IN THE HIGH COURT OF JUDICATURE AT MADRAS Dated : 14.8.2009 Coram: The Honourable Mr.Justice P.JYOTHIMANI O.P.Nos.487 and 568 of 2008 Ennore Port Trust P.T.Lee Chengalvaraya Naicker Maaligai 1st Floor, No.23, Rajaji Salai Chennai  600 001. .. Petitioner in OP:487/2008 and 1st respondent in OP:568/2008 vs. 1. M/s.HCC Van Oord ACZ Joint Venture HINCON House, LBS Marg Vikhroli (West), Mumbai  400 083 .. 1st respondent in OP:487/2008 and petitioner in OP:568/2008 2. Jagman Singh 3. V.Subramanian 4. K.Dharmalingam .. Respondents 2 to 4 in both OPs. Petitions filed under Section 34 of the Arbitration and Conciliation Act, 1996. For Petitioner in OP:487/2008 : Mr.K.Manoj Menon and 1st respondent in OP:568/2008 For 1st respondent in : Mr.G.Masilamani OP:487/2008 and petitioner Senior Counsel in OP:568/2008 for Mr.D.Balaraman ORDER The above original petitions are filed by both the parties before the Arbitral Tribunal under Section 34 of the Arbitration and Conciliation Act, 1996 (for brevity, "the Act") challenging the arbitral award dated 22.5.2008. While O.P.No.487 of 2008 is filed by the respondent before the Arbitral Tribunal/Employer, O.P.No.568 of 2008 is filed by the claimant before the Arbitral Tribunal/Contractor. In these petitions, the claimant before the Arbitral Tribunal is termed as "the Contractor", while the respondent before the Arbitral Tribunal is termed as "the Employer". 2. In the impugned award, which is questioned in these petitions, the Arbitral Tribunal, while considering Claim No.11 in respect of non-payment of monthly Interim Payment Certificates (IPCs) certified by Engineer relating to the works executed by the Contractor, has found that the claim is factually, contractually and legally justified and passed the following award: "i) The Respondent/Employer is directed to release the following payments in respect of the Interim Payment Certificates certified by the Engineer and in the applicable currencies (as per Annexure No.2 on the basis of Exhibit C-11/20 enclosed in the Statement of Claim). a. INR : 234,607,152 b. USD : 794,043 c. NLG/EUROs : 2,186,646 ii) The Respondent/Employer is directed to pay interest at 12% from the dates when the respective interim payment certificates were due for payment till the date of this award. (The dates are as mentioned in Annexure No.2 on the basis of Exhibit C-11/20 enclosed in the Statement of Claim). iii) Respondent shall pay to the claimant, the amounts awarded at Sl.No. i) and ii) above, within a period of 90 days from the date of this award, failing which, the awarded amounts as above shall carry simple rate of interest at 15% per annum from the date of this award till the date of actual payment." Thus, the Arbitral Tribunal has passed the award in respect of Agreement No.33 of 1997, dated 22.8.1997 for Breakwater construction. 3. The Chennai Port Trust, which was appointed by the Government of India as the Executing Agency for construction of Ennore Port, has proposed to construct two breakwaters, the North and South Breakwaters to create a tranquil basin for the ships to berth. A contract was entered into between the Chennai Port Trust and the Contractor, viz., M/s.HCC Van Oord ACZ Joint Venture on 22.8.1997 for construction of the said breakwaters. By virtue of a memorandum of understanding dated 30.3.2002, all the assets and liabilities, including contracts entered into by the Chennai Port Trust in respect of Ennore Port Project, stood transferred in favour of the Employer, viz., Ennore Port Trust, which is a company in which the Government of India and Chennai Port Trust are the shareholders. 4. M/s.Haskoning Royal Dutch Engineers and Architects were appointed as Consultants to the contract. The scope of the works to be executed as per the contract is the construction of two rubble mound type breakwaters, approximately of total length of 4 km in water depths up to 12 m CD, partly with Accropode armouring units and the approximate cost of the works entrusted to the Contractor was Rs.232,86,74,685/- and the time for completion was 15.8.2000, which was extended by the Engineer till 26.4.2001. The rocks supplied were required to be used by the Contractor for construction of breakwater. While there is no dispute about the satisfactory completion of the work since Taking-Over Certificates as well as Defect Liability Certificates have been issued by the Engineer, the dispute arose due to the failure of the Employer to release the payment for the works executed and certified by the Engineer through monthly Interim Payment Certificates (IPCs). 