Case Note & Summary
This case arose from a construction contract between a contractor and the State of U.P. for lining of the Upper Ganga Canal. The agreement dated 17.2.1989 included Clause 32 on extra items and Clause 51 providing for arbitration under the Indian Arbitration Act, 1940. Disputes arose regarding payment for extra earth work and other claims. By Office Memorandum dated 4.10.1992, the disputes were referred to sole arbitrator Shri Thakur Das. The arbitrator gave a speaking award dated 23.5.1994, awarding Rs. 72,22,740 for extra earth work beyond lip cutting in reach km 189.50-190.70, along with interest at 18% per annum from 1.1.1991 to the date of award on the total claim of Rs. 1,71,11,208 and further interest at 6% per annum from award to decree/payment. The District Judge granted decree in terms of the award. The High Court partly allowed the State's objections, disallowing the extra earth work claim on the ground that the arbitrator exceeded the scope of reference. The contractor appealed to the Supreme Court challenging this finding; the State cross-appealed against the award of interest at 18% from 1.1.1991. The Supreme Court considered two legal issues: (1) whether the arbitrator exceeded the scope of reference in deciding the rate for extra earth work; and (2) whether the arbitrator had jurisdiction to award interest for the period from 1.1.1991 to the date of award. On the first issue, the Court noted that the Office Memorandum expressly referred the dispute regarding rate for extra earth work to arbitration. Both parties argued the issue before the arbitrator, who gave detailed reasons. The Court held that interpretation of the contract is within the arbitrator's domain once the dispute is referred, and the High Court erred in holding otherwise. On the second issue, the Court relied on the Constitution Bench decision in Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, which established that an arbitrator has power to award interest pendente lite unless excluded by the contract, analogous to Section 34 of the Code of Civil Procedure, 1908. The Court examined Clause 1.18 of the Technical Specifications, which barred claims for interest or damage, but found that it did not specifically exclude interest pendente lite. The Court distinguished Durga Ram Parsad v. Government of Andhra Pradesh, where interest was denied due to a specific contractual clause. The Court held that the arbitrator could award interest from the date of reference to the date of award, but not for the pre-reference period, which the appellant conceded. Accordingly, the Supreme Court allowed the contractor's appeal except that no interest was payable for the pre-reference period, and dismissed the State's cross-appeal with modification. No order as to costs was made.
Headnote
A) Arbitration - Scope of Reference and Contract Interpretation - Expressly Referred Disputes Are Within Arbitrator's Jurisdiction - Indian Arbitration Act, 1940 (Sections not specified) - The High Court erred in holding that the arbitrator exceeded his scope by deciding the rate for extra earth work beyond lip cutting. The dispute was item (i) in the Office Memorandum referring disputes to arbitration; both parties argued before the arbitrator; the arbitrator gave a speaking award with detailed reasons. Held that interpretation of the contract is a matter for the arbitrator once the dispute is referred (Paras 4-5). B) Arbitration - Interest Pendente Lite - Arbitrator's Power Analogous to Section 34 CPC - Code of Civil Procedure, 1908, Section 34 and Indian Arbitration Act, 1940 - Clause 1.18 of the Technical Specifications did not bar interest pendente lite; relying on G.C. Roy, the arbitrator has discretion to award interest from date of reference to date of award to do complete justice. Pre-reference interest cannot be awarded unless contract provides. Held that arbitrator's award of interest was modified to deny pre-reference interest but allow pendente lite (Para 5).
Issue of Consideration
Whether the arbitrator exceeded the scope of reference in awarding rate for extra earth work; whether the arbitrator had jurisdiction to award interest for the period from 1.1.1991 to the date of award (pre-reference and pendente lite)
Final Decision
Appeal arising out of SLP(C) No. 4328/1997 allowed save and except appellant not entitled to any interest on principal amount prior to arbitrator entering upon reference; respondent's appeal dismissed with modification; no order as to costs.
Law Points
- Arbitrator's jurisdiction over disputes expressly referred
- interpretation of contract within scope
- interest pendente lite power analogous to Section 34 CPC
- pre-reference interest not allowed unless contract provides
- clause must specifically exclude interest to bar arbitrator
