Case: M/S. Madnani Construction Corpn.(P)Ltd Vs. Union Of India

Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 , a two- judge Bench of this Court considered the same question. That was a case under the 1940 Act. In Engineers (supra), the so-called prohibition in the contract relating to payment of interest was in Clause 13(g), which is set out below:- "13(g) No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the Contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise." 49. Relying on the said clause, the appellant in Engineers (supra) argued that there was absolute prohibition against payment of interest. The learned Judges however, relying on the ratio in G.C. Roy (supra) held that Clause 13(g) merely prohibits the Commissioner from entertaining any claim for interest but it does not prohibit the arbitrator from awarding interest. The learned Judges held that such clauses must be strictly construed in view of the ratio of the Constitution Bench in G.C. Roy (supra). The reasoning given by the learned Judges in favour of strict construction runs as follows:- "...Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the arbitrator is not, in any manner, stifled by this term of the contract and the arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified." (Para 4, page 520) 50. It was argued before us by the learned counsel for the respondent that a subsequent Division Bench of this Court in the case of Union of India v. Saraswat Trading Agency & others, JT 2009 (9) SC 648 , has taken a view different from the ratio in Engineers (supra). We do not think so. 51. In Saraswat Trading (supra) the Clause which was construed by the Court as clamping a prohibition on the grant of interest was Clause 31 and which is quoted in paragraph 15 of the judgment at page 656 of the report and runs as follows:- "31. No interest or damage for delay in payment - No interest or damage shall be paid to the Contractor for delay in payment of the bill or any other amount due to the contractor for any reason whatsoever. The Railway Administration will, however, make every endeavour for payment of the bills or other amount due to the contractor within a reasonable time." 52. The learned Judges in Saraswat Trading (supra) in paragraph 16 held that Clause 31 is different from Clause 13(g) which was considered in Engineers (supra). The ratio in Engineers (supra) was not questioned. 53. In the instant case also the relevant clauses, which have been quoted above, namely, Clause 16(2) of GCC and Clause 30 of the SCC do not contain any prohibition on the arbitrator to grant interest. Therefore, the High Court was not right in interfering with the arbitrators award on the matter of interest on the basis of the aforesaid clauses. We therefore, on a strict construction of those clauses and relying on the ratio in Engineers (supra), find that the said clauses do not impose any bar on the arbitrator in granting interest. 54. Reference in this connection may be made to another Constitution Bench judgment of this Court in the case of Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and others v. N.C. Budharaj (deceased) by Lrs. and others, (2001) 2 SCC 721 . 55. In N.C. Budharaj (supra), Justice Raju, speaking for the majority, considered the question of the arbitrators jurisdiction and authority to grant interest in great detail and also considered both Indian and English cases and the ratio of the Constitution Bench of this Court in G.C. Roy (supra). 56. In paragraph 25 of the judgment the learned Judge summed up the position as follows:- "...By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to civil court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise it could have successfully asserted before courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of its substantive rights under the various laws in force, according to which only even the arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the court thereunder, has to be upheld." (Emphasis supplied) 57. We are constrained to note that Honble High Court unfortunately erred in appreciating the ratio of N.C. Budharaj (supra) in passing the impugned judgment and order.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]50. It was argued before us by the learned counsel for the respondent that a subsequent Division Bench of this Court in the case of Union of India v. Saraswat Trading Agency & others, JT 2009 (9) SC 648 , has taken a view different from the ratio in Engineers (supra). We do not think so51. In Saraswat Trading (supra) the Clause which was construed by the Court as clamping a prohibition on the grant of interest was Clause 31 and which is quoted in paragraph 15 of the judgment at page 656 of the report and runs as follows:-"31. No interest or damage for delay in payment - No interest or damage shall be paid to the Contractor for delay in payment of the bill or any other amount due to the contractor for any reason whatsoever. The Railway Administration will, however, make every endeavour for payment of the bills or other amount due to the contractor within a reasonable time."52. The learned Judges in Saraswat Trading (supra) in paragraph 16 held that Clause 31 is different from Clause 13(g) which was considered in Engineers (supra). The ratio in Engineers (supra) was not questioned53. In the instant case also the relevant clauses, which have been quoted above, namely, Clause 16(2) of GCC and Clause 30 of the SCC do not contain any prohibition on the arbitrator to grant interest. Therefore, the High Court was not right in interfering with the arbitrators award on the matter of interest on the basis of the aforesaid clauses. We therefore, on a strict construction of those clauses and relying on the ratio in Engineers (supra), find that the said clauses do not impose any bar on the arbitrator in granting interest54. Reference in this connection may be made to another Constitution Bench judgment of this Court in the case of Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and others v. N.C. Budharaj (deceased) by Lrs. and others, (2001) 2 SCC 721 55. In N.C. Budharaj (supra), Justice Raju, speaking for the majority, considered the question of the arbitrators jurisdiction and authority to grant interest in great detail and also considered both Indian and English cases and the ratio of the Constitution Bench of this Court in G.C. Roy (supra)56. In paragraph 25 of the judgment the learned Judge summed up the position as follows:-"...By agreeing to settle all the disputes and claims arising out of or relating to the contract between the parties through arbitration instead of having recourse to civil court to vindicate their rights the party concerned cannot be considered to have frittered away and given up any claim which otherwise it could have successfully asserted before courts and obtained relief. By agreeing to have settlement of disputes through arbitration, the party concerned must be understood to have only opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of its substantive rights under the various laws in force, according to which only even the arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on the amounts due and become payable under the contract, the jurisdiction of the arbitrator to consider and award interest in respect of all periods subject only to Section 29 of the Arbitration Act, 1940 and that too the powers of the court thereunder, has to be upheld."57. We are constrained to note that Honble High Court unfortunately erred in appreciating the ratio of N.C. Budharaj (supra) in passing the impugned judgment and order