5. According to the Employer, on scrutiny of the Interim Payment Certificates (IPCs) submitted by the Contractor and after audit, it was found that excess payments have been made to the Contractor on account of erroneous certification by the Engineer and misinterpretation of the contract. The Employer has not admitted its liability to pay in respect of the certified Interim Payment Certificates Nos.38 to 56. According to the Employer, the dispute regarding the alleged non payment of Interim Payment Certificates Nos.38 to 56 have arisen in 2001-2002. The Contractor issued notice under Section 21 of the Act for referring the dispute to arbitration in respect of the said non-payment. It was the case of the Employer that the said claim is barred by limitation and even though the Interim Payment Certificates have been certified by the Engineer, the Contractor is not entitled to the said amount due to the reason that the certificates have been issued against the terms of the contract and law. 6. The award passed by the Arbitral Tribunal is challenged by the Employer on various grounds, including: (i) that it is against the public policy of India; (ii) that there was no acknowledgment on the part of the Employer to make payment based on the Interim Payment Certificates issued by the Engineer; (iii) that the Interim Payment Certificates Nos.38 to 56 were due during 26.2.2001 and 26.8.2002 and the arbitration proceedings were commenced on 30.6.2006, more than three years after the due dates and therefore, the amount under Interim Payment Certificates are barred by limitation; (iv) that the Arbitrators, apart from having failed to take note of the above said facts, have also not taken note of the fact that under the Limitation Act extension or exclusion of the period for computation of limitation is not applicable in respect of the claims regarding Interim Payment Certificates Nos.38 to 56; (v) that the non-payment in respect of Interim Payment Certificates was not within the jurisdiction of the Arbitral Tribunal; (vi) that, in any event, the awarding of interest for a period beyond three years before the date of commencement of arbitration is not permissible in law; (vii) that the award of interest at the rate of 12% and 15% is against the terms of contract, especially Sub-Clause 60.8 of the Conditions of Particular Application; (viii) that the Arbitrators, as per Section 31(7)(a) of the Act, are entitled to grant interest at their discretion only if there is no provision for interest in the contract; (ix) that, even if Sub-Clause 60.8 of Conditions of Particular Application is not applicable, interest can be awarded only under the Interest Act, 1978 and therefore, the awarding of interest at the rate of 12% and 15% is erroneous and as per the contract it can be only at the rate of 8% per annum; (x) that the Arbitral Tribunal failed to appreciate that as per Sub-Clause 60.8 of the Conditions of Particular Application, the due date for payment based on the Interim Payment Certificates is 56 days from the date of submission of the monthly statement by the Contractor and therefore, the cause of action to sue arises after the expiry of 56th day and any recovery proceedings ought to have been initiated within three years from the said due date and hence, the claim in respect of Interim Payment Certificates Nos.38 to 56 ought to have been commenced by 2004-2005, while the proceedings commenced only on 30.6.2006, and as such, it is barred by limitation; (xi) that it is not correct for the Arbitral Tribunal to conclude that, under Sub-Clause 60.11 of the Conditions of Particular Application, the Contractor was entitled to claim any amount included in the final statement and that even if such amounts are included in the final statement, as per Sub-Clause 60.8 of the Conditions of Particular Application, the right to claim under Interim Payment Certificates would arise on the expiry of 84th day of the final statement and in which event, no interest can be claimed for the prior period; (xii) that the draft final statement was submitted on 14.10.2004 and final statement was issued by the Engineer on 26.12.2005 and therefore, the award of interest for the prior period is against the terms of contract; (xiii) that the finding of the Arbitral Tribunal to the effect that period of pendency of the counter claims made by the Employer against the Contractor has to be excluded to compute the period of limitation to commence arbitration proceedings is perverse and contrary to Section 14 of the Limitation Act; (xiv) that the letter dated 3.10.2003, which is unsigned and not acted upon, cannot be treated as an acknowledgment of liability under Section 18 of the Limitation Act; and (xv) that the Arbitrators have failed to note that the Engineer has not calculated the profits and overheads in accordance with the terms agreed, wherein the approved rate was 10.56%, while the Engineer's calculation was at the rate of 18.45%. 