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2021 SCC OnLine AP 3014
In the High Court of Andhra Pradesh

(BEFORE A.V. SESHA SAI AND J. UMADEVI, JJ.)
Rastriya Ispat Nigam Limited

Versus
Radha Madhav Engg Enterprises
COM.CA No. 11 of 2019
Decided on September 22, 2021
The Judgment of the Court was delivered by
A.V. SESHA SAI, J.:— Challenge in the present Commercial Court
Appeal is to the order and decree dated 16.08.2019 passed by the
Court of the Special Judge for trial and disposal of the Commercial
Disputes, Visakhapatnam, in CAOP No. 38 of 2017 (Old AAP No. 306 of
2017). The petitioner in the said CAOP No. 38 of 2017 is the appellant
in the instant appeal. The appellant herein filed the said CAOP No. 38 of
2017 before the Special Court under Section 34 of the Arbitration and
Concilliation Act, 1996, praying to set aside the Award dated
15.12.2016 passed by the Arbitral Tribunal (respondents 2 to 4 herein)
on the claims made by respondent No. 1 herein and the counter claims
of the appellant herein.
2. Briefly stated, the facts and circumstances, leading to filing of the
present Commercial Court Appeal, are as under:—
The appellant herein, i.e., Rashtriya Ispat Nigam Limited,
Visakhapatnam Steel Plant, floated a tender for structural steel plant
works for Sinter Plant No. 3 and in the said process, respondent No.
1 herein emerged as the successful tenderer and the appellant
herein awarded the contract in favour of respondent No. 1 and issued
letter of acceptance on 05.04.2007. An agreement was also entered
into on 02.05.2007 and the contract value being Rs. 3,49,00,000/-,
including all taxes and duties, but excluding service tax. The initial
period of contract was 13 months from the date of letter of
acceptance and the said period came to an end on 28.04.2008. The
appellant herein granted extension for six times up to 30.06.2010.
Subsequently, a portion of the work was withdrawn by respondent
No. 1 and the same was awarded in favour of M/s. Hindustan Steel
Works Construction Limited on 05.08.2010 by undertaking tender
process. For the balance work of the 1st respondent herein, the
appellant herein extended the period up to 31.08.2010 and
respondent No. 1 herein requested further extension till 31.10.2010
by way of a letter dated 07.09.2010, which was declined by the
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appellant herein, vide letter dated 08.09.2010. Thereafter, vide

notice dated 14.12.2010, the appellant herein informed respondent
No. 1 that the contract stood terminated by efflux of time and
instructed respondent No. 1 to vacate the site. On 15.06.2012,
respondent No. 1 herein did put forth claims worth Rs. 5.45 crores
and the appellant herein gave a reply on 09.07.2012, turning down
the same except the final bill amount and certain extra items.
Thereafter, the issues landed before the Arbitral Tribunal and
respondent No. 1 herein laid claims for a total sum of Rs. 5.45
crores.
3. Before the Arbitral Tribunal, respondent No. 1 herein made 15
claims, whereas the appellant herein made six counter claims. The
Arbitral Tribunal, vide Award dated 15.12.2016, granted amount under
12 claims and disallowed three claims laid by respondent No. 1 and
allowed one counter claim and rejected five counter claims made by the
appellant herein out of six counter claims. Assailing the said Award, to
the extent the same went against the appellant, the appellant herein,
by invoking the provisions of Section 34 of the Arbitration and
Concilliation Act, 1996, filed CAOP No. 38 of 2017 on the file of the
Court of the Special Judge for trial and disposal of the Commercial
Disputes, Visakhapatnam. Learned Special Judge, by way of an order
and decree dated 16.08.2019, dismissed the CAOP No. 38 of 2017,
confirming the Award dated 15.12.2016 rendered by the Arbitral
Tribunal.
4. In the above background, challenging the validity and legal
sustainability of the said order and decree dated 16.08.2019, the
present Commercial Court Appeal came to be preferred.
5. Heard Sri. V. Ravinder Rao, learned Senior Counsel, representing
Sri. W.B. Srinivas, learned counsel for the appellant and S/Sri P.V.
Krishnaiah and M. Ramdas, learned counsel for respondent No. 1, apart
from perusing the entire material available on record.
6. Submissions/Contentions of Sri. V. Ravinder Rao, learned
Senior Counsel:
(1) The order passed by the learned Special Judge, confirming the
award of the Arbitral Tribunal is highly erroneous, without
jurisdiction, contrary to law, weight of evidence and probabilities
of the case and opposed to the very spirit and object of the
provisions of the Indian Contract Act, 1872, the Arbitration and
Concilliation Act, 1996 (for short, ‘the Act, 1996’) and the Micro,
Small and Medium Enterprises Development Act, 2006 (for short,
‘MSMED Act’).
