also prayed for interest at the rate of   

24% from 28.12.1987 till the date of payment and further claimed a sum of  

Rs.32,500/- towards the arbitration expenses.

7. NBCC, in response to the said claims of the contractor, filed its reply  

before the Arbitrator on 22.2.1988.  In the written statement filed by the  

NBCC before the Arbitrator, it was stated  for the first time that aforesaid  

works were undertaken by them on behalf of FCI  as their agent and they  

were liable to pay liquidated damages to FCI on account of purported delay  

in completion of the works by the appellant etc.  The NBCC has denied the  

liability to pay any amount claimed by the contractor before the Arbitrator  

and further stated that DSR-1981 does not govern the tender conditions of  

NBCC and therefore it is not liable to pay amounts to the contractor as per  

the said rates.   The contractor filed his rejoinder statement on 25.3.1988  

inter alia stating that the NBCC never disclosed that the FCI was the real  

beneficiary and NBCC was merely acting as their agent and further stated  

that the discloser  made by NBCC as above came as a rude shock to the  

contractor.

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8. Through the relevant terms and conditions of the agreement entered  

into between the NBCC and FCI, it has been agreed that the works shall  

have to follow CPWD Manual as amended from time to time and the NBCC  

shall be paid 9% of the construction cost as remuneration and it shall not be  

paid  any  other  charges  on  whatever  account,  over  and  above  the  said  

remuneration.    Further  it  was  agreed  that  in  the  event   of  failure  of  

execution of works in time, the liquidated damages at 1% of the contract  

value or part thereof subject to a maximum of 5% of the contract value or  

the actual amount recovered from the contractor by NBCC shall be payable  

to FCI.  As per the aforesaid terms and conditions between NBCC and FCI,  

the respondent is an agent of FCI and is required to call  for tenders and  

contract and perform in accordance with the provisions of CPWD Manual  

and DSR-1981 rates.  

9. The Arbitrator, after offering opportunity to both the parties to present  

their  respective  cases  in  detail  with  all  supporting  documents  passed  an  

award on 17.8.1988 granting the relief in Claim Nos. 1 & 2, items (a), (b) &  

(c) of claim 1 and item Nos. (a), (b), (e), (f) and (g) of Claim No. 2 which  

came to Rs.19,10,637.95.

10. It  is  the case  of  the contractor  that  he suffered from loss  of  some  

additional amount which was spent by him on account of delay committed  

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by NBCC in handing over sites for godowns Nos. 10 and 11 as locations of  

some of the structures were changed after the work was awarded in favour of  

the contractor.    The NBCC had categorically  admitted that  it  could not  

make  timely  payments  of  amounts  due  and  that  delayed  payments  were  

made.   The Arbitrator on the basis of submissions made by the NBCC and  

admissions made by it, awarded a sum of Rs.8,16,412/- representing 10% as  

normal provision for profit etc.   in respect of claims relating to items  (a),  

(b) and (c) of Claim No.1 and items (a), (b), (e), (f) and (g) of Claim No.2.  

Against item (c) of Claim No.2 the Arbitrator held that the claimant is also  

entitled to refund of Rs.13,050/- deducted by NBCC from the contractors  

bills for late recovery of mobilization advance.  As regards item (d) of Claim  

No.2, the respondents are not entitled to rebate at 2.35% on the claim of  

Rs.2,39,796.07. The Arbitrator held that the said claim is not correct.   The  

rebate offered by the claimant for prompt payment is 0.1% and as such he  

has held that claimant is entitled to refund of Rs.10,204/- and accordingly  

awarded the said claim.  The Arbitrator, against claim Nos. 1 and 2 under the  

aforesaid  items,  has  awarded  Rs.8,39,666/-  against  his  claim  of  

Rs.26,93,000/-.

