STATE OF ORISSA v.

B.N. AGARWALA

NOVEMBER 24, 1992

[B.P. JEEVAN REDDY At-.'D G.N. RAY, JJ.]

Arbitration Act: Sections 14, 29, 30 and 33--Arbitrator-Jurisdiction to award interest for pre reference period.

An agreement was entered into between the appellant-State and the C respondent for the construction of an Irrigation Project. The work was completed on 11.9.69. On 8.8.1977, the respondent claimed certain amounts 011 account of extra work done by him, and the dispute was referred to the Superintending Engineer, as the sole Arbitrator, who maae a reasoned award on 25.2.1980 granting a total sum of Rs.1,59,298. This amount comprised of Rs. 61,086.61p. towards interest and Rs. 98,212.09p. D towards the extra work done by the respondent. The interest amount of Rs. 61,086.61p. represented interest for the period 10.10.69 to 24.2.80, ire. for the pre-reference period as well as for the period the Arbitration proceedings were pending (Pendente lite interest). The Arbitrator_ directed that the sum awarded be paid within a period of three months, and in E default thereof it shall carry interest at 9 per cent per annum till payment is made or till the passing t the decree by the Civil Court, whichever' is earlier.

The appellant applied for setting aside the award while the respondent applied for making it the Rule of the Court. The Subordinate Judge F over-ruled the objections raised by the appellant and made the award a rule of the court. So far as interest was concerned, it was directed, evidently under a mistake, that the amount awarded by the Arb1trator shall carry "interest at the rate of 6 per cent per annum", whereas the Arbitrator awarded interest at the rate of 9 per cent.

On appeal to the High Court a Single Judge affirmed the Judgment of the Subordinate Judge, and corrected the aforesaid error relating to interest.

In the appeal to this Court it was contended on behalf of the H 221

A appellant, that all the claims made by the respondent pertain to addition.al 'fOrk, and that the decision of the Superintending Engineer was final with respect to the amount payable therefor. A claim with respect to additional work done cannot be the subject matter of arbitration in view of Clause 11 of the Agreement read with Clause 23 thereof. Relying on the decision in B Executive Engineer (Irrigation) v. Abaaduta Jena, [1988] 1 S.C.C. 418 the power of the bitrator to award interest for the pre reference period was assailed.

Allowing the appeals in part and remitting the matter to the Subordinate Judge, this Court,

HELD: 1. In the event of dispute, the decision of the Superintending Engineer is made final. It is evident from the use of the words "as lastly hereinbefore mentioned", that the proviso applies to second part of Clause 11 but not to the first part. The proviso contemplates a situation where additional work is done by the contractor before the rates are determined.

D It is only in 'l°espect of the rates payable for such work that the decision of Superintending Engineer is made final. It is not the case of the appellant/State that the items tor which the Arbitrator has awarded the aforesaid amount was a work of the nature contemplated by the proviso.

If so, there is n,!> bar to the dispute relating to rates for the additional work E being referred to the Arbitration. [227 -EF]

2. G.C. Roy's case was confined to the power of the Arbitrator to award interestpendente lite:It did not pertain to nor did it pronounce upon the power of the Arbitrator to award interest for the period prior to his entering upon the reference (pre-reference period). [228-A]

3. The Arbitrator had no power to award interest for the pre-reference period in.this case inasmuch as the.award was made prior to coming into force of the Interest Act, 1978. So far as interest for the period during which the arbitration proceedings were pending (pendente lite interest) is concerned, the Arbitrator does have the power to award the same.

[228-B-C]

 Executive Engineer (Irrigation) v. Abaaduta Jena, [1988) 1 S.C.C. 418, followed.


STATEOFORISSA v. B.N.AGARWAI.:A[JEEVANREDDY, J.) 223

4. The interest awarded by the Arbitrator (Rs. 61,086.69p.) pertains A both to the pre-reference period as well as period during which the arbitration proceedings were pending <pendente lite). It is not clear from the material placed before th.e Court when the Arbitrator entered upon the reference. In these circumstances the matter has to go back to the Subordinate Judge for ascertaining the interest for the period prior to the Arbitrator entering upon the reference (pe-reference period). The respondent shall not be entitled to interest for the pre-reference period. The award shall stand modified to this extent. [228-E-F]

CIVIL APPELLATE JURISDICTION : Civil Appeal Nos.3096-97

of 1981.

From the Judgment and Order dated 20.4.1981 of the Orissa High Court in Misc. Appeal Nos. 253 & 254 of 1980.

Raj Kumar Mehta for the Appellant.

Vinoo Bhagat for the Respondent.