(2) The order impugned is full of assumptions and presumptions and
in total disregard of the documentary evidence available on record
and the basic principles of law.
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(3) The claims made by respondent No. 1 are beyond the terms and
conditions of the contract, more particularly, Clauses 17.2 and 18
of the General Conditions of Contract.
(4) The Arbitral Tribunal has no jurisdiction to award interest by
invoking the provisions of the MSMED Act and the claimant ought
to have approached the appropriate forum for the said relief, if so
advised, by raising a dispute before the Facilitation Council under
Sections 15 to 18 of the MSMED Act, 2006.
(5) The reasoning given by the Tribunal that the appellant
committed breach of contract is highly perverse as the claimant
himself breached the contract by not completing the work within
the extended period.
(6) The appellant herein did not commit any breach of contract, as
such, respondent No. 1 herein would not be entitled for any
compensation.
(7) The appellant herein terminated the contract as per the terms
and conditions of the contract, as such, the termination of the
contract cannot be faulted, and the Award, on the basis of the
findings arrived at, contra is neither sustainable nor tenable in the
eye of law.
(8) The Tribunal granted claims 5 and 8 in violation of the terms and
conditions of the contract and substantive law and the same are
not permissible in view of Clauses 23.1 and 18.5.1 of the General
Conditions of Contract read with Clause-15 of the Special
Conditions of Contract.
(9) As per Clause 15.3 of the Special Conditions of Contract, if the
delay is not attributable to the contractor, the contractor is
entitled for price variation only and not for damages as per
Clauses 23.1 and 18.5.1 of the General Conditions of Contract
read with Annexure-4.
(10) The Tribunal ought not to have awarded Claims 5 and 8 in view
of Section 28(3) of the Act, 1996 and the phrase compensation as
stipulated in Section 28(3) of the Act, 1996, is required to be
treated as liquidated damages.
(11) The judgment of the Hon'ble Supreme Court in Associate
Builders v. Delhi Development Authority1 cannot be made
applicable for claiming claims 5 and 8, since the clauses akin to
clause 18.5.1 of the General Conditions of Contract was not there
in the said reported case.
(12) All extensions were granted without liquidated damages, which
the contractor already claimed under Claim No. 1 in the form of
release of due payment of final bill (Rs. 75,26,745-91 ps), labour
escalation bill (Rs. 9,16,194-15 ps), POL escalation bill (Rs.
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35,383-65 ps) and material escalation bill (Rs. 16,38,044-72 ps),

as such, the contractor is not entitled to claims 5 and 8
separately.
(13) Vide letters dated 20.04.2009 and 15.03.2010, contractor
sought the extension and asked for price escalation but not
damages, but, for the first time, before the Arbitral Tribunal, the
contractor asked for damages. Price variation is in the form of
liquidated damages, as such, grant of claims 5 and 8 is nothing
but duplication and the said claims are in the nature of general
damages and are not permissible in view of Clause 18.5.1 of the
General Conditions of Contract.
(14) According to Section 74 of the Indian Contract Act, 1872
contractor is only entitled for reasonable compensation, i.e., price
variation, already covered under claim No. 1, as such, the
claimant is not entitled for amount covered by claims 5 and 8 and
the price variation needs to be treated as liquidated damages.
In support of his submissions and contentions, as regards claims
5 and 8, learned Senior Counsel takes the support of the following
judgments of the Hon'ble Supreme Court:
(1) Mahanagar Telephone Nigam Limited v. Tata Communications
Limited2 ;
(2) Kailash Nath Associates v. Delhi Development Authority3 ;
(3) Bharat Sanchar Nigam Limited v. Reliance Communication
Limited4 ;
(4) Union of India v. Raman Iron Foundry5 ;
(5) Fateh Chand v. Balkishan Dass6 ;
(15) According to the learned Senior Counsel, claims 4 and 7 are
excepted matters in view of Clause 21.3 of the General Conditions
of Contract, as such, these claims are not tenable.
(16) Proviso to Clause 21.3 of the General Conditions of Contract
mandates the contractor to make claim for extra works within 30
days to the Engineer supported by documents, but in the instant
case, contractor made a claim for extra works, i.e., under Claim
No. 4 on 05.01.2012, though the contract was terminated on
31.08.2010, i.e., 1½ years after termination of the contract, i.e.,
during the contractual period, the contractor did not raise the
claim. But however, the Executive Engineer allowed the claims 2,
4 to 10, but disallowed the claims 1, 3, 11 and 12, which are set
out under claim No. 4. Since the claims 4 and 7 are the accepted
matters, they are not tenable and the Arbitral Tribunal has no
jurisdiction under Clause 28 of the General Conditions of Contract.