11. Insofar as, claim No.3 is concerned, by recording reasons he granted  

the same.   As claim Nos.3(a) to (d) is concerned against the restricted claim  

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of Rs.18,45,568.90, the Arbitrator has awarded Rs.11,64,396.80 but he had  

omitted to add 58.5% over and above DSR-1981.  Insofar as, Claim No.4  

regarding non-reimbursement of losses due to floods is concerned, the said  

claim was rejected.  The claim of interest at the rate of 24% p.a.  as item  

No.5  was  rejected  by  the  Arbitrator  holding  that  the  interest  cannot  be  

granted  on  the  amounts  claimed  by  the  contractor  on  the  basis  of  the  

judgment of this Court in  Executive Engineer (Irrigation) v.  Abhadutta  

Jena AIR 1988 SC 1520.

12. As per the contractor, the award passed by the Arbitrator is elaborate  

and takes into account numerous details and also that he had examined each  

of  the  claim  put  forward  by  the  parties  with  reference  to  the  record  

produced.    The  award  of  amount  dated  17.8.1988  was  granted  to  the  

contractor  on  the  basis  of  cogent  material  placed  on  record  and  on  

admissions of NBCC.  According to the contractor, not awarding all items  

under Claim No.3 and rejection of Claim Nos.4 and 5 is erroneous.     

13. Aggrieved by the award of the Arbitrator, appellant had filed petition  

under Sections 15, 16, 17, 30 and 33 of the Arbitration Act, 1940 before the  

VIth Additional City Civil Judge, Bangalore, Karnataka against NBCC to  

modify the award.   The said petition was registered as Arbitration Case  

No.16 of 1989 subsequently converted into suit No.5 of 2000 as provided  

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under Rule 7 of Karnataka High Court Rules framed under the Arbitration  

Act, 1940.  In the proceedings, NBCC had also filed Arbitration Case No.25  

of 1988 seeking to set aside award passed by the Arbitrator except to the  

extent of the sum of Rs.2,40,000/- awarded in its favour towards liquidated  

damages.   The said arbitration case was clubbed with Suit No.5 of 2000.  

Both were disposed of by learned City Civil Judge by common judgment  

dated 24.6.2000 by elaborately dealing with all the issues and arrived at the  

conclusions in affirming the award of the Arbitrator and modified the same  

to the required extent on the basis of evidence on record by recording his  

reasons. He also modified claim No. 3 holding that the contractor is entitled  

for  18,45,568/-  applying  58.5% over  and  above  the  rates  quoted  by  the  

contractor.   The learned Judge of the civil court has awarded interest at the  

rate of 16.5% from the date of reference till the realization regarding claim  

no.5  after  recording  that  the  non  awarding  of  interest  claimed  by  the  

contractor by the Arbitrator is erroneous in law as the Arbitrator has misread  

the law laid down by this Court insofar as non awarding of interest by him is  

concerned.  The said award was challenged by the NBCC before the High  

Court by filing  Misc. First Appeal No. 4377 of 2000 (AA).   The contractor  

also  preferred  cross  Objection  No.34  of  2001  aggrieved  by  rejection  of  

certain items.   Appeal filed by the NBCC was allowed to the extent  as  

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indicated above and the cross objection filed by the contractor was dismissed  

by common judgment.  These appeals were filed by the contractor urging the  

following grounds:  

(i) That the High Court could not have appreciated evidence in  

order to arrive at a conclusion different from the one arrived  

at  by  the  Arbitrator.   Appreciation  of  evidence  by  the  

Arbitrator is never a matter which court can question.  In  

proceeding to set-aside an award, High Court cannot sit in  

appeal over the conclusions arrived at by the Arbitrator and  

Learned City Civil Court.  It is also not open to High Court  

to sit as a court of appeal over the findings of the fora below,  

to find out as to how the findings were arrived at.   The High  

Court while considering the legality of the award passed by  

the Arbitrator which has been made the rule of the court, can  

not examine the question as an appellate court.

