Page 1

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELATE JURISDICTION

CIVIL     APPEAL     No.      3682       OF     2007   

Tehri Hydro Dev.  Corpn. Ltd.& Anr.         …  Appellants

Versus

Jai Prakash Asso. Ltd.        …  Respondent

J      U      D      G      M      E      N     T   

RANJAN     GOGOI,     J   

This appeal  is directed against the judgment and order  

dated 20th July, 2006 passed by the High Court of  

Uttaranchal at Nainital whereby the decree passed by the  

learned trial court  under the Arbitration Act, 1940  

(hereinafter referred to as ‘the Act’) has been modified. The  

1

Page 2

terms of award as passed by the learned Arbitrator and   the  

decree passed by the learned trial court as well as the  

modification thereof by the High Court will now have to be  

noticed :

2. The appellants and the respondent herein had entered  

into a contract for execution of certain works  in connection  

with the Tehri Hydro Dam Project.  The agreement between  

the parties was executed on 29th March, 1978 and the works  

in question were  completed on 31st December, 1985.  The  

completion certificate  was issued by the competent  

authority of the appellant-Corporation on 27th April, 1986.  

As the final bill of the respondent-contractor  had not been  

prepared and security money, furnished by way of bank  

guarantee was not released, the parties went  to arbitration  

in accordance with the Arbitration clause under the  

contract/agreement.  In the course of the aforesaid  

Arbitration proceeding the appellant-Corporation submitted  

a final bill which according to the respondent-Contractor  

2

Page 3

entitled it to receive a sum of Rs.10,17,461.09 on account of  

work done besides a sum of Rs. 12..50 lakhs that was lying  

in deposit with the Corporation.  As the amounts due.  

according to the respondent-contractor, had become  

crystallized, another arbitration proceeding between the  

parties for the aforesaid specific claims commenced in  

accordance with the arbitration clause of the agreement.     

3. The award in the aforesaid arbitration proceeding was  

passed on 29th January, 1996 holding the respondent –  

contractor to be entitled to the sum of Rs. 10,17,461/- with  

the interest at the rate of 6% per annum from the date of  

invocation of the claim till the date of the  award and at the  

rate of 12% per annum from the date of the award  till  

payment or till the award is made Rule of court,  whichever  

is earlier.  Insofar as the claim of the respondent –  

contractor to the sum of Rs. 12.50 lakhs lying in deposit  

with the Corporation,  the Arbitrators held the said amount  

to be beyond the scope of the dispute raised in the  

3

Page 4

arbitration proceeding. Accordingly, the respondent –  

contractor was left with the option of settling the said claim  

in an amicable manner or by resorting to a civil suit for  

recovery of the same.

4. Objections against the specific parts of the award by  

which the respective parties felt aggrieved were filed before  

the learned  District  Judge, Tehri, Garhwal.  The learned  

District Judge by his order dated 15th October, 1997 upheld  

the claim of the respondent –  contractor to the sum of  

Rs.10,17,461/- lakhs as awarded.  In so far as the claim of  

Rs.12.50 lakhs is concerned, the learned trial court,  

notwithstanding  the fact that the arbitrator did not decide  

the said claim, went into the issue and held the  respondent  

–  contractor to be entitled to the said amount also.  

Thereafter, a decree was passed in respect of the two  

amounts  alongwith interest thereon at the rate of  12%  

pendente lite and 6% for the post award period.  Aggrieved  

by the aforesaid order passed by the learned District Judge,  

4

Page 5

Tehri Garhwal, the appellant moved the High Court of  

Uttaranchal by filing an appeal under the  provisions of the  

Act.    The High Court by its order dated 20th July, 2006  

allowed the appeal in part.  While the claim of  

Rs.10,17,461/- awarded in favour of the respondent-

contractor was maintained in so far as the claim of Rs. 12.50  

lakhs is concerned, the High Court took the view that the  

aforesaid amount could not have been awarded by the  

learned trial court  as the said entitlement was not gone into  

by the learned Arbitrators.  Accordingly,  the High  Court  

remanded the aforesaid  claim to be settled by an Arbitrator  

appointed by it.  Insofar as the  question of interest is  

concerned, the High Court did not deal with the said aspect  

of the matter at all. Aggrieved, the Corporation is before this  

court challenging the judgment and order dated 20th July,  

2006 passed by the High Court of Uttaranchal.