The Judgment of the Court was delivered by

B.P. JEEVAN REDDY, J. Civil Appeal No. 3096of1981 arises from the judgment of a learned Single Judge of Orissa High Court in Miscellaneous Appeal No. 253 of 1980. Civil Appeal No. 3097of1981 arises from Miscellaneous Appeal No.254 of 1980. The appeals pertain to two identical contracts entered into between the State of Orissa and the respondent, Sri B.N. Agarwala. All the relevant facts and contentions are identical in both the appeals. It would, therefore, be sufficient if we refer to the facts in Civil Appeal No.3096 of 1981.

An agreement No. 8-F2/67-68 was entered into between the State of Orissa (appellant) and the respondent for construction of Kukuteswar Minor Irrigation Project. The value of the agreement was Rs. 3,84,690. The work was completed on 11.9.69. On 8.8.77, the respondent claimed certain amount on account of extra work done by him, which dispute was referred G to Sri B.N. Das, Superintending Engineer, as the sole Arbitrator. He made a reasoned award on 25.2.1980 granted a total sum of Rs. 1,59,298. This amount comprised of Rs. 61,036.61p. towards interest and Rs. 98,212.09p. towards the extra work done by the respondent. The interest amount Rs. 61,086.61p. represented interest for the period 10.10.69 to 24.2.80. In other H

A words this sum represented interest both for the pre-reference period as well as for the period the Arbitration proceedings were pending (Pendente lite interest). The Arbitrator directed that the said sum of Rs.1,59,298 should be paid within a period of three months, in default where of it shall

rry interest at the rate of 9 pe_r cent per annum till the payment is made

B or till the passing of the decree by the Civil Court, whichever is earlier.

The appellant applied for setting aside the award while the respondent applied for making it the Rule of the Court. The learned Subordinate Judge over-ruled the objections raised by the appellant and made the award a rule of the court. Sci far as interest is concerned, he directed, C evidently under a mistake, that the amount awarded by the Arbitrator shall carry "interest at the rate of 6 per cent per annum as per the award." (As stated hereinbefore the arbitrator awarded interest at the rate of 9 per cent and not 6 per cent. For the period subsequent to the award, however, he awarded interest at the rate of 6 per cent).

D On appeal, the learned Single Judge of the Orissa High Court affirmed the judgment of the learned Subordinate Judge. He corrected the aforesaid error relating to rate of interest. He directed that the sum of Rs.1,59,298 shall carry interest at the rate of 9 per cent per annum from 25.5.80 till the date of decree and at the rate of 6 per cent per annum from E the date of the decree of the learned Subordinate Judge till the date of realisation.

The first contention urged by the learned counsel for the appellant before us relates to the very maintainability of the arbitration dispute with respect to the claims made by the respondent. The contention is that all F the claims made by the respondent pertained to additional work. So far as additional work is concerned, the decision of the Superintending Engineer is final with respect to the amount payable therefor. A claim with respect to additional work done cannot be the subject matter of arbitration. This contention is based upon clause-11 of the Agreement read with Clause-23.

G For a proper appreciation of the said contention it is necessary to set out Clause-11 in its entirety. It reads as follows:

"C/ause-11:

The Engineer-in-Charge shall have power to make any H alterations or addition to the original specifications, drawings, designs and instructions that may appear to him to A be necessary or advisable during the progress of the work, and the contractor shall be bound to carry out the work, in accordance with any instructions which may be given -

to him in writing signed by the Engineer-in-Charge, and such alteration shall not invalidate the contract and any B additional work which the contractor may be directed to do in the manner above specified as part of the work, shall be carried out by the contractor on the same conditions in all respects on which he agreed to do the main work, and at the same r-ates as are specified in the tender for the main work. The time for the completion of the work c shall be extended in the proportion that the additional work bears to the original contract work and te certificate o( the Engineer-in-Charge shall be conclusive at to such proportion and if the additional work includes any class of work, for which no rate is specified in this contract D ' then such class of work shall be carried out at the rates

""\~ entered in the sanctioned schedule of:rates of the locality during the period when the work is being carried on and if such last mentioned class of work is not entered in the ' . schedule of rates of the district then the contract shall within seven days of the date of his receipt of his order E to carry out the work inform the Engineer-in-Charge of the rate which it is his intention to charge for such class of work and if the Engineer-in-Charge does not agree to this rate he shall by notice in writing be at liberty to cancel his order to carry out such class of work and arrange to F carry it out in such manner as he may consider advisable. <

No deviations from the specification stipulated in the

~ contract or additional items of works shall ordinarily be carried out by the contractor, nor shall any altered, addi- G tional or substituted work to be carried out by"him, unless the rates of the Substituted, altered or additional items have been approved and fixed in writing by the Engineerin-Charge. The contractor shall be bound to submit his claim for any additional work done during any month on -= or before the 15th day of the following month accom- H

panied by a copy of the order in writing of the Engineerin- Charge, for the additional work and that the contractor shall not be entitled to any payment in respect of such additional work if he fails to submit his claim within the aforesaid period.