(ii) That though the NBCC is liable to pay the Delhi Schedule of  

Rates of 1981 to the Contractor, which governed the contract  

between the parties, High Court had by a process of facile  

reasoning arrived at the conclusion that corrections in DSR-

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1981 were made before contract documents were signed by  

the  contractor.   High  Court  had  totally  ignored  the  

provisions  of  CPWD  Manual  and  also  the  agreement  

executed by and between FCI and the NBCC, which clearly  

stipulate the rates of work are governed by DSR-1981 and  

that  NBCC  is  entitled  only  for  9%  remuneration  of  the  

construction cost.

(iii) That NBCC having altered without authorization the DSR  

1981 on certain claims of the contractor is not entitled to rely  

upon  the  altered  rates  in  respect  of  amount  payable  to  

appellant.  Further, it is urged that the High Court in dealing  

with  the  issues  involved  had  lost  sight  of  the  fact  that  

irrespective  of  the  fact  that  whether  corrections  were  

authorized or  unauthorized in  the agreement,  the amounts  

were  agreed  to  be  paid  to  appellant  by  the  NBCC  in  

accordance with DSR 1981.

(iv) That the High Court overlooked the fact that the Arbitrator  

appointed in the matter was a Retired Director General of  

Central  Public  Works  Department-CPWD,  Govt.  of  India  

and he was an expert well versed in civil engineering and an  

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award  made  by  such  a  person  should  not  therefore  be  

interfered with.  Being a highly skilled technical person, he  

has given reasons for awarding amounts under each of the  

claims.   When the Arbitrator  came to the conclusion that  

granting 10% as normal provision for contractor’s profit and  

overheads, High Court could not have substituted the finding  

of the Arbitrator by re-appreciating the evidence and should  

not have held that the appellant is not entitled to 10% as that  

would not be within the jurisdiction of High Court.

(v) That the law is well settled that an Arbitrator is not required  

to give arithmetical calculation.  If the reasons are adequate  

and  clear,  it  is  not  essential  for  him  to  give  a  detailed  

reasoned decision indicating each minute step.

(vi) That in the particular facts and circumstances of the case, it  

cannot be said that there is an error apparent on the face of  

award.

(vii) That the NBCC has filed a statement itself showing details  

of payment made to appellant before the Arbitrator.  In the  

said statement Column No.8, NBCC had calculated interest  

@ 16.5% for  delayed payments.   The said  statement  was  

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filed  and  marked  as  Annexure  IV  by  the  Arbitrator.  

Therefore,  the  NBCC  cannot  claim  that  rate  of  interest  

should not exceed 6%.   

(viii) That the High Court had failed to consider that appellant was  

put  to  untold  hardship,  suffering  and  financial  loss  on  

account  of  persistent  conduct  of  NBCC  in  not  paying  

amount due to appellant for past 27 years, despite the works  

having been completed as per schedule and in accordance  

with the agreed quality.

14. Mr.  GVR  Choudhury,  the  learned  counsel  for  the  appellant  has  

contended that the judgment of the High Court is bad in law as the High  

Court  could  not  have  appreciated  the  evidence  in  order  to  arrive  at  a  

conclusion different from the one arrived at by the Arbitrator.  Therefore,  

setting aside the award of the Arbitrator which is affirmed by the trial court  

for Rs.8,16,412/- in regard to the claim Nos. 1(a),(b),(c) and 2(a), (c),(e),(f)  

and (g) are bad in law and the same is required to be interfered with by this  

Court in these appeals.  In the light of the findings and reasons recorded by  

the  High  Court  in  the  impugned  judgment,  we  have  examined  the  

correctness of allowing the claim under the different items of claim nos.1  

and 2, which has been made the rule of the Court by the Civil  Court by  

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recording valid reasons after referring to the various judgments of this Court  

