* THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.1601 of 2000 AND CIVIL MISCELLANEOUS APPEAL No.585 of 2001 % 24.12.2009 Between: M/s.Dhirubai D. & Company, Engineers & Contractors, Secunderabad, represented by its Partner, Mr.Amit Patel … Appellant AND Nizam Sugar Factor Limited, Hyderabad, represented by its General Manager (Personnel) and others …Respondents Counsel for the Appellant: Sri Bimal Bhaskar Counsel for the Respondents: Sri N.Vasudeva Reddy < Gist: > Head Note: ? CITATIONS: 1. (2004) 7 SCC 288 2. (2001) 6 SCC 356 3. AIR 1989 SC 1034 : 1989 Supp (1) SCC 368 4. 2002 (1) ALT 14 (SC) 5. 2007 (1) R.A.J. 211 (SC) 6. (2006) 13 SCC 779 7. (2006) 13 SCC 475 8. (2009) 7 SCC 350 9. AIR 1990 AP 294 10. (1997) 11 SCC 75 : AIR 1997 SC 980 11. (1999) 9 SCC 610 12. (2001) 4 SCC 241 : AIR 2001 SC 1523 13. 2009 (3) Arb.LR 140 (SC) 14. (2006) 7 SCC 700 15. (1998) 5 SCC 599 : AIR 1999 SC 1535 16. (2004) 2 SCC 663 : AIR 2004 SC 1330 17. AIR 1923 PC 66 18. (1991) 4 SCC 93: AIR 1992 SC 232 19. (1999) 9 SCC 283: AIR 1999 SC 3627 20. (1999) 8 SCC 122: AIR 1999 SC 3275 21. (2002) 4 SCC 45: AIR 2002 SC 1272 22. (2007) 2 SCC 453: AIR 2007 SC 509 23. (1988) 3 SCC 82 : AIR 1988 SC 1166 24. 1997 (5) ALT 146 25. (1992) 1 SCC 508 : AIR 1992 SC 732 26. (2005) 6 SCC 462 : AIR 2005 SC 2071 THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.1601 of 2000 AND CIVIL MISCELLANEOUS APPEAL No.585 of 2001 .12.2009 Between: M/s.Dhirubai D. & Company, Engineers & Contractors, Secunderabad, represented by its Partner, Mr.Amit Patel … Appellant AND Nizam Sugar Factor Limited, Hyderabad, represented by its General Manager (Personnel) and others …Respondents THE HON’BLE SRI JUSTICE V.V.S.RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.1601 of 2000 AND CIVIL MISCELLANEOUS APPEAL No.585 of 2001 COMMON JUDGMENT: (per Hon’ble Sri Justice V.V.S.Rao) Introduction These two miscellaneous appeals are against common order, dated 24.01.2000 in O.P.No.1031 of 1998 (hereafter called, the first O.P.,) and O.P.No.1052 of 1998 (hereafter called, the second O.P.,) filed by M/s.Dhirubhai D Thumer & Company, Engineers and Contractors (hereafter called, DDC). C.M.A.No.585 of 2001 against first O.P., was heard and reserved by us on 18.11.2009. C.M.A.No.1601 of 2000 against second O.P., was heard and reserved by us on 30.11.2009. It is, therefore, appropriate to dispose of both the appeals by common Judgment. Facts in brief Nizam Sugar Factory Limited (NSF) called for tenders for construction of machine foundations at Madhunagar, Zaheerabad in Medak District. DDC submitted their tender, which was accepted vide letter, dated 05.04.1991 of NSF. The parties entered into agreement on 26.04.1991 after negotiations in the presence of NSF’s consultant M/s.C.R.Narayanan Private Limited, Bangalore. The contractor gave lumpsum rebate of Rs.3,00,000/- (Rupees three lakhs only) reducing the contract value from Rs.45,94,020/- to Rs.42,94,020/-. Time was agreed to be the essence of contract, and work was to be completed by 14.10.1991 i.e., within a period of six months from the date of agreement. Nevertheless, clause 48 of General Conditions of Contract (GCC) provided for extension of time for completion of work by NSF on condition that no compensation would be payable. Clause 77 of GCC forming part of contract provides for resolution of dispute by arbitration. DDC completed the work by 30.11.1992. Disputes arose with regard to payment of final bills and related matters. DDC invoked clause 77 of GCC and by letter dated 20.06.1995 appointed Sri Akela Sitaramam, Retired Superintending Engineer as arbitrator requesting to enter reference as soon as arbitrator is nominated by NSF. A copy thereof was sent to NSF. In response thereto, NSF informed that their arbitrator would be appointed within twenty days. They did not do so in twenty days. Long thereafter, vide their letter, dated 21.02.1997, NSF appointed Sri K.Yagnanarayana, Retired Chief Engineer as their arbitrator and both the arbitrators chose Sri K.C.S.Rao, Retired Additional Director