5

Page 6

5. We have heard Mr. Puneet Taneja, learned counsel for  

the appellants and  Mr. S.B. Upadhyay,  learned senior  

counsel  for the respondent.  

6.  Learned counsel for the appellants has contended that  

the claims of the respondent - contractor for the unpaid  

amounts under the final bill as well as for return/refund of  

security deposit, including amounts furnished by way of  

bank guarantee, was the subject matter of an earlier  

arbitration between the parties.  In the course of the said  

arbitration the final bill was placed before  the arbitrators by  

the Corporation.  On scrutiny of the aforesaid final bill the  

respondent-contractor claimed the two specific amounts in  

question and resorted to another process of arbitration  

without seeking leave in the first arbitration proceeding to  

have recourse to a second round of arbitration. The  

arbitration proceeding leading to the award is, therefore,  

without any authority of law. Specifically, insofar as the  

amount of Rs.12.50 lakhs is concerned, according to the  

learned counsel for the appellants, the said amount was not  

6

Page 7

adjudicated upon by the Arbitrators and the same was to be  

recovered by an amicable process or by resorting to a civil  

suit.  In such a situation it was clearly beyond the power of  

the learned trial court to hold the said claim in favour of the  

respondent-contractor.  Though the High Court was justified  

in setting  aside the said claim of Rs.12.50 lakhs for the  

aforesaid reason, it could not have directed adjudication of  

the said issue  by an Arbitrator nominated by it as has been  

done by the impugned order of the High Court.  According to  

the learned counsel, the adjudication of the said claim of the  

respondent – contractor, if at all,  should have been directed  

by a process contemplated by the specific provisions of the  

Arbitration agreement between the parties.   

Insofar as the  grant of interest is concerned, learned  

counsel for the appellants has relied on Clauses 1.2.14 and  

1.2.15 of Part II of the contract agreement between the  

parties to contend that under the aforesaid clauses of the  

agreement governing the parties there was a specific bar to  

7

Page 8

grant of interest.  Relying on several judgments  of this  

court, details of which will be noticed in the discussions that  

will follow, learned counsel has contended that the award of  

interest in favour of the respondent-contractor  being clearly  

contrary to the terms of the agreement between the parties  

is wholly untenable and therefore needs to be interfered  

with by this court.   

7. Controverting the submissions advanced on behalf of  

the appellants, learned  counsel for  the respondent –  

contractor  has contended that the appellants had actively  

participated in the proceeding before the Arbitrators and  

therefore, cannot, at this stage, question the jurisdiction of  

the Arbitrators to make the  award in question.  It is  

contended that the claim of the respondent to the amount of  

Rs.10,17,461/- having been held in its favour all along, the  

same does not disclose any basis for interference. In so far  

as the amount of Rs.12.50 lakhs is concerned the only  issue  

that will require deterimination is the manner in which the  

de novo  adjudication is required to be carried out.  So far as  

8

Page 9

the question of interest is concerned, learned counsel has  

placed before the court the UP Civil Laws (Reforms and  

Amendment) Act, 1976 by which certain provisions of the  

Arbitration Act of 1940 have been amended in its application  

to the State of UP.  The attention of the court has been  

drawn to  Paragraph 7A which has been added after Para 7  

of the First Schedule to the Act. According to the learned  

counsel,  Paragraph 7A authorized and empowered the  

arbitrator as well as the courts below to grant interest.  

Learned counsel has also relied on the decisions of this court  

in     Indian     oil     Corporation     Ltd.   vs. Amritsar     Gas     service     and    

others  1  ,   State     of     Orissa     vs. B.N.     Agarwalla  2   and Asian     Techs    

Limited     vs .     Union     of     India     and     others  3      2009 10 SCC 354  

(para 21) in support of the contentions advanced.

1        [(1991) 1 SCC 533   2        [(1997) 2 SCC 469] 3      2009 10 SCC 354 (para 21).

