Case: Union of India Vs. Concrete Products and Const. Co. Etc

The appellant had entered into agreements with the respondents on 30th January, 1983 and 30th March, 1984 for supply of mono block concrete sleepers (in shortThe agreements were renewed from time to time under which the Union of India agreed to pay specified rates for supply of each sleeper. The agreements/contracts also provided that the rates payable shall be based on certain standard rates of principal raw materials, such as cement, High Tensile Steel (HTS) wires, molded steel, etc. The contracts further provided that whenever the cost of the principal raw materials increased or decreased, the contract price for sleepers shall also correspondingly be increased or decreased with effect from the date of such increase or decrease. The agreements/contracts also provided for escalation, subject to certain conditions prescribed under Clause 11 of the Contract. The contracts/agreements further provided that the respondents must exercise utmost economy in the purchase of raw materials and that the escalation will be admitted on the basis of actual price paid for the respective raw material. This was subject to the ceiling on the price. As per Clause 12.2(c), ceiling was fixedThe respondents/contractors purchased HTS wires from established sources in terms of the various clauses of the contract. The material was used in the manufacture of sleepers. Payment for the sleepers was made by the contractors at the lowest price quoted by the suppliers. The quotation was also scrutinized alongwith the supporting documents. The Railway authorities release the payment to the respondent contractors only upon their satisfaction, upon scrutiny of all the relevant documents.4. A new contract was entered into between the parties in May, 1997. The railway administration changed the policy and allowed the respondents/contractors to purchase the HTS wires, subject to escalation as noticed above. By letter dated 12th July, 1997, the railways administration informed the respondents that the Railway Board had found that excess payments had been made between 1989 and November, 1994 under escalation clause for HTS wires. It was stated that the amounts paid to the contractors were more than the prevalent market price. Therefore, a sum of Rs. 1,80,92,462/- was recoverable from M/s Concrete Products and Construction Company, respondent in C.A. No. ____________ (arising out of SLP(C) No. 5384 of 2013) and a sum of Rs.1,78,09,789/- was recoverable from M/s. Kottukulam Engineers Private Limited, respondent in C.A. No. ______ (arising out of SLP(C) No. 5385 of 2013). It was also pointed out that the aforesaid sums would be recoverable from the sums due and payable to them in the current/running contracts.5. The contractors (respondents herein) challenged the aforesaid recovery by filing Writ Petition No. 11805 and 10814 of 1999, before the High Court of Madras. The railway administration took up the preliminary objection, pleading that the writ petition is not maintainable as the dispute has to be referred to arbitration. The objection of the appellant was accepted. The High Court appointed a Former Judge of the Madras High Court as the arbitrator to adjudicate the dispute. The contractors/respondents herein challenged the aforesaid order of the learned Single Judge by filing Writ Appeal Nos. 251 and 252 of 2000, on the plea that the arbitrator had to be appointed in terms of the agreement. By order dated 22nd March, 2000, the writ appeals were allowed, and the order of the learned Single Judge was set aside. The matter was remanded back to the Single Judge for disposal in terms of the agreement.On remand, the learned Single Judge, instead of referring matter to arbitration in terms of the contract between the parties allowed the writ petitions filed by the respondents herein and directed the railway authorities to refund the sum of Rs.1,69,78,883/- and Rs.1,78,09,789/- to the respondent firms, respectively with interest thereon from the date of withholding till the date the same is refunded. The order was directed to be complied within a period of 4 week from the date of the receipt of the order. This order was again challenged by the railway administration by filing, first of all, Writ Appeal Nos. 2822 and 2823 of 2001. Subsequently, writ appeal miscellaneous petition No. 21103 and 21104 of 2001 were also filed in the aforesaid two writ appeals, seeking stay of the judgments under appeal. On 30th April, 2004, the Division Bench dismissed the writ appeals as well as the miscellaneous petitions.6. The railway administration challenged the aforesaid order of the Division Bench, before this Court by filing SLP No. 18244 and 18245 of 2004. Special leave was granted in both the special leave petitions and the same were converted to Civil Appeal Nos. 2999 and 3000 of 2005. By a short order passed on 2nd May, 2005, the disputes between the parties were referred by this court for adjudication by an Arbitration Tribunal consisting