7. On the other hand, the Contractor, in his petition challenging the arbitral award, has raised the following grounds: (i) that, under Sub-Clause 60.7 of the Conditions of Particular Application, the Employer himself has stipulated interest at the rate of 18% on hypothecated advances which could have been taken note of by the Arbitral Tribunal, which granted interest only at the rate of 12% and 15%; and (ii) that the Arbitral Tribunal, having held that rate of interest at the rate of 18% requested by the Contractor is reasonable and fully justified, ought not to have reduced the rate of interest to 12% and 15%. 8.1. The learned counsel for the Employer has raised two issues while challenging the award of the Arbitral Tribunal, one on the ground of limitation and another on the ground of interest awarded. 8.2. According to the learned counsel for the Employer, the claim of the Contractor based on Interim Payment Certificates Nos.38 to 56 and also the final bill amount are payable on various dates between 26.2.2001 and 6.1.2005, which, according to him, is the cause of action for recovery of the said amounts under the Interim Payment Certificates, while the arbitration proceedings have commenced only on 30.6.2006, after the period of limitation and therefore, it is his submission that up to the Interim Payment Certificate No.56, which was on 26.8.2002, the limitation of three years has already expired in August, 2005 and hence, the claims made by the Contractor based on those Interim Payment Certificates are beyond the period of limitation and it is only the final bill which was made on 6.1.2005, which amount alone remains and in respect of all other previous amounts from Interim Payment Certificates Nos.38 to 56, the cause of action has already come to an end and therefore, according to the learned counsel, the Arbitral Tribunal should have rejected the entire claim up to Interim Payment Certificate No.56, dated 26.8.2002. 8.3. It is his further contention that, even according to the Contractor the cause of action arose in respect of the individual Interim Payment Certificates on the respective due dates of the Interim Payment Certificates and therefore, the amounts due under the Interim Payment Certificates, which are all individual certificates, cannot be clubbed with the final bill. According to him, when it is not even the case of the Contractor, it is not proper for the Arbitral Tribunal to pass award in favour of the Contractor. 8.4. It is submitted that when the Contractor himself has laid his claim based on the stand that the cause of action has arisen on the due dates of the respective Interim Payment Certificates, the Arbitral Tribunal ought not to have relied upon Sub-Clause 60.14 of the Conditions of Particular Application for holding that the Employer would be liable till the final bill and therefore, according to the learned counsel, the finding of the Arbitral Tribunal that the cause of action would arise only after 30.11.2005 is perverse. 8.5. It is his further submission that the period cannot be excluded under Sections 12 to 14 of the Limitation Act. According to him, when once the cause of action commences, any negotiations made after the commencement of cause of action would not stop running of time and such period cannot be excluded for the purpose of limitation. 8.6. He would submit that even the letters dated 3.10.2003 and 16.12.2003 relied upon by the Arbitral Tribunal cannot be taken as acknowledgment of liability under Section 18 of the Limitation Act, for the reason that the said letters are written "without prejudice" and such letters cannot be taken as acknowledgment of liability. In this regard, he would rely upon the judgments in (i) Tata Oil Mills Co. Ltd. v. Lokenath Chemical Works, AIR 1987 Calcutta 13; and (ii) Superintendent, Central Excise, Jabalpur v. Pratap Raj, AIR 1987 SC 1244. 8.7. It is his contention that when the Contractor himself has not accepted and given consent and it was not acted upon, the contents of the said letters dated 3.10.2003 of the Employer cannot be taken as an acknowledgment of liability. He would also submit that, as per the Indian Contract Act, any proposal must become a promise so as to enforce it as an agreement and inasmuch as the agreement concerned was not entered into between the Employer and the Contractor, the contents of the letter dated 3.10.2003 cannot be acted upon. For the purpose of applying Section 18 of the Limitation Act, he would rely upon the decisions in (i) Union of India v. Seyadu Beedi Co., AIR 1970 Madras 108; and (ii) Food Corporation of India v. Assam State Co-operative Marketing and Consumer Federation and Others, [2004] 12 SCC 360. 