B Provided always that if the contractor shall commence work incur any expenditure in . regard thereof before the rates shall have been determined as lastly _ hereinbefore mentioned, then and _in such case he shall only be entitled to be paid in respect of the work carried out C or expenditure incurred by him JJrior to the date Of the determination of the rate as aforesaid according to such .rate or rates as shall be fixed by the Engineer-in-Charge.

In the event of a dispute, the decision of the Superintenqnt Engineer of the Circle will be final."

D. (emphasis added)

Clause 23 is the Arbitration Clause in the agreement. According to this Clause all disputes and claims arising out of or relating to the agreement shall be referred to the arbitration of the Superintending Engineer of the State Public Works Department connected with the work nominated by the concerned Chief Engineer. For the present purpose only the opening words of"Clase-23 are relevant. The opening words are "except where, otherwise providedJn the contract all questions and disputes ............ ".

The contention of the learned' counsel for the appellant is that by F virtue of the proviso contained in Clause-11, the decision of the Superintending Engineer of the Circle is final on any dispute relating to the rates payable for the extra work done by the Contractor. It is not possible to agree. Clause-11 is in three parts.

G The first part says that a contractor is bound to carry out such extra work as he my ge called upon to do by the Engineer"in-Charge. The extra work shall.have; to :be carried out subject to the same conditions in all respects as. are applicable to the main work and at the' same rates. If, however, the agreement does not contain rates for such work, the rates . entered in the sanctioned schedule of the rates of locality during the H relevant period shall be applicable. If, however, the schedule of rates also

i I (

does not provide for such work the contractor should, within seven days of A the order to do such additional work, inform the Engineer-in-Charge of the rates which he proposes to charge. If the Engineer-in-Charge does not agree thereto, it is open to the Engineer-in-Charge to get the said extra work done through some other agency.

The second part of the Clause-11 says that no deviations from the specifications stipulated in the contract or additional items of work shall ordinarily be carried out by the contractor unless the rates therefor ar~ approved and fixed in writing by the Engineer-in-Charge. The contractor must submit his claim for the additional work done during any month on

or before the 15th day of the following month accompanied by a copy of C the order in writing of the Engineer-in-Chief for doing additional work. If he does not so submit the claim, he is not entitled to any payment.

The third part of clause-11 contains the proviso relied upon by the counsel for the appellant before us. It says that if the contractor shall. D commence work and incur any expenditure before the rates shall have been determined "as lastly hereinbefore mentioned" he shall only be entitled to be paid for such work at such rate as may be determined by the Engineerin-Charge. In the event of dispute, the decision of the Superintending Engineer is made final. It is evident from the use of the words "as lastly hereinbefore mentioned" that the proviso applies o second part of Clause- E 11 but not to the first part. The proviso contemplates a situation where additional work is done by the contractor before the rates are determined.

It is only in respect of the rates payable for such work that the decision of Superintending Engineer .is made final. It is not the case of the appellant/State that the items for which the Arbitrator has awarded the aforesaid F amount was a work of the nature contemplated by the proviso. If so we see no bar to the dispute relating to rates for the additional work being ref erred to arbitration. The first contention is accordingly rejected.


(pre-reference period). This very aspect has been clarified by one of us (B.P. Jeevan Reddy, J.) in his cocurring order in I.A. No.10 in Civil Appeal No; l763of1980 etc. disposed of on 22.10.92. Accordingly, we hold following the decision in Jena that the Arbitrator had no power to award interest for the pre-reference period in this case inasmuch as the award was made prior to coming into force of the Interest Act, 1978. (The Interest Act, 1978 came into force with effect from 19th August, 1981) So far as interest for the period during which the arbitration proceedings were pending (pendente lite interest) is concerned, the Arbitrator does have the power to award the same as held in G.C. Roy. A request iS made by Sri Bhagat to refer the matter to a larger Bench to decide the question relating to the power of the Arbitrator to award interest for the pre-reference period even in cases where the award is made before the coming into force of Interest Act, 1978. Jena was decided by a Bench of three Judges. We do not also feel persuaded to refer the matter to a larger Bench.

The interest awarded by the Arbitrator (Rs. 61,086.69p.) pertains both to the pre-reference period as well as period during which the arbitration proceedings were pending (pendente lite). It is not clear from the material placed before us when did the Arbitrator enter upon the reference. In the circumstances the matter has to go back to the learned Subordinate Judge for ascertaining the interest for the period period to the arbitrator entering upon the reference (pre-reference period). The respondent shall not be entitled to interest for the prereference period as stated above. The award shall stand modified to the above extent. In all other respects, the award is affirmed.

The Appeals are accordingly allowed in part. The matter is remitted G to the learned Subordinate Judge for working out the direction contained in the preceding paragraph. 'No orders to costs.

N.V.K.

Appeals partly allowed.