General of Works as Umpire. DDC raised eight claims. The arbitral tribunal partly allowed claim Nos.1, 2, 3, 4 and 8 (payment of interest) while rejecting claim Nos.5, 6 and 7, which have had been accepted by DDC. They filed first O.P., on the file of the Court of the Additional Chief Judge for SPE & ACB Cases-cum-V Additional Chief Judge, City Civil Court, Hyderabad, under Section 17 of the Arbitration Act, 1940 (hereafter called, 1940 Act). NSF filed second O.P., seeking to set aside the award. By impugned order, dated 24.01.2000, the Court below dismissed case of DDC and allowed NSF’s case. While doing so, learned Additional Chief Judge considered the question whether 1940 Act applies or the Arbitration and Conciliation Act, 1996 (hereafter called, 1996 Act) applies for resolution of dispute. On this, it was held that 1996 Act applies and the award passed by arbitral tribunal under 1940 Act is null and void. The Court below then considered claim Nos.1, 2, 3, 4 and 8, which were allowed by arbitral tribunal, and held that the contractor is not entitled for any extra amounts towards escalation charges or towards compensation. Arbitral award was accordingly set aside. The particulars of claims, award of the arbitral tribunal and the findings of the Court below are as below. Claim No. Amount claimed Rs. A m o u n t awarded by arbitrator Rs. A m o u n t awarded by civil Court Rs. Claim No.1 11,10,782 2,14,700 Rejected Claim No.2 10,01,000 6,06,000 Rejected Claim No.3 5,03,000 3,76,000/- Rejected Claim No.4 5,89,500 1,86,000 Rejected Claim No.5 1,75,000 Rejected --- Claim No.6 1,03,563 Rejected --- Claim No.7 Not specified Parties to bear their own costs --- Claim No.8 Interest claimed at 18% p.a., F r o m 12/1991 to 12/1994 a)Awarded interest 18% p.a., from 30.04.1994 to 26.8.1998 Rs.10,75,000 b ) Awarded at 18% from date of award to date or decree or actual payment Rejected Submissions of counsel Learned counsel for DDC submits that notice of arbitration was issued on 20.06.1995 before coming into force of Ordinance which preceded 1996 Act and therefore, 1940 Act alone is applicable. He placed reliance on Milk Food Limited v GMC Ice Cream (Private) Limited[1] and Fuerst Day Lawson Limited v Jindal Exports Limited[2]. In an effort to sustain the arbitration award insofar as the claims that were allowed, counsel made the following submissions. The arbitral tribunal found that the delay in completion of the contract work was due to breach of contract and default on the part of NSF in handing over possession, in supplying steel and in furnishing designs and drawings. It was also found that the work of construction of machine foundations was stopped during the crushing season in 1991-1992 as the deposit of bagasse on the foundations would have weakened the structures. In view of these, learned counsel would submit that clause 48 does not disentitle DDC from claiming escalation charges. According to learned counsel, entire agreement has to be read and clause 48 cannot be read in isolation. He relies on correspondence between the parties to support his contention that the delay was only due to NSF, and therefore, it would be improper and illogical to deny compensation by way of escalation of costs. Counsel relied on P.M.Paul v Union of India[3], Ramachandra Reddy and Company v Superintending Engineer[4], K.N.Sathyapalan v State of Kerala[5], Food Corporation of India v A.M.Ahmed & Company[6] and Ambica Construction v Union of India[7]. Learned standing counsel for NSF submits that arbitral award is null and void as it was passed under 1940 Act which had no application. He would rely on the reasoning of the Court below in support of the contention. Secondly, he submits that DDC having received the final bill without protest is estopped from raising any claim before the arbitral tribunal. In the absence of any arbitral dispute, the constitution of the arbitral tribunal itself is illegal. He relies on clause 77 of GCC and the letters written by NSF rejecting the request of the DDC for enhancement of rates. He