regarding the power of the High Court to examine the misconduct of the  

Arbitrator in passing of the award.  The various judgments of this Court are  

referred by the High Court, viz  Union of India v. Kalinga Construction  

Company (AIR 1971 SC 1646),  K.P.  Poulose v.  State of  Kerala (AIR  

1975 SC 1259), Sudarshan Trading v. Government of Kerala (AIR 1989  

SC 890), Food Corporation of India v. Joginderpal Mohinderpal (AIR  

1989 SC 1263,  Bijendranath Srivastava v. Mayank Srivastava (1994) 6  

SCC 117, Trustees of Port Trust of Madras v. Engineering Construction  

Corporation Ltd. (AIR 1995 SC 2423).  

15. The High Court has rightly held that the Arbitrator is not a conciliator  

and his duty is to decide the disputes submitted to him according to the legal  

rights of the parties and not according to what he may consider to be fair and  

reasonable.  The  High  Court  has  further  rightly  made  observation  in  the  

impugned judgment that an Arbitrator cannot ignore law or misapply it, nor  

can he act arbitrarily, irrationally, capriciously or independent of the contract  

while  passing  the  award.   Courts  of  law  have  a  duty  and  obligation  to  

maintain purity of standards and preserve full faith and credit as well as to  

inspire confidence in the minds of litigants while adjudicating the claims of  

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the parties by resorting to alternate dispute redressal method of arbitration  

under the provisions of the Arbitration Act.   

16. Further, the High Court with reference to Rajasthan State Mines &  

Minerals Ltd. v. Eastern Engineering Enterprises (1999) 9 SCC 283 and  

Sikkim Subba Associates v. State of Sikkim (2001) 5 SCC 629, clearly  

enunciated  the  aforesaid  proposition  of  law  for  its  interference  with  the  

erroneous findings of the Arbitrator and the Civil Court in the Award.  The  

High Court with reference to the item wise claim nos.1 (a),(b),(c) and 2 (a),

(b),(e),(f)  &(g) examined the claims at threadbare in the backdrop of the  

legal position laid down by this Court in the cases referred to supra with a  

view to find out  whether the award passed by the Arbitrator in allowing  

certain claims was required to  be  interfered with on the  ground that  the  

Arbitrator has committed misconduct in passing the award.  The High Court  

has examined the correctness of the above claims awarded at Rs.8,16,412.00  

as loss of profits at 10% of the contract value against claim Nos.1 (a),(b),(c)  

and  2  (a),(b),(e),(f)  &(g)  by  assigning  the  reasons.   In  the  impugned  

judgment, the reasons assigned by the Arbitrator in allowing the said claims  

have  been  examined  by  the  High  Court  with  reference  to  the  delay  in  

handing  over  the  sites  of  godown  Nos.10  &  11  to  the  Contractor  and  

locations  of  some  structures  which  were  changed  after  the  work  was  

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awarded. The award of the above items of claims in favour of the contractor  

is  found fault  with  by the  High Court  for  the  reason that  the  Arbitrator  

neither examined any of the claims made by the Contractor under claim nos.  

1 (a),(b),(c) and 2 (a),(b),(e),(f) & (g) with reference to the evidence placed  

before  the  Arbitrator  nor  has  he  recorded  a  finding  as  to  whether  the  

contractor in fact suffered losses as claimed by him in the aforesaid items of  

claims and as to whether NBCC was liable to pay to him. Therefore, it is a  

finding of fact recorded by the High Court on the relevant aspect holding  

that the Arbitrator did not record reasons regarding the delay in handing over  

the location of the sites in favour of the contractor and rightly held that mere  

delay in handing over sites will not entitle the contractor to claim damages  

unless it is established that the same is the consequence of breach committed  

by the other party. Further, with regard to the finding recorded by the High  

Court as to whether the contractor had engaged skilled and unskilled labour  

and that they were idle,  that the contractor had collected large quantity of  

material at original work site and had transported them to new site incurring  

a huge expenditure by him and that the contractor had borrowed amounts  

from Banks and private financiers and had paid interest on such borrowed  

amount to them, that the contractor had engaged staff (establishment) and  

was spending Rs.22,566/- per month for additional period of 18 months, that  

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the contractor traveled to Delhi and other places incurring Rs.77,000/- for  