9

Page 10

8. Para 7A of the U.P. Civil Laws (Reforms and  

Amendment) Act, 1976 referred to above may now be  

reproduced :

“7A. Where and in so far as an award is for the  payment of money, the arbitrators of the umpire  may, in the award, order interest at such rate as  the arbitrators or umpire may deem reasonable to  be paid on the principal sum awarded, from the  date of the commencement of the arbitration as  defined in sub-section (3) of section 37, to the  date of award, in addition to any interest awarded  on such principal sum for any period prior to such  commencement, with further interest at such rate  not exceeding six per cent per annum as the  arbitrators or umpire may deem reasonable on  such principal sum  from the date of the award to  the date of payment or to such earlier date as the  arbitrators or umpire may think fit, but in no case  beyond the date of the decree to be passed on the  award.”

9. Insofar as the  jurisdiction of the Arbitrator to  

adjudicate on the two  claims  of Rs.10,17,461/- and  

Rs.12.50 lakhs are concerned, the dispute is capable of  

resolution within a short compass.  The entitlement of the  

respondent – contractor to the aforesaid  two amounts  was  

not the subject matter of the earlier proceeding before the  

Arbitrators which arose out of the grievance of the  

10

Page 11

respondent –  contractor that though the execution of the  

work had been completed, the final bill  had not been  

prepared and  further that certain amounts lying in deposit  

as security had not been refunded.  Once the final bill was  

prepared and placed before the Arbitrators the claim of the  

respondent-contractor got crystallized.  It is these specific  

claims, after quantification, that had been referred to the  

Arbitrators in the proceeding in which the award has been  

passed.  It will, therefore, not be correct to say that the  

arbitration proceeding in respect of the specific claims of the  

contractor stood barred in view of the earlier arbitration  

proceeding between the parties.  That apart, from an order  

passed by the Arbitrators on 15th January, 1994, which is  

available on record as an enclosure to the counter affidavit  

of the respondent, it appears that the arbitrators in the  

aforesaid order dated 15th January, 1994 had clearly  

recorded that the “. . . .both the parties agree that we  

should adjudicate both the disputes  relating to refund of  

11

Page 12

deposit  of Rs.12.5 lakhs and payment of final bill to the  

tune of Rs.10.00 lakhs and odd . . . .”  

In these circumstances, the award insofar as the claim  

of Rs.10,17,461/-  made by the learned Arbitrator and  

affirmed by the learned courts below  will not require any  

further scrutiny by us.

10. Insofar as the claim in respect of the sum of Rs.12.50  

lakhs is concerned, it has already been noticed that the  

entitlement of the respondent –  contractor to the said  

amount had not been adjudicated upon by the Arbitrators on  

the ground that the said issue was not an arbitrable issue  

and the same ought be resolved either by an amicable  

process or by way of a suit for recovery.  If the aforesaid  

claim was not adjudicated upon by the Arbitrators the  

learned trial court was patently wrong  in decreeing the said  

claim.  Therefore, the High Court was perfectly justified in  

reversing the said part of the decree.  However, we do not  

12

Page 13

find any reasonable basis for the view taken by the High  

Court that the entitlement  of the respondent-contractor to  

the said amount should now be determined by the Arbitrator  

nominated by it.  Rather, according to us, the aforesaid  

issue should have been left for determination in accordance  

with the procedure agreed upon by the parties, if the parties  

are, at all,  inclined to go into a further round of adjudication  

at this stage.  We, therefore, interfere with the aforesaid  

part of the order of the High Court and, subject to our  

observations above,  we  leave the parties to work out their  

remedies as may be considered best and most appropriate  

in the facts and circumstances of the case.

11. This will lead the court to a consideration of what is the  

principal bone of contention between the parties in the  

present case, namely, the issue with regard to payment of  

interest.  Clauses 1.2.14 and 1.2.15 on which much  

arguments have been advanced by learned counsel for both  

sides may now be extracted below :

13

Page 14

“ PART – II

CONDITIONS OF CONTRACT

1 11111 NO     CLAIM     FOR     DELAYED     PAYMENT     DUE    TO     DISPUTE     ETC.   