8.8. In respect of his submission relating to interest, the clause in the contract provides for lesser interest, which is not restricted for a specified period and according to him, Sub-Clause 69 of the Conditions of Particular Application applies only in case of default of the Employer. On the other hand, the entitlement of interest is under Sub-Clause 60.8 and the award of interest other than at the said rate is outside the terms of the contract. 8.9. It is his submission that when the parties have agreed on a particular rate of interest, it is not open to the Tribunal to use its discretion in granting more interest in the award. He would rely upon the judgment in M/s.Sayeed Ahmed & Co. v. State of U.P. and others, CDJ 2009 SC 1385. 8.10. It is his submission that the order passed by this Court in O.P.No.262 of 2005, dated 26.9.2005 relied upon by the learned Senior Counsel for the Contractor in respect of the award is not applicable, since that was a case where this Court dealt with Sub-Clause 60.5 relating to retention money and not relating to payment under Interim Payment Certificates. 8.11. He would also submit that, as per the judgments of the Supreme Court, it is the contractual rate of interest which should prevail. He would submit that even otherwise, if the contract clause is not applicable in respect of interest, it is the Interest Act, 1978 which is applicable. He would rely upon the judgments in (i) HUDA v. Raj Singh Rana, AIR 2008 SC 3035; and (ii) Sports Development Authority of Tamil Nadu v. Tarapore & Co., 2006 (4) CTC 712. 8.12. Relating to the award of interest by the Arbitral Tribunal, the learned counsel for the Employer relied upon the following judgments: (i) Krishna Bhagya Jala Nigam Limited v. G.Harischandra Reddy and another [2007] 2 SCC 720; (ii) Judgment dated 7.12.2007 made in OSA.No.285 of 2003; and (iii) State of Rajasthan v. M/s.Nav Bharat Construction Co., AIR 2002 SC 258. According to him, the award of interest at the rate of 12% and 15% is contrary to law and the interest should have been awarded at 8%. 8.13. It is his submission that the various judgments relied upon by the learned Senior Counsel for the Contractor were relating to claims made based on the final bill and proceedings were commenced only based on the final bill. 8.14. He would rely upon the judgment of the Supreme Court in Oriental Insurance Co. Ltd. v. Raj Kumari, (2007) 12 SCC 768 to substantiate that a small difference in fact would make a world of difference between conclusion in two cases and that there cannot be any comparison. 8.15. He would submit that the judgments relied upon by the learned Senior Counsel for the Contractor, viz., (i) Hari Shankar Shingania v Gaur Hari Shingania and Others, [2006] 4 SCC 658; (ii) Major Inder Singh Rekhi v. Delhi Development Authority, AIR 1988 SC 1007; and (iii) Hari Shankar Shingania v. Gaur Hari Shingania, [2006] 4 SCC 679, are relating to Section 20 of the Arbitration Act, 1940 and there is no similar provision as that of Section 20 of the Arbitration Act, 1940 in the Arbitration and Conciliation Act, 1996 and in this regard, he would rely upon the judgment in Sundaram Finance Ltd. v. NEPC India Ltd., [1992] 2 SCC 479. 9.1. On the other hand, it is the contention of Mr.G.Masilamani, learned Senior Counsel appearing for the Contractor that the Interim Payment Certificates are only tentative and it is only after the final bill is produced the claim comes to an end. The Interim Payment Certificates are given not for the purpose of completing the contract at every time when Interim Payment Certificates are issued, but the contract continues and payments are made. He would also rely upon Sub-Clauses 60.2, 60.9, 60.10, 60.11 and 60.12 of the Conditions of Particular Application to submit that the relationship between the Employer and the Contractor comes to an end only on the final bill being made and therefore, the liability is a continuing one. The production of Interim Payment Certificates is only to enable the Contractor to get payment since there is an obligation on the part of the Employer and it is not as if every month when Interim Payment Certificates are made, the Contractor should have recourse to legal remedies, in which event the parties cannot do the work, but can only spend their time in litigation, which is not the purpose. 9.2. According to the learned Senior Counsel, the minimum rate of interest payable for 90 days cannot be the intention of the parties and it is unconscionable, for his contention is that by non- payment the Employer can become an unjust beneficiary and that cannot be the tenor of the contract. 