obtaining  release  of  Bill  amounts  from  NBCC,  that  the  contractor  had  

organized men, machinery and material for carrying work of the value of  

Rs.10 lakhs per month, that he suffered a loss of profit of 5% of the deficit  

turnover, that the contractor would have made a profit of Rs.9 lakhs to 10  

lakhs and as the data furnished by the NBCC showed that the net payment  

made  to  the  contractor  was  Rs.89,80,540.91,  the  contractor  should  be  

awarded Rs.8,16,412 as 10% profits on the overheads, the High Court has  

rightly recorded a finding holding that the claim due to delaying the amount  

of  10% upon  the  overheads  on  the  payment  made  by the  NBCC to  the  

Contractor is illogical.  The said reasoning of the High Court on the above  

aspect  of  claims is  perfectly legal  and valid as it  has assigned valid and  

cogent  reasons  in  support  of  the  said  conclusions  arrived  at  and  rightly  

disallowed the claims.

17. Further the High Court has rightly held that the award of any sum in  

addition to the contract amount does not arise as has been awarded by the  

Arbitrator  and  made  the  rule  of  the  court,  more  particularly  when  the  

contractor did not claim 10% of loss of profits under specific claims.  In that  

view of the matter, the claim of the contractor on the loss of profit of 10% of  

the total amount paid to him is rightly found fault with by the court. The  

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same is rightly set aside by the High Court by recording reasons stating that  

the  NBCC  has  claimed  that  the  contractor  has  committed  breach  in  

performing his obligations by delaying the completion of the work awarded  

to him. The Arbitrator has accepted the contention of NBCC that the work  

was delayed on account of the contractor and consequently awarded a sum  

of  Rs.2,40,000/-  payable  by the  contractor  to  NBCC as  damages  on the  

ground that the owner of  the godown (FCI) had recovered an amount of  

Rs.2,40,000/- from NBCC on account of delay in completion of the work by  

the contractor.    In that  view of the matter,  the High Court  came to the  

correct  conclusion  and  held  that  sustaining  the  award  of  amount  of  

Rs.8,16,412/- under the aforesaid items of 10% profit on the total amount  

made  to  the  contractor  would  amount  to  upholding  the  decision  of  the  

Arbitrator. This amounts to awarding damages in favour of the contractor  

against the NBCC and the same cannot be found fault with by this Court.  

18. Another  contention  urged by the  learned counsel  on  behalf  of  the  

appellant  is  that  NBCC  is  liable  to  pay  as  per  the  DSR  1981,  which  

governed the  contract  between the  parties  and the  High Court  had by a  

process of facile reasoning arrived at the conclusion that corrections in DSR  

1981 were made before contract documents were signed by the contractor. It  

is also contended that the High Court had totally ignored the provisions of  

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CPWD Manual and also the agreement executed by and between FCI and  

NBCC, which clearly stipulate that the rates of work are governed by DSR  

1981 and that NBCC is entitled only for 9% remuneration.  Much emphasis  

is placed upon the CPWD Manual regarding the procedure required to be  

followed. The relevant clause 20.1.2 of CPWD Manual clearly provides that:

(1) The officer opening the tenders should encircle all corrections,  cuttings,  conditions,  additions and over-writings and number  them and attest them in red ink.

(2) In case of number of corrections in the rate of any one item,  either  in  words  or  in  figures  or  in  both,  the  number  of  corrections marked should indicate the correction serially, that  is to say, in case of, say, three corrections in rates of any one  item, each of these corrections should be allotted independent  numbers serially and not one number to represent all the three  corrections.