placed reliance on Union of India v Omkarnath Bhalla[8]. Thirdly, he contends that in view of the specific bar created by clause 48 of GCC, the contractor is not entitled to claim any compensation except extension of time. He relies on State of Andhra Pradesh v Associated Engineering Enterprises[9], New India Civil Erectors (Private) Limited v Oil and Natural Gas Corporation[10], Ch.Ramalinga Reddy v Superintending Engineer[11] and Ramachandra Reddy v State of Andhra Pradesh[12]. Lastly, relying on State of Rajasthan v Ferro Concrete Construction Private Limited[13] and Rajasthan State Road Transport Corporation v Indag Rubber Limited[14], learned standing counsel submits that in view of the bar under clause 7 of Special Conditions of Contract (SCC), interest cannot be allowed. Which law applies? At the outset, we need to consider this question. As noticed supra, the Court below declared arbitral award, dated 26.08.1998 null and void only on the ground that the proceedings were conducted by arbitral tribunal as per 1940 Act. If this Court agrees with the Court below, there may not be any necessity for further consideration of the appeals. Arbitration and Conciliation Ordinance was promulgated by President of India on 16.01.1994. It came into force with effect from 25.01.1996. This was replaced by second Ordinance on 26.03.1996 and yet again by third Ordinance on 26.06.1996 to continue the operation of new law. The Central Act No.26 of 1996 received the assent of the President on 16.08.1996. In exercise of their powers under Section 1(3), Central Government issued Gazette Notification on 22.08.1996 appointing the said date as the date on which 1996 Act came into force. 1996 Act thus repealed (by reason of Section 85 thereof), Arbitration Act, 1940 with effect from 22.08.1996. The repeal Section reads as under. 85. Repeal and saving: (1) The Arbitration (Protocol and Convention) Act, 1937 (6 of 1937), the Arbitration Act, 1940 (10 of 1940) and the Foreign Awards (Recognition and Enforcement) Act, 1961 (45 of 1961) are hereby repealed. (2) Notwithstanding such repeal,- (a) the provisions of the said enactments shall apply in relation to arbitral proceedings which commenced before this Act came into force unless otherwise agreed by the parties but this Act shall apply in relation to arbitral proceedings which commenced on or after this Act comes into force; (b) all rules made and notifications published, under the said enactment shall, to the extent to which they are not repugnant to this Act, be deemed respectively to have been made or issued under this Act. (emphasis supplied) Sub-section (2) of Section 85 with non-abstante clause saves arbitral proceedings under 1940 Act which “commenced before” 1996 Act came into force unless the parties agree to be governed by the new Act. There cannot be any dispute that NSF appointed Sri Y.Yagnanarayana as their arbitrator vide their letter, dated 21.02.1997. By which date, 1996 Act is in force. This is strongly emphasised by NSF’s counsel to buttress the argument that the constitution of arbitral tribunal having been effected after coming into force of 1996 Act, the award passed under 1940 Act is null and void. This submission, however, cannot be accepted, in view of Section 21 of 1996 Act and three decisions of Supreme Court on the point. As per Section 21, arbitral proceedings shall commence on the date on which a request for referring the dispute to arbitration is received by other party unless the party specifically agree to stipulate a date with regard to the commencement of arbitration. I n Shetty’s Constructions Company Private Limited v Konkan Railway Construction[15], Konkan Railway entrusted works to Shetty Constructions. Disputes arose and the contractor sought a reference to arbitration on 06.03.1995, followed by yet another such request on 29.05.1995, in vain. They, therefore, filed suit in High Court of Bombay on 24.08.1995 under Section 8 read with Section 20 of 1940 Act. There were three other similar suits. But, in all the matters, request