Holding

A court may not interfere with an arbitral award unless a patent error appears on its face, and arbitrators appointed by the court can award pendente lite interest only when the arbitration reference arises in the course of a suit, not otherwise.

Summary

The contractors (Hind Builders) were awarded Rs.57,47,198 by two arbitrators for work on the Metro Railway Project, including Rs.6,76,540 as interest. The Calcutta High Court reduced the award on two grounds: the amount for earth consolidation (item c(xii)) and the period for pendente lite interest. The Supreme Court held that the Division Bench exceeded its jurisdiction by altering the award because there was no error apparent on its face, and that the award did not incorporate the contract terms to permit such correction. It further held that arbitrators appointed by the court may award pendente lite interest only when the reference to arbitration arises in the course of a suit, and that interest could be awarded from the date of reference to the award but not before. The Court restored the original award amount for item c(xii) and affirmed the interest calculations as directed by the arbitrators, rejecting the Union's objections.

Issues considered

The Division Bench's reduction of the award for item (c)(xii) – whether it constituted an error apparent on the face of the award.
Whether the award contained a patent error in the rate applied to earth consolidation (Rs.20 per cu.m. vs Rs.2 per cu.m.).
Whether arbitrators have jurisdiction to award pendente lite interest for the period between reference and award.
Whether pendente lite interest can be awarded by arbitrators when the reference to arbitration is made in the course of a suit.
Whether post‑award interest as stipulated in the award is payable.

Legislation cited

Subjects

arbitrationarbitral awarderror apparent on the facependente lite interestinterest awardcontract interpretationcourt interferencejurisdictionCivil Procedure CodeInterest Act

Judgment

HIND BUILDERS ETC.
A
v.

--
UNION OF INDIA AND VICE-VERSA

APRIL 24, 1990

B [S. RANGANATHAN AND A.M. AHMADI, JJ.)

Arbitration: A ward-Error on the face of the award-Clause in
the contract open to two equally plausible interpretations-Legitimate
for Arbitrators to accept one or the other of the available interpretations
and even if the court may think that the other view is preferrable, the
C court will not and should not interfere.

Award-Error on the face of award-Annexure setting out the
award as against various items of claim-Mere fact that statement of
claim refers to various items in the schedule to the contract does not
result in the contract itself being incorporated in the award-No error
D can be found in the award.

Pendente Lite Interest: Power of Arbitrator-Not entitled to
grant pendente lite interest unless reference is made in the course of a
suit-Same powers to grant interest pendente lite as the courts when
matter is referred by the Court.
IE
Certain disputes having arisen between the Union of India and tbe
Contractors in respect of the Contract awarded to the letter for the
execution of certain civil works pertaining to the Metro Railway Project
iu Calcutta, the same were referred for decision to two Arbitrators
appointed by the High Court of Calcutta. The Contractors filed their
f itemised claim before the Arbitrators for a total sum ofRs.2,05.67.554.
The Arbitrators awarded a sum of Rs.57,47 ,198 to the contractors in_
full and final settlement of all their claims which included a sum of
Rs.6, 76,540 as interest vide item (1). They directed that the award shall
be complied with within sixty days of its publication failing which sim-
ple interest @ 11 percent per annum shall accrue thereon (excluding
(; interest amount of Rs.6,76,540) till the date of payment or decree upon
award which ever is earlier. On an application being made to the High
Court for making the Award a rule of the Court, the learned single
judge confirmed the award except that the principal sum awarded was
reduced by Rs.5.20.000 with the direction that the amount so awarded
will carry interest @ l l % per annum from the date of reference till the
H date of the award.

638
HIND BUILDERS v. U.0.1. 639

The l."nion of India preferred an appeal to the Division Bench.
A
which reduced the amount awarded under item (c)(xii) from
- . Rs.23,96,000 to Rs.2,39,000. Thus the principal amount to be awarded
to the contractors was finally put at Rs.30, 70, 798 and this amount was
directed to carry interest @ 11 % per annum from the date of the refer-
ence till the date of the award.
B
Aggrieved by the order of the Division Bench reducing the
"'--·· amount awarded under item (c)(xii) from Rs.23,96,000 to 2,39,600 the
...,,- contractors preferred an appeal to this Court. The Union of Indian on
the other hand preferred a cross-appeal praying (i) that interest should
___,-> not be payable on the amount of Rs.30, 70, 798 fixed by the High Court but
only on Rs.23,94,258 left after deducting therefrom the amount of
Rs.6, 76,540 awarded by the Arbitrators in respect of itein No. (LJ and c
(ii) that. though the arbitrators had also awarded interest on the princi-
"'T-· - pal sum till the date of payment or decree on award in case payment was
not done within sixty days of the publication of the award. the
contractors should be held entitled to interest upto the date of the award
only and not beyond it because both the learned single judge and the D
Division Bench have held so and the contractors have preferred no
appeal therefrom.

Taking up the contractor's appeal first, this Court carrie to the
conclusion that the Division Bench had exceeded its jurisdiction in
interfering with this part of the award and restored the amount E
awarded by the arbitrators under item (c)(xii).

Dealing with the appeal of the Union oflndia this Court ruled that
there was really no dispute left about Union of India's first contention
as to what was the correct amount on which interest was payable to the
-;..- - contractors after its findings in the contractor's appeal and placed the F
figure at Rs.45.50.658.

Dealing with the second contention as to what was the period with
reference to which interest would be payable to the contractors on the
above amount it was noticed that the arbitrators had allowed interest
from 5. J0.82 (date of termination of contract) to 26.3.84 (date of G
award) ·under item (L) and had also allowed interest from the date of the
award. till the date of payment or decree whichever is earlier. The
learned single judge had deleted the interest for the period S. !0.82• toI
6.5.8.' (date of reference) but held that the arbitrators had jurisdiction
to award interest from the date of the reference till the date of award
and also post-award interest. As the objection of the Union of India_ H
640 SUPREME COURT REPORTS [1990) 2 S.C.R.

before the Division Bench in the LPA on the question of interest was only
A
that the arbitrators had erred in awarding interest from 6.5.1983 to
26.3.1984 the High Court had not decided that the contractors were not
entitled to interest beyond the date of award and therefore this conten-
tion of the L nion of India failed and was rejected. The Court.