9.3. He would submit that the judgments relied upon by the learned counsel for the Employer are all relating to cases where the works were completed and final bills prepared or works completed and final bills were in process or where the contract was terminated or superseded by the supplementary agreement and they are not relating to Interim Payment Certificates issued by the Engineer prior to submission of final bill, in respect of which the Employer is liable to pay under Sub-Clause 60.8 of the Conditions of Particular Application. 9.4. He would submit that the limitation would start only after the final bill is submitted and in the present case the final bill was submitted on 26.12.2005 and from the said date within three years the amount due under all Interim Payment Certificates can be claimed, after adjustment of various amounts paid. 9.5. He would also submit that there are variation orders numbering 23. Since the payments are on the running account and the certificates issued in Interim Payment Certificates are not disputed by the Employer, the limitation has to start from the date of presentation of the final bill in respect of all payments due under various Interim Payment Certificates Nos.38 to 56. 9.6. It is his submission that Interim Payment Certificates are issued in respect of the entire project of the port which has been undertaken by the Contractor, which is a running work and therefore, it cannot be said that every Interim Payment Certificate is subject to the limitation of three years. He would also refer to various documents to show that each of the bill is not an independent one and it is a running account bill. 9.7. He would submit that a dispute for arbitration is different from cause of action for recovery. A reference of dispute for arbitration arises only when dispute arises, which even may be beyond the period of limitation for recovery of amount in a civil suit for the cause of action. His submission is that when the bills in Interim Payment Certificates Nos.38 to 56 have been approved by the Engineer, which was never disputed by the Employer, there was no necessity for moving the arbitration and it was only for the first time after the final bill was presented, there was a denial in respect of payment of Interim Payment Certificates, a dispute arose and immediately thereafter, within the prescribed time, the arbitration has been referred to. He would rely upon the judgments in (i) Hari Shankar Shingania v Gaur Hari Shingania and Others, [2006] 4 SCC 658; (ii) Shree Ram Mills Ltd. v. Utility Premises (P) Ltd., [2007] 4 SCC 599; (iii) Food Corporation of India v. Assam State Co-operative Marketing and Consumer Federation and Others, [2004] 12 SCC 360; (iv) Major Inder Singh Rekhi v. Delhi Development Authority, AIR 1988 SC 1007; (v) Panchu Gopal Bose v. Board of Trustees for Port of Calcutta, [1993] 4 SCC 338 to substantiate his contention that cause of action is different from the dispute arising for arbitration. 9.8. It is his submission that when once the proposal was given on 3.10.2003, simply because the said proposal in respect of issuance of bank guarantee was not accepted, it does mean that the consent given by the Employer by way of the said proposal cannot be taken as an acknowledgment of liability. It is not the acceptance of the proposal that is relevant, but it is the proposal given by the Employer, wherein an acknowledgment has been made that is relevant for the purpose of the period of limitation. Inasmuch as the employer has admitted on 10.10.2003 by way of an acknowledgment, the commencement of arbitration, which was on 30.6.2006, is well within the time, even based on the cause of action. 9.9. He would submit that only when the dispute arises the question of referring to arbitration would come in and so long as negotiations were pending, viz., up to 27.11.2003, there was no dispute in existence for the purpose of referring the same to arbitration. 9.10. He would submit that when a statement by way of consent has been made "without prejudice", the only consequence is that such statement cannot be used for the purpose of obtaining decree on admission. But, for the purpose of acknowledgment of liability under Section 18 of the Limitation Act, the limitation point starts from the said acknowledgment and the jural relationship between the Employer and the Contractor continues till the final bill is presented and settled. 9.11. It is his submission that there is nothing in the award to show that it is opposed to law or against the public policy. 9.12. He would submit that from the date of passing of final bill on 26.12.2005, the arbitration proceedings has commenced within three years, since the arbitration was on 30.6.2006. He would rely upon the judgments in (i) State of Orissa v. Damodar Das, AIR 1996 SC 942; (ii) T.N.State Construction Corporation Ltd. v. M/s.Gardner Landscape (P) Ltd., 2005 (1) CTC 401 to show that the final bill is