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Union Of India Through The Garrison Engineer v. M/S Westend Engineering Co. Meerut Cantt - FIRST APPEAL FROM ORDER No. 169 of 1996 [2004] RD-AH 1416 (16 November 2004)


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First Appeal from order No.169 of 1996

Union of India


M/S Westend Engineering Company

Hon'ble Sanjay Misra, J.

This appeal u/s 39 of the Arbitration Act, 1940 has been filed  against the  judgment and decree dated 9.1.96 passed by  IV Addl.Civil Judge (Senior Division), Meerut in suit no.618 of 1992.

The case of the appellant is that  the contract/ agreement was entered into between the appellant and respondent no. 1 Company for construction of guest room in sub area Officers Mess at Meerut. It is alleged that respondent  no.1   did not complete the work within  stipulated period. The respondent no.1 did not submit his final bill within three months. However, the final bill was prepared by the department itself and it was ultimately  signed by the respondent no.1 on 31.3.1989 and the payment was made to him on 20.9.89. It is alleged that the respondent raised certain claims and thus a dispute arose between the parties, hence as per terms and conditions  in the contract agreement, the matter was referred to the sole arbitrator. It is further alleged that  the arbitrator gave his award dated 5.3.92 wherein he awarded  a sum of Rs.62355.20 with past interest at the rate of 12%, pendentilite interest  at the rate of 12% and future interest at the rate of 6%. The aforesaid


award  was filed  before the Civil Judge, Meerut where it was registered at suit no. 618 of 1992.

The appellant  filed his objection for setting aside  the award. The main ground taken  in the objection was that in accordance with  condition no.65 of IAFW 2249 it was the duty of the contractor to submit the final bill but he defaulted. Therefore,  the delay if any  for making the final payment  was upon the contractor and hence  no damages on account of delay in payment of final bill could be claimed  by him. It was also stated in the objection that under condition no.63 the contractor  was required  to intimate to the department  if there was any escalation in the wages of labour. In the absence  of such information the contractor was not entitled to any amount towards escalation in the wages  of labour. It was also objected  by the appellant that the claim no.36 to 38 for loss of extra expenditure  alleged to have  been incurred on account of prolongation  of contract period could not be awarded  to the contractor. On the aforesaid objection, it was stated that the arbitrator had misconducted  himself in allowing  various claims of the contractor.

The trial court while considering the objection of the appellant has held that in so far as the reimbursement of work done by the contractor, the preparation of bill and to make payment for the work done are the duties of the department concerned hence  any delay in the aforesaid duty can not be fastened   upon the contractor and the concerned department would be  solely  responsible for the  said delay.  The trial court has, therefore, held that  the amount awarded  by the arbitrator  under the head  of delayed payment  is not misconduct. The trial court has also held that that the amount awarded by the  arbitrator  for escalation  in wages  of labour also does not  amount to misconduct on the part of arbitrator. The trial court


was of the view that the claim allowed by the arbitrator with respect to extra work done by the contractor was also a claim which was rightly allowed and it can not be said  that the arbitrator had misconducted himself  in awarding the said claim.

The trial court therefore, proceeded  to make the award a rule of the court of the impugned judgment.

Heard Sri A.K.Sinha, counsel for the  appellant and perused the record.

A copy of award has been filed  by the appellant along with the affidavit supporting  his application under Order 41 Rule 5 CPC. The learned counsel for the appellant has pointed out the claims which were allowed by the arbitrator and upon which the appellant has objection. The claim no.2 is for the damages for delay in payment of final bill. The claim is for Rs. 10945/-. The arbitrator  has considered  this claim and has awarded Rs.1100/-. The claim no.32 was for re-imbursement  of escalation in wages of labour. The claim was for Rs. 300013.93. The arbitrator  has allowed the whole claim stating that the contractor was entitled to the same in view of clause 63 of IAFW 2249. The claim no.36 related to the re-imbursement  of loss for extra expenditure incurred on account of prolongation of contract period.  The claim was for Rs. 26623/-. The arbitrator has awarded a sum of Rs.5324/- on the ground that the  cause of delay is not wholly attributable to the department. The claim no.37 related to reimbursement of loss incurred due to increase in overhead charges on account of prolongation of contract period.  The claim was for Rs. 33975/-. The arbitrator awarded Rs.6795/- on account that delay was not entirely attributable to the department.


The learned counsel for the appellant has also challenged the award of payment  of interest by the arbitrator. A perusal of award shows that the arbitrator has awarded interest at the rate of 6% per annum on all sum awarded to the claimant from the date of award to the date  of actual payment or court decree which were is earlier if the payment  is not made within 60 days from the date of award. The learned counsel for the appellant has placed  reliance on the decision of this court reported in AIR 2001 Allahabad page 42 Union of India Vs. M/s Channa Brothers and Company. This court has decided the question  with respect to the period for which interest can be paid. It has been held that since the reference was made after the Enforcement of the Interest Act 1978, therefore, the arbitrator had jurisdiction to award interest for the period prior to the date of making reference to him. Regarding pendente lite interest  the court held that the arbitrator has power to grant the same. It was also held that  the court had power to award interest till the date of decree.

Learned counsel for the appellant has submitted that  the trial court  has erred  in making the award a rule of  the court inasmuch as the award of arbitrator  was not in accordance with the terms of contract.  The trial court has  referred to  the decision reported in AIR 1989 Supreme Court page 777 wherein it is laid down that  court has not to go into the merit or demerit of the award. The trial court  has ordered that  the respondent no.1 will be entitled  to the interest  of 6% per annum. The contention of the learned counsel for the appellant  that the arbitrator  has awarded 12% past and pendente lite interest has substance. The interest awarded by the arbitrator for the past period from 29.11.88 to 31.1.91 is at the rate of 12%.


The interest pendente lite for the period 1.2.91 to 28.2.92 is also  at the rate of 12%. It has been  submitted that in view of the provision of Rule 7 of the schedule 1 of the Arbitration Act 1940 as amended  by U.P. Act No.57 of 1976 with effect from 1.1.77 the rate of interest can not exceed 6% per annum. The said amendment  is quoted herein under:-

After  paragraph 7, the following paragraph shall be inserted, namely;

"7-A. Where and in so far as an award is for the payment of money, the arbitrators  or the umpire  may, in the award, order interest at such rate as the arbitrators or umpire  may deem reasonable to be paid on the principal sum awarded from the date of the commencement of the arbitration, as defined in sub- section (3) of section 37, to the date of  award, in addition  to any interest awarded  on such principal sum for any period prior to such commencement, with further interest at such rate not exceeding six percent per annum as the arbitrators or umpire may deem reasonable on such principal sum from the date of the award to the date of payment or to such earlier date as the arbitrators or umpire may think fit, but in no case beyond the date of the decree to be passed  on the award."

( Vide U.P.Act 57 of 1976,Section 24)

In view of aforesaid  submissions made by the learned counsel for the appellant it is quite apparent that the arbitrator has exceeded his jurisdiction in awarding  interest at the rate of 12% per annum.  To that extent ,the award  of the arbitrator  is illegal and is set aside.

The trial court  while making the award rule of the court has ordered that the respondent contractor will be entitled to interest  at the rate of 6% per annum does not suffer from any error inasmuch as the court has the power u/s 29 of Arbitration


Act to award  interest  from the date of  decree.

In view of  the aforesaid , award of past and pendente lite interest at the rate of 12% per annum is set aside and it is directed that the respondent contractor will be entitled to 6% per annum interest past and pendente lite and future interest at the rate of 6% per annum  from the date of decree till the date  amount is paid.  

The appeal is partly allowed.




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