B HELD: The grant of pendente lite interest would be justified only
when reference to arbitration is made in the course of a suit. The
principle indicated is that since a court has, under S. 34 of C.P.C.
power to grant pendente lite interest in a suit, an arbitrator to whom a
reference to arbitration is made in the course of the suit would be
clothed with all the powers of the court including one to grant such
c interest. Generally speaking, it would only seem reasonable that the
power to grant interest pendente lite should be treated as ancillary to
the award of damages or compensation which. but for the delay in the
litigation (whether in court or by way of arbitration). the claimant ··-r
should have received much earlier. However. though pendente lite
interest has been made available in court proceedings. its extension to
D arbitration law appears to have acquired some technical limitations
resulting in denial of pendente lite interest in most arbitration cases.
Pendent lite interest cannot still be awarded by an Arbitrator appointed
by the parties under a private agreement for which there may be no
justification in equity. Anomalies have arisen because f!'rmerly an
Arbitrator could not be treated as a court to which the code of civil
E procedure applied and because now the Interest act, 1978, while includ-
ing arbitration proceedings within its ambit, has, apart from a refe-
rence to S. 34 omitted to provide specifically for pendente lite interest.
This has been clearly brought out by Chinnappa Reddy, J., in
Abhaduta Jena which outline the principle the learned judge had in
mind for permitting pendente lite interest by arbitrator. Abhaduta Jena
F has been followed in later cases also and its scope bas been recently explained
in Shanna's Case (1988-4 SCC 353), and the Gujarat Water Supply case
(1989-1 SCC 532) where pendente lite interest was denied. [655H; 656A-F]

Gujarat Water Supply & Sewage Board v. Unique Erectors,
[1989] 1 S.C.C. 532; Finn Madan Lal Roshan Lal Mahajan v.
G Hukumchand Mills Ltd., Indore, [1967) l S.C.R. 105; Allen Berry &
Co. Pvt. Ltd v. Union of India, [1971) 3 S.C.R. 287; N. Chellappan v.
Secretary, Kera/a State Electricity Board & Anr., [1975) l S.C.C. 289;
Hindustan Tea Co. v. K. Shashi Kant Co. & Anr., [1986) Suppl.
S.C.C. 506; Hindustan Steel Works Construction Ltd. v. C. Rajasekhar
Rao, [1987) 4 S.C.C. 93; Sudarsan Trading Co. v. Government of
H Kera/a & Anr .. [1989] 2 S.C.C. 38: M/s. A/ppi Prashad & Sons, Ltd. v.
HIND BUILDERS v. U.0.1. IRANGANATHAN, J.] 641

Union of India, [1960] 2 S.C.R. 793; Bhagat Trading Co. v. Union of
A
India, AIR 1984 Delhi 358; Union-of India v, Bakshi Ram, [1957] LIX
P.L.R. 572; Executive Engineer v. Abhaduta Jena, [1988] 1 S.C.C. 418;
Nachiappa v. Subramaniam, [1960] 2 S.C.R. 290; Satinder v. Amrao,
]1961] 3 S.C.R. 676; Union v. Bungo Steel Furniture P. Ltd., [1967] I
S.C.R. 324; Ashok Construction Co. Ltd. v. Union, [1971] 3 S.C.C. 66;
State v. Saith & Skelton P. Ltd., [1972] 3 S.C.R. 233; Food Corpora· B
tion of India v. Surendra, Devendra & Mohendra Transport Co.,
[1988] 1 S.C.C. 547 and State of Rajasthan v. Sharma & Co., [1988] 4
S.C.C. 353, referred to.

-~-- CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1280
& 1281 of 1988.
c
From the Judgment and Order dated 21.4.1987 of the Calcutta
~ _ High Court in Appeal from Original Order No. 128 of 1985, Award
r Case No. 151of1987.

A.K. Sen, Dr. Shankar Ghosh, Ajay K. Jain, Praveen Kumar D
and Pramod Dayal for the Appellant.

M.K. Banerjee and G.S. Chatterjee for the Respondent.

The Judgment of the Court was delivered by
E
RANGANATHAN, J. These are cross appeals by Mis. Hind
Builders (hereinafter referred to as 'the contractors') and the Union of
India. from an order of Division Bench of the Calcutta High Court in
an arbitration matter.

)--· The contractors had been awarded a contract for the execution F
1 of certain civil works in connection with the Metro Railway Project in
t--Calcutta. Certain disputes arose between the Union and the con·
tractors. These disputes were referred for decision to two arbitrators
appointed by the High Court of Calcutta. The arbitrators entered upon
the reference on 27th June. 1983. The contractors had filed a claim
before the arbitrators for a sum of Rs.2,05,67,554. Un 26.3.1984 the G
arbitrators awarded-a-sum of Rs.57,47,198 to the contractors.

~ The claim of the contractors filed before the arbitrators was an
· itemised claim in respect of various items of works executed by them.
The body of the award made by the arbitrators reads as follows:
H
"We ..... make and publish our Award, as below:
642 SUPREME COURT REPORTS [1990) 2 S.C.R.

(i) That the Respondent .......... shall pay ..... the
A
Contractors a sum of Rs.57,47,198 ..... only in full and
final settlement of all their claims and dues under the
abovementioned contract agreem~nt. In addition, . the
three Bank Guarantees .......... issued by Vijaya Bank,
---
Cuttack, on behalf of the contractors, in favour of Metro
B Railway, Cuttack, shall be released by the Respondent
Railway, as detailed in the Annexure to this Award.
xxx xxx xxx
~
The Award shall be complied with within 60 (Sixty) days
from the date of publication of this Award, failing which ~-
simple interest @ 11 per cent per annum on the amount of
c the Award (excluding interest vide item (1) of the Anne·
xure i.e. Rs.6,76,540) shall accrue till the date of payment
or decree upon Award whichever is earlier." -("-
In the annexure to the award, the arbitrators tabulated the various
items of the claim before them, the amount claimed against each item
D
and the amount awarded against each item. Ut\der item ( 1) in the
annexure, the arbitrators had awarded an interest of Rs.6,76,540 and
that is why the direction regarding interest by the arbitrators excluded
this amount from the principal amount which was to bear interest. As
stated earlier, the total amount awarded was Rs.57,47, 198 in respect
of items (a) to (q) of the award as against the claim of Rs.2,05,67,554 ).:: ' '
E
made by the contractors.
On an application being made to the High Court of Calcutta on
the Original Side for making the award a rule of court, the learned
single Judge sitting on the Original Side confirmed the award except to
the extent of Rs.5,20,000. This is no longer in issue. The learned
F Judge. however, concluded his judgment with the following words:
'"""'
"The principal sum awarded stands reduced by Rs.5,20,000 -~