(3) The number of corrections, cuttings, additions, conditions and  over  writings must  be clearly mentioned at  the end of  each  relevant page of the Schedule attached to the tender documents,  and they should be properly attested with date. Any omission  observed should also be brought out clearly on each relevant  page of the Schedule.

It  is contended that this has not been followed by NBCC and hence,  the  

award passed by the Arbitrator by not granting the rates on the basis of DSR  

1981 for various works is erroneous in law.  On the other hand, the same  

was sought to be justified on behalf of the NBCC.  This aspect has been  

examined  in  reference  to  the  reasoning  given  by  the  High  Court  in  the  

impugned  judgment.   The  High  Court  has  referred  to  the  items  and  

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description  of  work  as  per  DSR  1981,  the  amounts  actually  paid,  the  

quantity of work which is executed by the contractor and the amount of loss  

paid in terms of DSR 1981 claim which is allowed by the Arbitrator and  

accepted by the Court. These are carefully examined with reference to the  

agreement as the Arbitrator has allowed the claim Nos.3(a) to (d) and has  

awarded a sum of Rs.18,45,568.90 by assigning reasons and the correctness  

of which is examined by the High Court.  The High Court examined the  

claims of four items referred to supra. The rates originally mentioned as per  

DSR 1981 have been corrected by the NBCC and the basis of the claims in  

the same is not   mentioned and therefore, is not binding as the same is not in  

regard to CPWD Manual as examined by the High Court with regard to the  

item wise claim and the description in relation to the work.  In this regard,  

the High Court with reference to the tabular statement made in the judgment,  

has elaborately referred to the same and examined the nature of the work  

executed by the contractor on the basis of contract entered into between the  

parties. The item wise findings are recorded in the impugned judgment by  

the High Court  on appreciation of  both documents and oral  evidence on  

record and it was held that neither there is any pleading nor any evidence on  

the part of NBCC before the Arbitrator to demonstrate that the description of  

this item of work in the Bill of Quantities is different from 1981 DSR Item  

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Code No.2.35. It was further held that the contractor is entitled to 58.5%  

over basic schedule rates over and above DSR 1981 and that the 1981 DSR  

rate is Rs.56.36 per sq.m. and also considered the scope of interference by  

the High Court in regard to award of the Arbitrator which is limited and the  

court is not sitting in appeal over the award of the Arbitrator.  Therefore, the  

Court declined to interfere on that aspect of the matter and found fault with  

only  regarding DSR rates.  Regarding the  DSR rates,  it  was  found to be  

Rs.20 per s.qm for an area which works out to Rs. 6,35,512.27  as per 1981  

DSR rates  and therefore  the  Arbitrator  has  worked out  the  difference  of  

Rs.36.36 for  17223.24 sq.mtr,  plus Rs.3,70,604.85 as awarded by allowing  

the basic schedule rates over and above DSR 1981 of the amount, i.e. 58.5%  

of Rs.6,33,512.57 and rightly held and awarded that the contractor is entitled  

for  Rs.10,04,117.42.    Accordingly,  claim no.3(a)  of  the  contractor  was  

allowed. With regard to claim no.3(b) regarding the foundation and plinth, it  

has been contended that the rate as per 1981 DSR is Rs.214.14. Also, the  

Bill of quantities originally mentioned the rate as Rs.214.14 and the same  

has been corrected as Rs.150.69 without authorization.  The grant  of  said  

rates by the Arbitrator was found fault by the High Court holding that the  

Arbitrator committed an error apparent on the face of award by awarding the  

rates mentioned in 1981 DSR for this item of work as Rs.214.14 by ignoring  

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the deduction of Rs.63.45 provided in the 1981 DSR, where the brick class  