solely of Mr. Justice K. Venkataswami, a former Judge of this Court. This order was passed without going into the merits of the disputes and the submissions made by the learned Solicitor General on behalf of the railways, that in view of the specific condition contained in the contract, the dispute cannot be referred to an arbitrator other than the authority referred to in the contract. This Court directed that the matter shall be referred to Mr. Justice Venkataswami. It was, however, made clear that the order shall not be treated as a precedent. Pursuant to the aforesaid order of this Court, the matter ultimately reached the arbitrator. At the conclusion of the arbitral proceedings, the final award was rendered on 24th June, 2006. The sole arbitrator directed the appellants to refund the amount awarded asthe result I direct the Respondents to refund a sum of Rs.1,78,09,789/- recovered from the Claimants and interest of Rs.2,38,28,960/- and subsequent interest at 18% P.A from 1.9.2005 on Rs. 1,78,09,789/- till date of payment in Kottukulam Engineers Pvt. Ltd. matter. Ana a sum of Rs.1,69,78,883/- and interest of Rs.2,25,25,513/- and subsequent interest at 18% P.A from 1.09.2005 till date of payment in m/s Concrete Product & Construction Companycounter claims made by the appellants were dismissed.The railway administration challenged the common arbitration award in O.P. No. 142 & 143 of 2007 under Section 33 of the Arbitration and Conciliation Act, 1996 before High Court of Madras. The learned Single Judge dismissed the arbitration petitions filed by the railway administration by its order dated 30th November, 2010. Thereafter the contractors filed applications before the High Court for direction to the railways to make payments of the amount. Thereafter Application Nos. 780 & 781 of 2011 were filed in the O.P. Nos. 142 & 143 of 2007 by the contractors seeking a direction from the Court directing that the amounts awarded by the learned Sole Arbitrator be paid from the amount deposited by the railway administration with the High Court along with the accrued interest as on date on the aforesaid amount. These applications were allowed by order dated 24th February, 2011. The High Court directed that the awarded amount deposited by the railways in the Court for satisfying the outcome of the original petitions which was subsequently converted into fixed deposit receipts, be dispersed to the respondent contractors.7. Again the railway administration filed intra court appeals challenging the order of the learned Single Judge principally on the ground that the railway administration was not liable to pay any interest for the period subsequent to the deposit of the principal amount into Court. The appeals filed by the railway administration were dismissed by the High Court by the impugned order dated 21st March, 2012. The High Court held that railway administration had not questioned the power of the sole arbitrator to award interest. The issue with regard to the award of interest was also not raised before the learned Single Judge. For the first time before the Division Bench, a plea was raised that the award of interest was contrary to Clause No. 2401 of the Indian Railways Standard Conditions of Contract. The Division Bench of the High Court came to the conclusion that the aforesaid clause has no application at all as it applies only to amounts, which have been withheld or retained under lien. The amounts having already been paid were sought to be illegally recovered from the contractors. The sole arbitrator found that such order of recovery can not be sustained in law and the recoveries affected were illegal. The High Court, however, concluded that Clause No. 2401 would have application only in respect of amounts which had not been paid to the contractors. The railway administration can not exercise lien over the amounts already paid to the contractors. Therefore, award of the arbitrator did not suffer from any error apparent. It was further held that the learned Single Judge having upheld the award, the appeals deserve to be dismissed.

Court's reasoning:
18. We are of the opinion that the sole arbitrator in awarding interest to the contractors has failed to take into account the provisions contained in the aforesaid two clauses. We find merit in the submission made by learned Additional Solicitor General that award of interest at-least from the date when the amount was deposited in Court was wholly unwarranted. Therefore, the High Court as well as the arbitrator, in our opinion, have committed an error of jurisdiction in thisFrom the aforesaid it becomes apparent that the arbitrator could not have awarded any interest from the date when the recovery was made till the award was made. However, interest would have been payable from the date when the award was made till the money was deposited in the High Court and thereafter converted to fixed deposit receipts. Upon the amount being deposited in the High Court, no further interest could be paid to the respondents.