as mentioned above. The respondent will be entitled to
interest at the rate of 11 per cent per annum from the date
of reference till the date of the award."
G
The Union of India preferred an appeal from the order of the
learned single Judge. The Division Bench was of the opinion that the
arbitrators were not justified in awarding a sum of Rs.23,96,000 to the
contractors (as against a claim of Rs.42,65,957 made by them) in
~
respect of item (c)(xii) viz. "cost towards consolidation of earth by
1--1 ramming and rolling" and that they could have awarded under the
..
HIND BUILDERS v. U.0.1. [RANGANATHAN, J.] 643

contract only a sum of Rs.2,39,600 in respect of this item. The amount
A
awarded to the contractors was thus further reduced by the Division
Bench by a sum of Rs.21,56,400 (Rs.23,96,000-Rs.2.39,600). The
Bench then observed that the principal sum to be awarded to the
'contractors would now stand at Rs.30,70,798 and directed that the
respondent contractor should be entitled to interest at the rate of 11
per cent per annum on the said amount from the date of the reference B
till the date of the award.
The contractors have appealed from the order of the Division
Bench being aggrieved by the reduction of the amount awarded under
item lc)(xii) to Rs.2,39,600 from Rs.23,96,000. The Union of India
has preferred an appeal contending principally that, since the princi-
pal amount on which the arbitrator awarded interest was not c
Rs.57,47,198 but only Rs.50,70,658 (i.e. Rs.57,47,198-Rs.6,76,540),
the contractors would be entitled to interest, after the judgment of the
Division Bench, not on Rs.30,70,798 as held by the Division Bench but
only on Rs.23,94,258. In addition, at the tune of the hearing before us,
counsel for the Union of India raised two further points:
D
( I) that the Division Bench erred in awarding interest to
the contractors from the date of the reference till the date of the
award.

(2) That though the arbitrators had also awarded interest
on the principal sum till the date of payment, the contractors E
should now be held entitled to interest only upto the date of the
award because the learned single Judge and the Division Bench
have he Id so and the contractors have preferred no appeal
therefrom.

Taking up the contractor's appeal first, the point raised falls F
within a very narrow compass and turns on the interpretation of item
No. - .09 of the annexure to the contract containing the schedule of
rates. This item reads as follows.

Item Brief description Approx- Unit of Rate of
l"o. of work G
imate payment payment in
Qty. "words" &
"figures"
Rs. P.

2 3 4 5 H
,_,_ . .--- ';.,,
" . /
:, \ .
;
'

, ·.• ' , . · ' ·, i-. ·. I ·, , \-

644 ', ·'\ ' . · SUPREME COURT REPORTS [ 1990] 2 S.C.R.
..
". '
- '.A 4.09 (~) Earthwork in open excava-2,35,000 10
\\\ ' tion for forming garbage Cubic Cubic
Rs.180
(Rupees one
tanks in all kinds and metres • . metres · hundred _>J-
conditions of soils upto - eighty
depths varying from 0 to 3 n:·ly).
3 metreli from the existing
B ground level and disposing
of the spoils so as to
raise land_ required for
- piling work, to fill up the
existing low lying areas
and ponds, to form embank-
c ments for roads,'ett::of the
Car Depot complex includ-
. - ing spreading in layers,
·breaking clods, levelling,
- dressing, all lifts/descents
ahd all leads etc. complete -
) D' ..
Note:

No extra payments Wu! be
made if wet excavation is
met with or for baling/
E pumping out of water of all
- · -sorts includiilg ralli water.
- - "- ,_
(b) Extraoveritein (a) abo~e, l,3s;ooo -10 Rs.20
for consolidation of the ' Cubic Cubic (Rupees
filled up areas or some of metres - - metres Twenty
F the top layers of the filled only).
·up areas or road embank-
. · ment portions by watering
.- and ramming/rolling as
directed.

G
In respect of these items the statement of claim filed on behalf of the
- · • contractonvas in the following terms: -

(b) Eanhwork in excavation measured but not paid in full:
_-- ---
. That unde( agreement item No. 4.09 (a) the claimants as -
H rer instructions, specifications and agreement excavated
- ·•
-,,,,,
HIND BUILDERS .v. U.0.1. [RANGANATHAN, J.] 645

earthwork in open excavation for forming garbage tanks in
A
all kinds of soil for a quantity of 2, 15,000 Cum and there-
after the contract was rescinded against which reduced
quantity has been measured provisionally upto 17th CC bill
for 2,09,523 Cum measured on 24.5.82 and as per the said
measurements the claimants are yet to be paid for a
quantity of 5,477 Cum over and above the payments B
already made upto 17th CC. The claimants claim payment
for 5,477 Cum of excavation @ Rs.18 per each Cum.
amounting to Rs.98,586.UO.

.. CLAIM AMOUNT ... Rs.98,586.00

(c)(xii) Cost towards consolidation of earth by ramming
and rolling:
c
~-

--·t That as per agreement item No. 4.09(b) the claimants are
required to fill up the low lying areas etc., as specified
under General Conditions of the Contract at para 3.05 with D
the excavated spoils obtained out of earthwork in excava-
tion under agreement item No. 4.09(a). The payment for
earthwork in open excavation for work executed under
agreement item No. 4.09(a) is to be made on sectional
_measurements calculated by level sections. The excavated
earth obtained from garbage excavation, a quantity of E
2, 15,000 Cum as per provisions made in agreement item
No. 4.09(b) was consolidated in different areas as per
instructions and approved plan. The claimants claim pay-
- ment for this quantity of consolidation at Rs.20 per·cum
i.e. Rs.2 extra over Rs.18 per Cum as specified in agree-
ment item No. 4.09(a) & (b), amounting to Rs.43,00,000.oO F
against which payment has been made in CC bills for
t reduced quantity and amount of Rs.34,043.00. The clai-
mants claim payment for the balance amount of
Rs.42,65,957.00 not paid for.