designation  is  at  Rs.35.   Therefore,  the High Court  found fault  with the  

award of Rs.2,26,315.19 and the addition of 58.5% above the schedule rate  

was held to be not sustainable both on facts and in law and accordingly the  

same is set  aside.  In the impugned judgment, with regard to item (c) of  

claim No.3, the High Court has examined the correctness of allowing the  

claim  of  the  contractor  and  set  aside  the  Arbitrator’s  award  of  

Rs.2,32,328.59 and the addition of 58.5% thereof.  With regard to claim item  

no. 3(d) it was held to be valid in law with reference to DSR 1981 rates  

holding  the  original  rate  as  Rs.438.81  which  has  been  corrected  as  

Rs.290.00.  The said finding of fact,  according to the High Court,  is  held  

even if it is erroneous, to be binding upon the parties for the reasons that the  

same is awarded under the 1981 DSR rates and hence,  the award of  the  

claims on the basis of the above rates is accepted by the Arbitrator and is not  

open to question.   Therefore,  the High Court  held the contractor  will  be  

entitled  to  the  difference  at  the  rate  of  Rs.148.81,  that  is,  the  difference  

between Rs.438.81 and Rs.290 per sq.m. for 485.45 sq.m. which amounts to  

Rs.72,239.82 as has been accepted by the Arbitrator. The Arbitrator did not  

add 58.5% above the schedule rate to the amount and therefore the High  

Court held that the court below was justified in adding that percentage and  

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rightly held that the Contractor is entitled for Rs.1,14,500.11 under claim no.  

3(d). Further, the High Court has found fault with the award of the Arbitrator  

in  increasing  the  claim  under  items  3(a)  to  (d)  to  Rs.18,45,568.90  and  

reduced the enhanced amount to Rs.10,04,117.42 plus Rs.1,14,500.11 which  

amounts  to  Rs.1,14,500.11/-  under  claims  3(a)  and  (d)  and  rejected  the  

claims  under  3(b)  and  (c).  The  challenge  on  the  award  of  damages  of  

Rs.2,40,000/-  against  the  contractor  in  favour  of  the  NBCC  which  is  

accepted by the trial court is rightly rejected by the High Court.

  19. The rate of interest at the rate of 16.5% on the amounts awarded by the  

civil court on the basis of the Constitution Bench judgment of this Court in  

the case of Secretary, Irrigation Dept. Govt. of Orissa v. G.C.Roy (1992)  

1 SCC 508, after examining the power of Arbitrator under Section 34 CPC,  

with regard to award of interest, has rightly held that exercise of power by  

the  Arbitrator  under  Section  34  CPC  in  awarding  the  interest  on  the  

commercial  rates  in  the  absence  of  clause  of  agreement  regarding  non  

payment of interest on the amounts due to the contractor is held to be legally  

valid. This court in the above case has overruled its earlier decision in the  

case of  Executive Engineer (Irrigation) v. Abhadutta Jena (AIR 1988  

SC 1520)  and enunciated  the law regarding the award of interest on the  

claims awarded in favour of the contractor. It is worthwhile to refer to the  

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relevant paragraphs of the above Constitution Bench decision, which read as  

hereunder:-

“43. The question still  remains whether  Arbitrator  has the  power to award interest pendente lite, and if so on what  principle. We must reiterate that we 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  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 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  entering upon the reference. This is the 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  form (sic forum)  for  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  court  for  that  purpose, even though he may have obtained satisfaction in  respect of other claims from the Arbitrator. 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  Section 41 and Section 3 of 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  the land and the  agreement.

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(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  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 there was no  claim  for  interest  but  only  a  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  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.

(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 inferred.

44. Having regard to the above consideration,  we think  that the following is the correct principle which should be  followed in this behalf: Where  the  agreement  between  the  parties  does  not  prohibit grant of interest and where a party claims interest  and that dispute (along with the claim for principal amount  or  independently)  is  referred  to  the  Arbitrator,  he  shall  have the power to award interest pendente lite. This is for  the reason that in such a case it must be presumed that  interest  was an implied term of the agreement between  the parties and therefore when the parties refer all their  disputes — or refer the dispute as to interest as such — to  the Arbitrator, he shall have the power to award interest.  This  does  not  mean  that  in  every  case  the  Arbitrator  should  necessarily  award  interest  pendente  lite.  It  is  a  matter within his discretion to be exercised in the light of  all  the facts and circumstances of the case, keeping the  ends of justice in view.