for reference to arbitration was made prior to coming into force of 1996 Act. The High Court held that the demands were premature. Before the Supreme Court, however, this was not pressed and the question was whether old Act applies? Having regard to the factual background and also Section 21 of 1996 Act, Supreme Court held as under. Therefore, it must be found out whether the requests by the petitioner for referring the disputes for arbitration were moved for consideration of the respondents on and after 26-1-1996 or prior thereto. If such requests were made prior to that date, then on a conjoint reading of Section 21 and Section 85(2)(a) of the new Act, it must be held that these proceedings will be governed by the old Act. As seen from the aforenoted factual matrix, it at once becomes obvious that the demand for referring the disputes for arbitration was made by the petitioners in all these cases months before 26-1-1996, in March and April 1995 and in fact thereafter all the four arbitration suits were filed on 24-8-1995. These suits were obviously filed prior to 26-1-1996 and hence they had to be decided under the old Act of 1940. This preliminary objection, therefore, is answered by holding that these four suits will be governed by the Arbitration Act, 1940 and that is how the High Court in the impugned judgments has impliedly treated them. (emphasis supplied) In Fuerst Day Lawson Limited (supra), disputes arose with regard to the date of commencement of new Act. While holding that despite the date of coming into force of the Act, for all practical and legal purposes, the Act shall be deemed to come into force from the date of Ordinance, Supreme Court held that a foreign award can be enforced under the new Act even it is not made rule of the Court in accordance with the new Act, if such foreign award is passed after coming into force of the Ordinance. This decision supports the contention that even though the Central Government notified 22.08.1996 as the date when 1996 Act came into force, for all practical purposes, the Act shall be deemed to have come into force on 25.01.1996 when the First Ordinance came into force. For all practical purposes, therefore, it shall have to be considered that 1996 Act came into force on 25.01.1996 and all arbitrations commenced after 25.01.1996 shall be governed by the new Act. If the arbitration is commenced by issuing a notice of request or a notice seeking a reference to arbitration prior to 25.01.1996, it shall be governed by 1940 Act. In Milk Food Limited (supra), a three Judge Bench of Supreme Court considered the question again and held that service of notice for appointment of arbitrator would be relevant for the purpose of commencement of arbitral proceedings and that by reason of Section 85(2)(a) of 1996 Act, if request for appointment of arbitrator is made prior to coming into force of new Act, arbitration shall be held in accordance with 1940 Act. The relevant observations are as follows. Sub-section (1) of Section 85 of the 1996 Act repealed the 1940 Act (10 of 1940). Sub-section (2), however, notwithstanding such repeal makes the 1940 Act applicable in relation to arbitral proceedings which commenced before the said Act came into force. ….. Section 21 of the 1996 Act, as noticed hereinbefore, provides as to when the arbitral proceedings would be deemed to have commenced. Section 21 although may be construed to be laying down a provision for the purpose of the said Act but the same must be given its full effect having regard to the fact that the repeal and saving clause is also contained therein. Section 21 of the Act must, therefore, be construed having regard to Section 85(2)(a) of the 1996 Act. Once it is so construed, indisputably the service of notice and/or issuance of request for appointment of an arbitrator in terms of the arbitration agreement must be held to be determinative of the commencement of the arbitral proceeding. ….. Keeping in view the fact that in all the decisions, referred to hereinbefore, this Court has applied the