CLAIM AMOUNT Rs.42,65,957.00 G

In other words, the contractors claimed payment at the rate of Rs.18
- Iii'' -!?er cubic metre in respect of the excavation work done by them under
item No. 4.09(a). Again, in respect of the same quantity.of 2,15,000
cubic metres, the contractors made a claim at Rs.20 per cubic metre as
the amount payable to them in respect of the consolidation of H
646 SUPREME COURT REPOR"S [ 1990] 2 S.C.R.

excavated earth by ramming and rolling. The Division Bench was of .._
A
the view.that under item No. 4.09(b), the contractors were entitled to
an additional payment of Rs.2 only, since the contractors had already
been paid at the rate of Rs.18 per cubic metre in respect of the excava-
tion done by them. The extra charges for ramming and rolling were
payable only at the rate of Rs.2 per cubic metre instead of Rs.20 per
B cubic metre. The Division Bench accordingly scaled down the amount
awarded by the arbitrator m this regard to !/10th of the amount
awarded by him.

It is submitted on behalf of the contractors that the rate payable '
for the work under item 4.09(b) of the contract was not at all in <;l}spute ~.
c
between the parties at any stage. The Union had not raised any plea in
this regard in its reply to the contractors' claim, in the objections to the
...
award filed in the High Court or in the arguments before the learned
Single Judge. Clearly, the Division Bench travelled beyond the limits· 47
permissible for the interference with an award by a court of law in
reducing the amount awarded on this account. It is pointed out that the
D award itself is a non-speaking award. The award does not refer to the
terms of the contract or incorporate the details of the claims made by
the contractors. Though it is true that the arbitrators awarded a sum of
Rs.23,96,000 against item (c)(xii), they have not given reasons there-
fore. The award neither shows that the amount has been worked out at
the rate of Rs.20 per cubic metre nor does it show the quantity in );_. ~
E respect of which the amount has been worked out. There is no refe-
rence to the terms of the contract or to item No. 4.09, clause (a) or (b).
No reasons have been given by the arbitrators for determining that a
sum of Rs.23,96,000 has to be paid to the contractors under item
(c)(xii). It is therefore submitted that there was no error app.arent on
the face of the record. Learned counsel vehemently contended that it ~
F is now settled law that an award cannot be said to suffer from a man-
ifest error unless the error appears on the face of the award or of some -{-
document incorporated in the award. Reference is made to the deci-
sions of this Court in the following cases: Firm Madan/a/ Roshan/al
Mahajan v. Hukumchand Mills Ltd:, Indore, [1967) 1 SCR 105; Allen
Berry & Co. Pvt. Ltd. v. Union of India, [1971) 3 SCR 287; N. Chellap-
G pan v. Secretary, Kera/a State Electricity Board & Anr., [1975) 1 SCC
289; Hindustan Tea Co. v. K. Shashi Kant Co. & Anr., [1986) Suppl. ·
SCC 506; Hindustan Steel Works Construction Ltd. v. C. Rajasekhar 1..........,
Rao, [1987] 4 SCC 93 and Sudarsan Trading Co. v. Government o f - - -
Kerala & Anr., [1989) 2 SCC 38. According to the contractors, what
the Division Bench has done is to give its own interpretation to item
H Nos. 4.09(a) & (b) of the contract, to read an erroneous interpretation
HIND BUILDERS v. U.0.1. {RANGANATHAN, J.] 647

/of the said item into the award made by the arbitrators and to substi- A
tute its opinfon in the place of that given by the arbitrators. Thus, it is
~-submitted, runs quite contrary to the principles enunciated in the
above decisions and should, therefore, be set aside.

On the other hand, Shri Milon Banerjee, learned counsel for the
Union of India submitted that the award is really a speaking award in B
so far as it does specify the amount granted in respect of each item of
,-t-' daim. He submitted that the present case falls within the principle
· enunciated in Mis Alopi Prashad & Sons, Ltd. v. Union of India,
[1960] 2 S.C.R. 793, which has been taken note of in the case of "4./s
-r Sudarsan Trading Co. v. Government of Kera/a & Anr., [1989] 2 SCC
- 38 at p. 54 that an award which overlooks or ignores the terms of the
contract is bad. He also made a reference to the decision of the Delhi
High Court in Bhagat Trading Co. v. Union, AIR 1984 Delhi 358 in
c
·'""r~ this context. He also referred to a decision of the Punjab High Court in
Union of India v. Bakshi Ram, [ 1957] LIX P .L.R. 572, holding that
"when there are pleadings in an arbitration and they are specifically
referred to in the award so that it cannot be understood without refe- D,
rence to them, then those pleadings are incorporated in the award and
they must be included in the consideration whether there is any error
apparent on the face of the award" and that "if a lump sum is awarded
by an arbitrator and it appears on the face of the award or is proved by
• ~'extrinsic evidence that in arriving at the lump sum matters were taken
~ · into account which the arbitrator had no jurisdiction to consider, the E
award is bad." The contention of Shri Banerjee is that the annexure to
the award clearly incorporates the statement of claim made by the
contractors. Since in turn the statement of claim refers to the clauses of
~ the contract, the contract should also have been treated as incor-
·~ porated in the award. It is also apparent on the face of the award,
insofar as it relates to item (c)(xii), that the arbitrators have awarded F
payment at Rs.20 per cubic metres under item 4.09(b) whereas it must
1 obviously be at Rs.2 per cubic metre. According to the learned
counsel, the decisions relied upon by him clearly show that an award
which ignores or overlooks the express terms of a contract suffers from
an error apparent on the face of the record and can be set aside by this
Court. He submitted that the award, read with the annexure, brings G
out the reasoning of the arbitrators and that an error therein can be
rectified by the court. The arbitrators had no power to travel beyond
- ~the authority of the contract and, in order to determine whether they
had exceeded lheir authority, the contract can be looked into by the
court. In support of this contention, the learned counsel also referred
to a passage at p. 421 in the Law of Arbitration by Bachawat (Second H
Edition).
648 SUPREME COURT REPORTS [ 1990) 2 S.C.R.