The contractor agrees that no claim for  interest of damages will be entertained or  payable by the Government in respect of any  money or balances which may be lying with  Government owing to any disputes,  differences or misunderstandings between  the parties or in respect of any delay or  omission on the part of the Engineer-in- charge in making immediate or final  payments or in any other respect  whatsoever.

1 11111 INTEREST     ON     MONEY     DUE     TO     THE    CONTRACTOR      :

No omission on the part of the Engineer-in- charge to pay the amount due upon  measurement or otherwise shall vitiate or  make void the contract, nor shall the  contractor be entitled to interest upon any  guarantee or payments in arrears nor upon  any balance which may on the final  settlement of his accounts be due to him.”

12. A reading of the aforesaid two Clauses of the contract  

agreement between the parties clearly reveal that despite  

14

Page 15

some overlapping of the circumstances contemplated by the  

two Clauses, no interest is payable to the contractor for  

delay in payment, either, interim or final, for the works done  

or on any amount lying in deposit by way of guarantee.  The  

aforesaid contemplated consequence would be applicable  

both to a situation where withholding of payment is on  

account of some dispute or difference between the parties or  

even otherwise.

13.  Of the several decisions of this Court referred to by the  

learned counsel for the appellant the judgments of the  

Constitution Bench of this Court in   Secretary,     Irrigation    

Department,     Government     of     Orissa     and     others     vs.     G.C.     Roy    

and     anr.  4    and   Executive     Engineer,     Dhenkalal     Minor    

Irrigation     Division,     Orissa     and     others     vs.     N.C.     Budhraj    

(deceased)     By     lrs.     And     others  5   will require specific notice.  

The true ratio laid down in the aforesaid two judgments  

have been elaborately considered in a more recent  

4 (1992) 1 SCC 508 5 (2001) 2 SCC 721

15

Page 16

pronouncement of this court in the case of Union     of     India   vs  

Krafters     Engineers     and     Leasing     Private     Limited  6  .      In  Krafters  

Engineers’s case (supra) the ratio of the decision  in G.C.  

Roy’s case (supra) was identified to mean that if the  

agreement between the parties does not prohibit grant of  

interest  and the claim of a party to interest is referred to  

the arbitrator, the arbitrator would have the power to award  

the interest.  This is on the basis that in such a case of  

silence (where the agreement is silent)  it must be  

presumed that interest was an implied term of the  

agreement and, therefore, whether  such a claim is tenable  

can be examined by the arbitrator in the reference made to  

him.  The aforesaid view, specifically, is with regard to  

pendente lite interest.  In the subsequent decision of the  

Constitution Bench  in  N.C. Budhraj’s case  (supra)  a  

similar view has been taken with regard to interest  for the  

pre reference period.

6 (2011) 7 SCC 279

16

Page 17

14. In  Krafters Engineers’ case (supra) the somewhat  

discordant  note struck by the decisions of this court in  

Board     of     Trustees     for     the     Port     of     Calcutta     vs. Engineers-De-

Space-Age  7   and Madnani     Construction     Corporation     Private    

Limited vs. Union     of     India     and     others  8 were also taken note  

of.   Thereafter, it was also noticed that the decision in  

Engineers-De-Space-Age’s case (supra) was  considered in  

Sayeed     Ahmed     &     Co.   vs. State     of     Uttar     Pradesh     &     Ors.   9 and  

the decision in  Madnani Construction case (supra) was  

considered in    Sree     Kamatchi     Amman     Constructions     vs.  

Divisional,     Railway     manager     (Works),     Palghat     and     others  10.  

In Sayeed Ahmed’s case (supra) (para 24) it was held that  

in the light of the decision of the Constitution bench in GC  

Roy’s case  and NC Budhraj’s case it is doubtful whether the  

observations in Engineers-de-Space-Age’s case (supra) to  

the effect that the Arbitrator could award interest pendente  

lite, ignoring the express bar in the contract, is good law.  In  

7 (1996) 1 SCC 516 8 (2010) 1 SCC 549 9 (2009) 12 SCC 26 10 (2010) 8 SCC 767.