In support of his contentions on claims 4 and 7, learned Senior
Counsel places reliance on the judgment of the Hon'ble Supreme
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Court in Mitra Guha Builders (India) Company v. Oil and Natural Gas
Corporation Limited7 (Paras 16 to 29).
(17) On Claim No. 13, it is contended that as per Clause 9.3 of the
General Conditions of Contract, the contractor is not entitled for
the said claim and it would not be open for the contractor to claim
anything under this head.
(18) On Claim No. 14, it is contended by the learned Senior Counsel
that in view of Clause 28.4 of General Conditions of Contract, the
Arbitral Tribunal has no jurisdiction to award interest.
(19) Arbitral Tribunal is the creature of the statute, and while
exercising jurisdiction under the Act, 1996, the Arbitral Tribunal
erred in awarding interest as per the MSMED Act, 2006.
In support of his contentions on claim No. 14, learned Senior
Counsel places reliance on the following judgments:
(1) In Union of India v. Ambica Construction8 ;
(2) In Sri. Chittaranjan Maity v. Union of India9 ;
(20) The Arbitral Tribunal is prohibited under Section 31(7)(a) of the
Act, 1996 read with Clause 28.4 of the General Conditions of
Contract. Once the Arbitral Tribunal is barred under Section 31(7)
(a) of the Act, 1996, read with Clause 28.4 of the General
Conditions of Contract, the Arbitral Tribunal cannot fall back on
the provisions of the MSMED Act, 2006 and the said provision of
law will not confer jurisdiction on the Arbitral Tribunal to award
interest, and Sections 18 and 24 of the MSMED Act, 2006, would
not come to the aid of the appellant herein.
(21) Alternatively, it is the submission of Sri. V. Ravinder Rao,
learned Senior Counsel that the benefit of Section 15 of the
MSMED Act, 2006, is available only to the goods supplied by the
contractors and the services rendered to the buyer, but not for
contractual works.
(22) The violation of the orders of the Constitutional Courts are
required to be treated as the decisions taken against the public
policy (Referring Associate Builders v. Delhi Development
Authority's case reported in (2015) 3 SCC 49).
7. Submissions and contentions of S/Sri P.V. Krishnaiah and
M. Ramdas, learned counsel for respondents:
(1) The Award passed by the learned Arbitral Tribunal and the order
passed by the learned Special Judge under Section 34 of the Act,
1996, are strictly in accordance with the provisions of the said
legislation and that there are no errors, nor there exists any
infirmities, in the impugned order of the learned Special Judge, as
such, the same does not warrant any interference of this Court
under Section 37 of the Arbitration and Concilliation Act, 1996.
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(2) The jurisdiction of the Courts is limited only to the extent of the
grounds set out in sub-section (2) of Section 34 of the Act, 1996
and in the instant case, there are no such grounds existing.
(3) Award of the Arbitral Tribunal cannot be impeached unless the
same is contrary to the provisions of the Act, 1996, and the terms
of the contract and the said contingencies are conspicuously
absent in the case on hand.
(4) At no point of time, respondent No. 1-contractor failed in
fulfilling the obligations and the delay in executing the contractual
work was due to the attitude of the appellant and not due to the
conduct of respondent No. 1-contractor.
(5) The grounds now sought to be pressed into service by the
learned counsel for the appellant were neither raised before the
Arbitral Tribunal nor before the Special Court nor before this Court
in the Memorandum of Grounds of Appeal, as such, the same do
not warrant any consideration by this Court.
(6) The findings of the team of Arbitrators, in the absence of any
person with judicial knowledge, are not fatal to the Award in view
of law laid down by the Hon'ble Supreme Court and in the instant
case, the First Arbitrator was appointed by the contractor and
second Arbitrator by the appellant, who in turn jointly elected the
third Arbitrator.
Learned counsel takes the support of the following judgments in
support of the submissions:
(1) Municipal Corporation of Delhi v. M/s. Jagan Nath Ashok
Kumar10
(2) P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H.
Securities Private Limited11
(7) In the absence of any fault on the part of any contractor, the
prohibition contained in Clause 19.1 cannot be applied for denying
the claims 5 and 8.
(8) The decision in Kailash Nath Associates v. Delhi Development
Authority (3 supra) is applicable only in the cases where there is
breach of contract and since there is no breach of contract
committed by the contractor, the said decision cannot be made
applicable.
(9) Learned counsel places reliance on a decision in Associate
Builders v. Delhi Development Authority case (1 supra), to sustain
the Award on claims 5 and 8.
(10) The contention as regards the liquidated damages was not
raised before all the lower fora nor raised in the Memorandum of
Grounds of Appeal in the present appeal, as such, the same
cannot be raised now orally for the first time during the course of
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arguments.