We have considered the respective contentions of the parties and
A we are of the opinion that the Division Bench erred in setting aside the
award insofar as it relate to the sum of Rs.25,96,000. Though the
annexure sets out the award of the arbitrators as against various items
of claims, the mere enumeration of the heads of claims cannot be
equated to an incorporation of the statement of claim by the con-
B tractors into the award. At any rate, the award does not relate the
claims to the various clauses of the contract and the mere fact that the
statement of claim refers to various items in the schedule to the con-
tract does not result in the contract itself being incorporated as part
of the award. No error can be found in the award unless one reads into
it first the statement of claim and then the relevant clauses of the
contract. But this cannot be done unless these documents are treated -
C as incorporated in the award. This cannot be done. That apart even if
the contract can be read into the award, we doubt whether this case
can be treated as one of an error on the face of the award. All that the -~
award has st~ted is that for the extra work involved in ramming and
rolling, the contractors were to be paid a sum of Rs.23,96,000. The
o award does not mention how this amount is arrived at. There is no
mention of the quantity in respect of which this is awarded nor the rate
at which the payment has been calculated. It is, however, pointed out
that contractors had claimed payment at the rate of Rs.20 per cubic
metres in respect of 2,15,000 cubic metres and that, even if it is
assumed that the ramming and rolling had been done in respect of the ):__ •
E entire volume of 2, 15,000 cubic metres, the contractors could have, on
a proper construction of the contract, been awarded only a sum of
Rs.4,30,000 and nothing more. Obviously, the award is calculated at
Rs.20 per cubic metres in respect of 1,19,800 cubic metre. It is clear,
says counsel for the Union, that the volume of the item for which
payment has to be made has been cut down but the amount has been ~
F calculated at Rs.20 per cubic metre which exceeds the amount of Rs.2
stipulated in the contract and this is erroneous on the face of it. -{-

We are afraid that, in putting forward this contention, the
respondents are really trying to analyse the reasons of the arbitrator
for-making the award under this head when no such reasons have been

-
G stated in this award. In fact, it does not necessarily follow that the
payment has been directed at the rate of Rs .20 per cubic metre in
respect of 1,19,800 cubic metre. Theoretically, it could have been
awarded, in respect of the entire volume of 2,15,000 cubic metre, at _,,.__
the rate of Rs.11 and odd per cubic metre. It is, howevr, clear that the
payment has been granted at a rate in excess of Rs.2 per cubic metre.
H We shall, however, take it that the arbitrators have awarded at the rate
HIND BUILDERS v. U.0.1. [RANGANATI!AN, J.] 649

of Rs.20 per cubic metre in respect of this item of work for, as pointed A
out by Dr. Ghosh, the Union of India had never put forward the case
either before the arbitrator or before the learned single Judge that the
contractors were not entitled to payment at the rate of Rs.20 per cubic
metre as claimed and it was before the Division Bench for the first time
that a question arose that the payment for the item should be at Rs.2
and not Rs.20 per cubic metre. Whether the payment should be made B
at the rate of Rs.20 per cubic metre or at Rs.2 per cubic metre will
depend upon a proper interpretation of the contract. It is argued that
the main item of work viz. excavation and distribution of the
excavated work has been paid for under item No. 4.09(a) and that item
4.09{b) envisages an additional payment of Rs.2 per cubic metre if the

- excavated soil, instead of being loosely distributed, is rammed and
rolled by applying some pressure. This seems, prima facie, a plausible
interpretation of clause 4.09{b ). But we cannot assume, in the absence
c

of any evidence or expert knowledge, that the ramming and rolling was
not an independent, heavy or cumbersome piece of work and merely
involved a minor addition to the work under item 4.09(a). On the
other hand, in the grounds of appeal filed by the contractors it is D
contended:

"The High Court failed to appreciate that the process of
ramming and rolling is a very expensive specialised process
as it has to be done layer by layer not exceeding six inches
at a time and requires watering, breaking of clods and use E
of specialised road rollers, bulldozers and other equip-
ment. The work of ramming and rolling is much more
expensive than that of earth excavation provided for in
item 4.09 (a). The High Court further failed to appreciate
tha_t in its reply to the statement of claim of the petitioner,
the respondent No. 1 had not disputed that the rate applic- F
able for ramming and rolling was Rs.20 per cubic metre.
The respondent No. 1 had only raised a dispute with regard
to the quantity of the ramming and rolling done by the
petitioner. The High Court misinterpreted the contract and
erred in reducing the award for ramming and rolling by
erroneously applying the rate of Rs.2 per cubic metre." G

This may be right or wrong but this is also a plausible view. Unfortu-
- -.i.._ nately, this was an aspect not urged before, or considered by, the
arbitrators. There was no evidence before the arbitrators or material
adduced before the Court as' to the nature of these operations. It is
difficult to say, by merely reading the terms of contract that the H
650 SUPREME COURT REPORTS [1990) 2 S.C.R.

arbitrators have erroneously interpreted the tenns of the contract. It is
A not without significance that the departmental officers did not dispute
the rate of the claim. Equally, the arbitrators were experienced
engineers and would not have passed, what is now said to be, an
astounding claim without thought. It is difficult to assume that all these
persons have overlooked that the contractor had already been paid at
B Rs.18 under item 4.09(a) especiallv when it is so stated on the face of
the claim. This, therefore, is not a case where the arbitrators can be said
to have ignored or overlooked a tenn of the contract; on the contrary,
they have acted upon a particular interpretation of certain clauses of
the contract on which two views are possible. This case certainly can-
not be brought under the principle that the arbitrators have ex facie
exceeded the authority or jurisdiction conferred on them by the con-
c tract. At worst, what can be said is that they may have committed an
error in deciding the issue referred to them but the error is not appa-
rent on the face of the award even if the contract is read as part of it
both because the arbitrators have not given their reasoning and
because the view taken by them of the relevant tenns of the contract
D cannot be said to be clearly erroneous. In a matter on which the
contract is open to two eqully plausible interpretations, it is legitimate
for the arbitrators to accepr one or the other of the available interpre-
tations and, even if the Court may think that the other view is prefer-
able, the Court will not and should not interfere. This view is too well
settled to need any reference to any precedent other than Sudershan
E Trading Co's case referred to earlier. That is why we think that this
case does not fall within the principle referred to by Shri Banerjee and
that Dr. Ghosh is right in his submission that the Division Bench
exceeded its jurisdiction in interfering with this part of the award.