meaning given to the expression “commencement of the arbitral proceeding” as contained in Section 21 of the 1996 Act for the purpose of applicability of the 1940 Act having regard to Section 85(2)(a) thereof, we have no hesitation in holding that in this case also, service of a notice for appointment of an arbitrator would be the relevant date for the purpose of commencement of the arbitration proceeding. As already noticed, in view of the admitted position that invoking clause 77 of GCC, DDC appointed Sri Sitaramam as their arbitrator and marked copy of the said communication, dated 20.06.1995 to NSF. In response thereto, latter addressed a communication on 07.07.1995 informing that they would appoint arbitrator within twenty (20) days. Though the arbitrator was appointed by them in 1997, as the arbitration proceedings are deemed to have been commenced on 20.06.1995 long prior to coming into force of the Ordinance, we hold this point in favour of DDC to the effect that the dispute between the parties has to be resolved in accordance with the provisions of 1940 Act. Whether DDC is estopped from raising claims before the arbitrators? In their letter, dated 21.02.1997, while appointing their arbitrator, NSF stated that the claim is time barred and that arbitrable dispute does not exist between the parties. Before the arbitral tribunal, NSF alleged that DDC received the final payment without any protest, and that the claims are to be rejected. In their O.P., as well as in their counter in first O.P., NSF raised objection to the effect that DDC having accepted the final bill on 26.05.1994 without any protest, is estopped from raising the dispute before the arbitration. NSF reiterates the same before this Court. Clause 77 of GCC forming part of the contract to the extent necessary reads as under. In the event of any question or dispute arising under these conditions or any special conditions of contract or in connection with this contract (except as to any ------------ decision of which is specially provided for by these conditions), whether during the progress of the works or after their completion and whether before or after the determination, abandonment or breach of contract, the same shall be referred to the award of an arbitrator to be nominated by the Employer and an arbitrator to be nominated by the contractor, or in case of the said arbitrators not agreeing than to the award of an Umpire to be appointed by the arbitrators in writing before proceeding on the reference and the decision of the Arbitrators, or in the event of their not agreeing or the Umpire appointed by them shall be final and conclusive and the provisions of the Indian Arbitration Act, 1940, and or the Rules thereunder and any statutory modification thereof shall be deemed to apply to and be incorporated in this contract. The venue of the arbitration proceedings, unless otherwise mutually agreed upon shall be the Registered Office of the Employer. (emphasis supplied) A plain reading of above covenant would show that any dispute arising under GCC, SCC or in connection with the contract, during or after completion of the contract, or before or after determination, abandonment or breach of contract is arbitrable. Therefore, having regard to the broad and enlarged scope of clause 77, unless and until it is shown that DDC explicitly waived the claims, the submission of NSF cannot be accepted. In this connection, counsel for NSF invited the attention of this Court to three documents. The first is letter, dated 28.05.1993, addressed by DDC to General Manager of NSF. While referring to as many as six of their earlier communications between November, 1991 and October, 1992, DDC requested NSF to settle the claims already submitted while stating that it has no claims other than the claims already submitted to NSF. The said letter reads as under. DHIRUBHAI D.THUMER & Co., Engineers & Contractors On approved list of State & Central P.W.D Regd.Office: KAZIPET ‘Patel chambers’ 10-3-152/8, 1st floor, Entrenchment Road, Secunderabad-500 026. Date:28-05-1993 Ref: The General Manager, N.S.F., Madhunagar, ZAHEERABAD. Sub: Agreement No.Nil dated 26-4-91 for the construction of Machine Foundations. Ref: Our letters dated 10-11-91. Our letters dated 21-01-92. Our letters dated 28-02-92. Our letters dated 18-01-92. Our letters dated 20-09-92. Our letters dated 03-10-92. Your Engineers Completion Certificate dated 30-11-92. -:- Sir, 01. The work under the above agreement which was awarded to us vide letter of intent dated 05-04-91 has been duly completed on 30-11- 92 as per the Completion Certificate issued by your Engineer. 