17

Page 18

Sree Kamatchi Amman Constructions’s case(Supra)  while  

considering  Madnani’s case (supra) this court noted that the  

decision in Madnani’s case follows the decision in Engineers-

de-Space-Age’s case  (supra).

15. From the above discussions, it is crystal clear that  

insofar as pendente lite interest is concerned, the  

observations contained in Para 43 and 44 of the judgment in  

GC Roy’s case (supra)  will hold the field. Though the gist of  

the said principle has been noticed earlier it would still be  

appropriate to set out  para 44  of the judgment  in G.C.  

Roy’s case  (supra) which is in the following terms :  

“  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 pendent elite.  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  

18

Page 19

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  pendent elite.  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.”

16. The provisions of the UP Civil (Reforms and  

Amendment) Act amending the First Schedule to the  

Arbitration Act, 1940 does not assist the respondent -  

contractor in any manner to sustain  the claim of award of  

interest pendente lite,  inasmuch, as paragraph 7A to the  

First Schedule, as amended, is only an enabling provision  

which will have no application to a situation where there is  

an express bar to the entertainment or payment of interest  

on the delayed payment either of an amount due for the  

work done or of an amount lying in deposit as security.  The  

decision in  BN Agarwalla’s  case (supra) on which reliance  

has been placed by the learned counsel for the respondent,  

once again, does not   assist the claim of the respondent to  

interest pendente lite inasmuch as in BN Agarwalla’s case  

19

Page 20

(supra) the views of the Constitution Bench in GC Roy’s case  

(supra) with regard to interest pendente lite could not have  

been and, infact, were not even remotely doubted.  The  

observation of the bench in B.N. Agarwalla’s case that in  

G.C.Roy’s   case (supra) the decision in Executive     Eningeer    

(Irrigation),     Balimela     and     others     vs   .     Abhaduta     Jena     and    

others     11     was not overruled  was only in the context of the  

issue of award of interest for the pre reference period.  The  

decision in Asian Techs Limited case (supra) also relied on  

by the respondent takes note of the decision in Engineers-

De-Space-Age case  (supra) to come to the conclusion the  

prohibition on payment of interest contained in clause 11 of  

the agreement between the parties was qua the department  

and did not bar the Arbitrator from entertaining  the claim.  

It has already been noticed that the correctness of the  

propositions laid down in Engineers-De-Space-Age case  

(supra) have been doubted in the subsequent decisions of  

this court, reference to which has already been made.

11 (1988) 1 SCC 418

20

Page 21

17. Clauses 1.2.14 and 1.2.15, already extracted and  

analysed, imposed a clear bar on either entertainment or  

payment of interest in any situation of non payment or  

delayed payment of either the amounts due for work done  

or lying in security deposit.  On the basis of the discussions  

that have preceded we, therefore, take the view that the  

grant of pendente lite  interest on the claim of  

Rs.10,17,461/- is not justified.  The award as well as the  

orders of the courts below are accordingly modified to the  

aforesaid extent.   

18. However, the grant of interest for the post-award  

period would stand on a somewhat different footing. This  

very issue has been elaborately considered by this Court in  

B.N. Agarwalla (supra) in the light of the provisions of  

Section 29 of the Arbitration Act, 1940. Eventually this Court  

took the view that in a situation where the award passed by  

the arbitrator granting interest from the date of the award  

21

Page 22

till the date of payment is not modified by the Court “.....the  

effect would be as if the Court itself had granted interest  

from the date of the decree till the date of payment...”  In  

view of the above, the grant of interest on the amount of  

Rs.10,17,461/-from the date of the award till the date of the  

decree or date of payment, whichever is earlier, is upheld.  

In the facts of the case we are of the view that the rate of  

interest should be 12% per annum as determined in the  

arbitration proceeding between the parties.

19. In view of the foregoing discussions we allow this  

appeal in part

and modify  the order of the High Court dated 20th July,  

2006  as indicated above.  

...……………………J.   [R.M.LODHA]

22

Page 23

............................J. [ANIL R. DAVE]

………………………J.   [RANJAN GOGOI]

New Delhi, September 25, 2012.      

23

Page 24

2