Turning now to the appeal of the Union of India, there is really
F no dispute about the first contention regarding the amount on which -/..
interest is payable to the contractors. The correct computation should
stand as follows in the light of our findings in the contractors' appeal: -I_-

Rs.
Compensation awarded 57,47, 198
G by arbitrator
Less : Interest element
therein [item ( 1) I 6,76,540

Net principal amount
awarded 50,70,658
'H
HIND BUILDERS v. U.0.1. [RANGANATI!AN, J.] 651

Less : Amount deleted
A
by learned Single Judge 5,20,000

45,50,650

B

The contractors will be entitled to interest on this amount.

What is the period with reference to which interest would be
payable on the above amount? The arbitrators had allowed interest on

- the amount awarded by them from 5.10.82 to 26.3.84 under item (1)
and had also allowed interest from the date of the award till the date of
payment or decree, whichever is earlier. Of this, the learned Single
C

Judge had deleted the interest for the period 5.10.82 to 6.5.83 and
whaf<remains is the award of interest from 6.5.83 till the date of pay-
ment. There are two disputes as to this._ The first objection raised on
behalf of the Union is that the contractors will not be entitled to any D
interest for the period from the date of reference to arbitration
(6.5.1983) till the date of the award (26.3.1984). On behalf of the
contractors, Dr Ghosh refutes this contention. He relies upon the
decision of this Court in Executive Engineer v. Abhaduta Jena . [1988]
1 sec 418 and contends that, in all cases where, as in this case,
arbitrators are appointed by Court and disputes referred to them for E
arbitration, pendente lite interest can and should be awarded by the
arbitrator. He points out that, though initially in Seth Thawardas' case
[ 1955] 2 SCR 48 some doubts were raised abl'ut-the competence of the
arbitrator to award interest, this Court has subsequently consistently
held that an arbitrator can do this: vide, Nachiappa v. Subramaniam,
[ 1960] 2 SCR 209; Satinder v. Amrao, [1961] 3 SCR 676; Firm Madan- F
Jal v. Hukamchand Mills Ltd., [1967] 1SCR105; Union v. Bungo Steel
j' Furniture P. Ltd., [ 1967] 1 SCR 324; Ashok Constructon Co. Ltd. v.
Union, [ 1971] 3 SCC 66 and State v. Saith & Skelton P. Ltd., [1972] 3
SCR 233. After referring to these and other cases, Chinnappa Reddy,
J. in Abhadutalena, (supra) summed up the position thus:
G.
"15. As a result of the discussion of the various cases, we
see that Bengal Nagpur Railway Co. Ltd. v. Ruttanji Ranjit,
65 IA 66; Union of India v. West Punjab Factories, [1966] 1
SCR 580 and Union of India v. Watkins & Co., AIR 1966
SC 275 were cases of award of interest not by an arbitrator,
but by the court. It was laid down in those three cases that H
652 SUPREME COURT REPORTS [1990] 2 S.C.R.

interest could not be awarded for the period prior to the
A (
suit in the absence oi an agreement for the payment of
interest or any usage of trade having the force of law or any _.,.__
provision of the substantive law entitling the plaintiff to
recover interest. Interest could ·also be awarded by the
court under the Interest Act if the amount claimed was a
B sum certain payable at a certain time by virtue of a written
instrument. In regard to pendente lite interest, the provi-
sions of the Civil Procedure Code governed the same.

16. The question of award of interest by an arbitrator was
considered in the remaining cases to which we have refer-
c red earlier. Nachiappa Chettiar v. Subramaniam Chettiar,
[1960] 2 SCR 209; Satinder Singh v. Amrao Singh, [196 ll 3
SCR 676; Firm Madan/a/ Roshanlal Mahajan v. Hukum-
-
chand Mills Ltd., [ 1967] 1 SCR 105; Union of India v.
Bungo Steel Furniture Pvt. Ltd., I1967] I SCR 324; Ashok
Construction Co. v. Union of India, [1971] 3 S.C.C. 66 and
D State of Madhya Pradesh v. Mis. Saith & Skelton Pvt. Ltd.,
[ 1972] 3 SCR 233 were all cases in which the reference to
arbitration was made by the court, of all the disputes in the
suit. It was held that the arbitrator must be assumed in
those circumstances to have the same power to award
interest as the court. It was on that basis that the award of
E pendente lite interest was made on the principle of Section
34 Civil Procedure Code in Nachiappa Chettiar v. Subra-
maniam Mills Ltd., (>upra); Firm Madan/a/ Roshanla/
Mahajan v. Hukumchand Mills Ltd., (supra); Union of
India v. Bungo Furniture Pvt. Lid., (supra) and State of
Madhya Pradesh v. Mis Saith & Skelton Pvt. Ltd., (supra).
F In regard to interest prior to the suit, it was held in these
cases that since the Interest Act, 1839, was not applicable,
interest could be awarded if there was an agreement to pay
interest or a usage of trade having the force of law or any
other provision of substantive law entitling the claimant to
recover interest. Illustrations of the provisions of substan-
G tive law under which the arbitrator could award interest
were also given in some of the cases. It was said, for
instance, where an owner was deprived of his property, the
right to receive interest took the place of the right to retain
possession, and the owner of immovable property who lost
possession of it was, therefore, entitled to claim interest in
H the place of right to retain possession. It was further said
HIND BUILDERS v. U.0.1. [RANGANATHAN, l.] 653

that it would be so whether possession of immovable pro-
A
perty was taken away by private treaty or by compulsory
acquisition. Another instance where interest could be
awarded was under. Section 61(2) of the Sale of Goods Act
which provided for the award of interest to the seller or the
buyer, as the case may be, under the circumstances
specified in that section. B

xxx xxx xxx

18. While this is the position in cases which arose prior to
the coming into force of the Interest Act, 1978, in cases
arising after the coming into force of the Act, the position
now is that though the award of pendente lite interest is still
c
governed by the same principles, the award of interest
prior to the suit is now governed by the Interest Act, 1978.
Under the Interest Act, 1978, an arbitrator is by definition,
a court and may now award interest· in all the cases to which
the Interest Act applies." D