02. From time to time, we brought to your notice the delays/hindrances (not attributable to us) which caused a set back to the progress of work, and highlighted the same for redressal from your end as per correspondence mentioned above. 03. We have not so far been issued an extension of time for completion of the work. 04. As you are aware, due to delay in issue of drawings/clearances which occurred during the original contact period, many sites and drawings were issued subsequently after the expiry of the contract period. These delays are attributable to you. 05. Inspite of the above delays (not attributable to us) we endeavoured to complete the work in terms of clause (4) of the contract and specifications duly confirmed in your Engineers Completion Certificate. 06. We have “no claims” other than those already submitted to you in various letters mentioned above (copy enclosed) and request you to settle the same and arrange to pay us the final bill. Yours sincerely, XXX. Enclosures: Copy of letters mentioned in the reference. In response to the above letter, NSF sent a letter dated 10.08.1993, rejecting the claims made by DDC and the same reads as under. THE NIZAM SUGAR FACTORY LIMITED (GOVERNMENT COMPANY) Registered Office: Unit III, B-1-174, Shakar Bhavan, Madhunagar, Fateh Maiden Road, Tq.Zaheerabad, Hyderabad-500 004 Dist.Medak, (ANDHRA PRADESH) (ANDHRA PRADESH) Telex No.NSF, HD-278 P.C-502 228 Our Ref.No.NSL/MDNR/GM/52 Date:10.08.1993 M/s.Dhirubai D.Thumer, Patel Chambers, East Marredpaly, Secunderabad-26. Dear Sir, Sub: Your Representation for payment of escalation bills – reg. Ref: Your Letter dated 28.5.1993. We have examined your representation and in reply, we wish to inform you that as no escalation clause is provided in the agreement, the question of considering your request does not arise. Further, it may not be out of place to mention that company had supplied steel and cement mostly on time and work had never suffered on account of these. Thanking You, Yours faithfully, For the NIZAM SUGARS LIMITED, XXXX GENERAL MANAGER. On 26.05.1994, NSF with the letter bearing the said date sent a demand draft for Rs.11,871.28/- towards full and final bill in connection with the contract work. The same reads as under. THE NIZAM SUGAR FACTORY LTD (GOVERNMENT COMPANY) Registered Office: Unit III, B-1-174, Shakar Bhavan, Madhunagar, Fateh Maiden Road, Tq.Zaheerabad, Hyderabad-500 004 Dist.Medak, (ANDHRA PRADESH) (ANDHRA PRADESH) Telex No.NSF, HD-278 P.C-502 228 Ref.No.ZAH/ACT/Proj./8096 Date:26-05-1994 M/s.Dhirubai D.Thumer & Co., 10-3-152/B, “Patel Chambers”, East Marredpaly, Secunderabad-500 026. Dear Sirs, Sub: Construction of Machine Foundations – final bill. Ref: Contract Agreement Lr.No.NSF/MDNR/Exp. /CW/22/91/101 dt.5/6-4-1991. -x- With reference to the above, we are enclosing herewith DD.No.707402 dtd.24-5-94 for Rs.11,871.28 (A/c payee) drawn in your favour on Syndicate Bank, payable at Hyderabad, towards full and final bill of the above contract work. In this connection we furnish below the details: I. Total Gross bill (final) .. Rs.77,16,191.75 including extra items. Less:- Rebate @ 6.53% .. Rs. 5,03,867.25 _________________ Net .. Rs.72,12,324.50 --------------------- II. Total Gross bill. .. Rs.72,12,324.50 Less:- Prefinal bill settled .. Rs.71,90,640.80 _________________ 21,683.70 Less:- Recoveries such as IT & SD etc Rs. 17,150.42 _________________ Net .. Rs. 4,533.28 --------------------- III. Total