46. In view of the above discussion we hold that in two  appeals namely Civil  Appeal No. 1403 of 1986 and Civil  

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Appeal  No.  2586  of  1985  the  Arbitrator  acted  with  jurisdiction in awarding pendente lite interest and the High  Court  rightly  upheld  the  award.  In  the  result  both  the  appeals fail and are, accordingly, dismissed but there will  be no order as to costs. Even though we have held that the  decision  in  Jena case does  not  lay  down good  law,  we  would  like  to  direct  that  our  decision  shall  only  be  prospective in operation, which means that this decision  shall not entitle any party nor shall it empower any court  to reopen proceedings which have already become final. In  other words, the law declared herein shall  apply only to  pending proceedings.”

20. The High Court has examined the rate of interest  at  16.5% on the  

amount  awarded  in  favour  of  the  Contractor  by  the  civil  court  and  has  

considered the contention urged on behalf of NBCC that the rate of interest  

awarded is  excessive and also the contention that  there is  no contract  of  

payment of interest on the same and alternatively contended that the interest  

rate  should not  normally exceed 6% per  annum.  These contentions have  

been seriously contested by appellant’s counsel contending that the award of  

interest between 15% to 18% per annum on the basis of bank lending rates  

should be allowed as NBCC itself has claimed interest at the rate of 18.5%  

per  annum  on  the  amount  claimed  from  the  contractor.  Keeping  the  

aforesaid aspect in mind and in the absence of contract with regard to rate of  

interest to be awarded in favour of the contractor and having regard to the  

facts and circumstances of the case, the High Court has come to the right  

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conclusion  and  awarded  interest  at  the  rate  of  12%  per  annum  on  the  

amounts due to the contractor on the basis of the rate of interest paid by the  

Banks to its customers on long term deposits prevailing in 1988.  The same  

cannot be found fault with by this Court for the reason that the High Court  

taking relevant  aspects  into  consideration  has  rightly reduced the rate  of  

interest to 12% per annum from 16.5% per annum after holding that exercise  

of  discretionary  power  by  the  Arbitrator  under  Section  34  of  CPC is  a  

discretionary power and the same cannot be interfered with by the High  

Court.

21. In our considered view the reasons recorded by the High Court on the  

contentious issues while examining the claims allowed by the Arbitrator in  

the award with reasons which is affirmed by the civil court, wherein certain  

claims have been rightly disallowed, certain other claims accepted and yet  

some other claims modified by the High Court by adding certain amounts,  

are based on sound legal principles and after coming to the conclusion that  

the findings of the Arbitrator and the court are erroneous and contrary to  

law. Therefore, the High Court has held that the impugned award passed by  

the Arbitrator which was made the rule of the court by the civil  court is  

erroneous in law and it amounts to misconduct. Accordingly, the High Court  

has rightly set aside certain claims of the contractor and affirmed the award  

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and granted extra amount on certain claims.  It has also interfered with the  

damages awarded in favour of NBCC and partly allowed the appeal of the  

respondent  NBCC by allowing certain claims,  setting  aside  certain  other  

claims and also reducing the rate of interest at 12% from 16.5%.

22. In our considered view, we do not find any good reason whatsoever to  

interfere  with  the  same  in  exercise  of  this  Court’s  jurisdiction  in  these  

appeals.   Consequently,  for  the  reasons  stated  above  the  appeals  are  

dismissed, with no order as to costs.

………………………..J. [ Dr. B.S. CHAUHAN ]

………………………..J. [ V. GOPALA GOWDA ]

New Delhi, March  5, 2013.

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