Sri Milon Banerjee, appearing for the Union of India, however,
contends that the above principle is applicable only in cases where an
arbitrator is appointed on intervention of comt as contemplated in
Chapter IV of the Arbitration Act. It is only in these cases that the
arbitration proceedings can be considered to be a continuation of the E
court proceedings, empowering the arbitrator to do all that the court
could do. For, even in cases arising after the Interest Act, 1978, the
award of pendente lite interest can only be in terms of the provisions of
s. 34 of the Code of Civil Procedure and this cannot be invoked. in
cases of arbitration except in cases falling under Chapter IV merely on
the ground that the appointment of the arbitrator is made under S. 8, F
12 or 20 of the said Act. Counsel submits that Chinnappa Reddy, J.
has pointed out in Abhadhuta Jena's case [ [1988] 1 SCC at pp. 434-5 I
that in all cases whether arising before or after the Interest Act, the
claimants would not be entitled to interest from the date of reference
to the date of the award for the simple reason that "the arbitrator is
not a court nor were the references to arbitration made in the course of G
suits". It is this principle that has been reiterated in Food Corporation
of India v. Surendra, Devendra & Mohendra Transport Co., [1988] 1
3
.. . . . _ SCC 547 (at pp. 554 et seq) and Gujarat Water Supply & Sewage Board
v. Unique Erectors, [1989] 1SCC532.

There is force in the contention urged by Sri Banerjee. There are H
654 SUPREME COURT REPORTS (1990] 2 S.C.R.

passages ih Abhaduta Jena which indicate that the grant of pendente
A lite interest would be justified only when the reference to arbitration is
(

made in the course of a suit: vide, the last sentence on p. 428, the first ---~-
sentence on p. 429, the emphasis added in the extracts from earlier
judgments on pp. 430-1, and the summings up at p. 433 and 435. The
principle indicated in these passages apparently is that since a Court
B has, under s. 34, of the C.P.C., power to grant pendente lite interest in
a suit, an arbitrator to whom a reference to arbitration is made in the
course of the suit would be clothed with all the powers of the Court
including the one to grant such interest. This is how this Court has also
looked at the matter in a subsequent case. In State of Rajasthan v.
Sharma & Co., (1988) 4 SCC 353, the parties had entered into a com-
promise in certain proceedings in Court agreeing that their disputes
c would be settled by arbitration but the arbitrators were appointed
subsequently by the parties themselves and a reference made to them.
A Bench of this Court (of which one of us was a member) reviewed the
earlier cases and explained the decision in Abhaduta Jena thus:

D "12. This was awarding interest pendente lite. This is in
violation of the principles enunciated by this Court in
Executive Engineer (Irrigation), Ba/ime/a v. Abhaduta
Jena. Our attention was drawn by Shri Soli J. Sorabjee,
counsel for the respondent, to the decision of this Court in
Food Corporation of India v. Mis Surendra, Devendra &
E Mohendra Transport Co., where at pages 555-556 of the
report, the Court referred to certain decisions cited by
Chinnappa Reddy, J. in Executive Engineer (Irrigation) in
which he had expressed the view that those were cases in
which ,the references to arbitration were made by the ,court
or in court proceedings of the disputes in the suit. In that
F . context it was held in those cases that the arbitrator had
power to grant interest. It was contended before us that
this was a similar case. There was a court proceeding in this
case regarding the appointment of the arbitrator and, as
such, on the same analogy it should be treated that the
arbitrator had power to grant interest. We are unable to
G accept this.

13. What Mr. Justice 0. Chinnappa Reddy meant to say
by the latter judgment in Executive Engineer (Irrigation)
case, referred to in Food Corporation of IndUi was where
the disputes regarding the merit of the case were pending in
H the court and such disputes instead of being decided by the
HIND BUILDERS v. U.0.1. [RANGANATHAN. J.[ 655

court, adjudication had been referred to an arbitrator by A
)
the court, in such cases the arbitrators deciding in the place
-->---- of court, would have the same powers to grant interest
pendente lite as the courts have under Section 34 of the
Civil Procedure Code. Instant case is not such a proceeding."

_, This principle would logically be applicable, as rightly contended by
Shri Banerjee, only to cases where the reference to arbitration arises
in the course of a suit.
B

Dr. Ghosh, however, submits that, except for Nachiappa v. Sub-
-.f' ramaniam, [1960] 2 SCR 209 and Hukumchand Mills, [1967] 1 SCR
105, the other cases referred to by Chinnappa Reddy, J. were all only
• cases in which an arbitrator had been appointed under s. 8 or 20 of the
c
Arbitration Act. The principle enunciated, he submits, was actually a
...._,._ _.. little wider than that contended for by Shri Banerjee. It is this that
where an arbitrator is appointed by the Court and a reference is made
to him, he has all the powers of the Court. He invites attention to the
observations in Hukumchand Mills, case (1967] 1 SCR 105, reiterated D
(in the context of post-award interest) in Union v. Bungo Furniture
Co., (1967] 1 SCR 324 at p. 329) that it is "an implied term of the
reference that the arbitrator will decide the dispute according to law
and would give such relief with regard to pendente lite interest as a
Court could give if it decided the dispute". He urges that Abhaduta
I :x Jena related to a batch of cases, arising out of references made prior E
to, and later than, the commencement of the Interest Act, 1978, but by
the parties themselves under the terms of the contract, without refe-
rence to court and so it was held that pendente lite interest could not be
granted. But that is not so in the present case. He says that this deci-
sion was simply followed in .State v. Construction India, [1987] Suppl.
>- SCC 708, in the Food Corporation case [1988] 1 SCC 547 and in State F
v. Sharma and Co., (1988] 4 SCC 353. The Gujarat Water Supply case
-). [1989) lSCC 532 was, he urges, also a similar case (see para 5) though
in that case there appear to have been some proceedings in Court
earlier. In short, he virtually submits that Abhaduta Jena and Sharma's
case have unduly restricted the grant of pendente lite interest and
require reconsideration and that pendente lite interest should be G
awarded in all cases where the intervention of Court is sought for the
appointment of arbitrators, directly or indirectly, at. any stage.
-'------ Generally speaking, it would only seem reasonable that the
power to grant interest pendente lite should b~ treated as ancillary to
the award of damages or compensation which, but for the delay in the H
656 SUPREME COURT REPORTS [1990] 2 S.C.R.

litigation (whether in Court or by way of arbitration), the claimant
A
should have received much earlier. However, though pendente lite
interest has been made available in Court proceedings, its extension to
arbitration law appears to have acquired some technical limitations
resulting in denial of pendente lite interest in most cases of arbitration.
Even if we accept the contention of Dr. Ghosh, pendente lite interest
B cannot still be awarded by an arbitrator appointed by the parties under
a private agreement for which there may be no justification in equity.
These anomalies have arisen because formerly an arbitrator could not
be treated as a Court to which the Code of Civil Procedure applied and
because now the Interest Act, 1978, while including arbitration pro-
ceedings within its ambit, has, apart from a reference to s. 34, omitted
to provide specifically for pendente lite interest. This has been clearly
c brought out by Chinnappa Reddy, J. We have earlier referred to pas- -
sages from Abhaduta Jena which outline the principle the learned
Judge had in mind for permitting pendente lite interest by an
arbitrator. It is interesting, in fact, to notice that the present conten-
tions of Dr. Ghosh (based on certain earlier decisions of this Court)
D appear to have been advanced by him in the Food Corporation case
[ 1988] I SCC 547 to support a wider contention that pendente lite
interest should be awarded even in an arbitration by private agreement
(as in that case) so long as the terms of the arbitration agreement did
not exclude the jurisdiction of the arbitrator to entertain such a claim.
But the Court did not accept the contention and followed Abhaduta
E Jena. Abhaduta Jena has been followed in later cases also and its scope
has been recently explained in Sharma's case [ 1988] 4 SCC 353. We
may point out that in the latter case, a specific point was raised that
since the Court had been concerned with the appointment of the
arbitrator at some stage it should be treated as a reference to arbitra-
tion by court warranting the grant of pendente lite interest but this
F contention was negatived and the principle confined only to cases
where a ieference to arbitration is made in the course of suits. The
position was similar in the Gujarat Water Supply case [1989] 1SCC532
but pendente lite interest was denied. In view of Abhaduta Jena and the
clarification specifically set out in para 13 of Sharma's case, we are
unable to accede to the contention of Dr. Ghosh, attractive as it is an
G equitable proposition.

The Division Bench of the High Court had no occasion to con-
sider the above recent pronouncements of this Court. Further, it is _;-
seen that, before the Division Bench, the Union took an objection that
under clause 16(2) of the general conditions of contract, the contrac-
H tors could claim no interest on the amounts that may be determined as
HIND BUILDERS v. U.0.1. [RANGANATHAN, J.] 657

payable to them. The Division Bench met this contention by relying on A
a circular issued by the Government of India making the claim for
interest entertainable in arbitration "if notice had been issued in this
behalf by the arbitrator". There is, however, no finding and nothing
on record brought to our notice to show that any specific notice, claim-
ing interest, had been given as contemplated by the contract. Having
B
regard to all these considerations, we are unable to uphold the order of
the Division Bench on this issue.

This takes us to the second point urged on behalf of the Union in
regard to interest. The contention is that the learned Single Judge had
restricted it to the date of the award, and that this has become final as
the contractors have preferred no appeal therefrom. The grounds of c
appeal before us by the Union are confined only to the mistake in not
taking into account the sum of Rs.6,76,540 and do not raise any ques-
tion regarding post-award interest. It is, therefore, not open to Shri
Banerjee to raise this question. That apart, on merits also the conten-
tion raised that post-award interest has been declined by the High
Court is not correct. The contention overlooks the course of pleadings D
between the parties. The arbitrators had, in the annexure to the
award, computed interest from 5. 10.82 to 26.3.84 i.e. from the date of
the termination of the contract till the date of the award and in the
award, had granted interest on the amount awarded from the date of
award till the date of decree or payment. A point had been raised
before the High Court in the memo of objections that the arbitrators E
had erred in awarding interest in the manner mentioned in the award
but the objection urged by the Union before the learned Single Judge
was a different one viz. that the arbitrators ought not to have granted
interest for the period prior to the date of reference without any agree-
ment or right in law to claim such interest. It is this contention that was
accepted by the learned Single Judge who deleted the interest award F
prior to the date of the reference and held that the arbitrators had
jurisdiction to award interest from the date of the reference till the
date of the award. This did not affect the arbitrator's direction in the
main part of the award, that interest will accrue on the amount of the
award (if the said amount was not paid within 60 days) till the date of
payment or decree, whichever is earlier. This part of the award was riot G
questioned. Jn fact, the decree drawn up in consequence of the order
of the learned Single Judge, specifically directs (a) interest on the
awarded amount from 6.5.83 (date ofreference) to 26.3.84 (date of the
award); (b) "thereafter, interest on the amount·awarded at 11% from
27 .3.84 to 11.12.84" (date of the decree); and (c) interest the~eafter at
H
658 SUPREME COURT REPORTS [1990] 2 S.C.R.

---
A 9% per annum. The objection of the Union in the LPA on the question
of interest was only that the arbitrators had erred in awarding interest
from 6.5.1983 to 26.3.1984. It is this contention that was accepted by the
Division Bench. The High Court had, therefore, not decided that the
contractors were not entitled to interest beyond the date of the award.
This contention of the Union, therefore, fails and is rejected.
B
In the result C.A. 1280/88 is allowed and C.A. 1281/88 is allowed
in part. There will be no order as to costs.

R.N.J. Appeals allowed.