(11) As per the appellant, claims 5 and 8 are also contrary to law,
but the same cannot be sustained and when there is a delay on
the part of the appellant, clause 18.4 of the General Conditions of
Contract would not come to the rescue of the appellant herein.
Learned counsel places reliance on the judgment in Central Bank
of India v. Virudhunagar Steel Rolling Mills Limited12 .
(12) In view of Clause 17.1 of the Special Conditions of Contract and
Clause 26.3 of the General Conditions of Contract, contentions of
the learned counsel for the appellant as regards claims 4 and 7
are not sustainable and he relies on a decision of the Hon'ble
Supreme Court in Kalpraj Dharamshi v. Kotak Investment
Advisors Ltd.13
(13) The contention of the learned counsel for the appellant as
regards the claim-14 cannot be sustained in view of the law laid
down by the Bombay in Steel Authority of India Ltd. v. Micro,
Small Enterprise Facilitation Council, through Joint Director of
Industries, Nagpur Region, Nagpur14 .
8. Both the learned counsel have filed written arguments also.
9. In the above background, now, the issues which this Court is
called upon to answer in the present Commercial Court Appeal are:—
(1) Whether the order of the learned Special Judge, confirming the
award passed by the Arbitral Tribunal is in accordance with the
provisions of the Arbitration and Concilliation Act, 1996, the
Indian Contract, 1872 and the Micro, Small and Medium
Enterprises Development Act, 2006 and whether the contentions
of the learned counsel for the appellant as regards claims 5 and 8
are sustainable and tenable?
(2) Whether the findings of the learned Arbitral Tribunal, as
confirmed by the learned Special Judge, on claims 4 and 7
warrant any interference of this Court under Section 37 of the
Arbitration and Concilliation Act, 1996?
(3) Whether the Arbitral Tribunal is justified in granting relief
covered by claim No. 13?
(4) Whether the Arbitral Tribunal and the Special Judge are justified
in granting interest to the respondent-contractor on claim No. 14
in view of the conditions of contract and Whether the Tribunal and
the Special Court are justified in invoking the provisions of the
Micro, Small and Medium Enterprises Development Act, 2006?
10. Anterior to the process of examining, analyzing and adjudicating
various issues that have cropped up in the present Commercial Court
Appeal, it may be highly essential and apposite to refer to the
provisions of Section 34 of the Arbitration and Concilliation Act, 1996,
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which read as follows:

“34. Application for setting aside arbitral award.
1. Recourse to a Court against an arbitral award may be made
only by an application for setting aside such award in
accordance with sub-section (2) and subsection (3).
2. An arbitral award may be set aside by the Court only if-
a. the party making the application furnishes proof that-
i. a party was under some incapacity, or
ii. the arbitration agreement is not valid under the law to which
the parties have subjected it or, failing any indication thereon,
under the law for the time being in force; or
iii. the party making the application was not given proper notice
of the appointment of an arbitrator or of the arbitral
proceedings or was otherwise unable to present his case; or
iv. the arbitral award deals with a dispute not contemplated by or
not falling within the terms of the submission to arbitration, or
it contains decisions on matters beyond the scope of the
submission to arbitration:
Provided that, if the decisions on matters submitted to arbitration
can be separated from those not so submitted, only that part of the
arbitral award which contains decisions on matters not submitted to
arbitration may be set aside; or
v. the composition of the arbitral tribunal or the arbitral procedure
was not in accordance with the agreement of the parties,
unless such agreement was in conflict with a provision of this
Part from which the parties cannot derogate, or, failing such
agreement, was not in accordance with this Part; or
b. the Court finds that-
i. the subject-matter of the dispute is not capable of settlement
by arbitration under the law for the time being in force, or
ii. the arbitral award is in conflict with the public policy of India.
[(2A) An arbitral award arising out of arbitrations other than
international commercial arbitrations, may also be set aside by the
Court, if the Court finds that the award is vitiated by patent illegality
appearing on the face of the award:
Provided that an award shall not be set aside merely on the
ground of an erroneous application of the law or by reappreciation of
evidence.]
(3) An application for setting aside may not be made after three
months have elapsed from the date on which the party making that
application had received the arbitral award or, if a request had been
made under section 33, from the date on which that request had
been disposed of by the arbitral tribunal : Provided that if the Court
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is satisfied that the applicant was prevented by sufficient cause from

making the application within the said period of three months it may
entertain the application within a further period of thirty days, but
not thereafter.
(4) On receipt of an application under sub-section (1), the Court
may, where it is appropriate and it is so requested by a party,
adjourn the proceedings for a period of time determined by it in
order to give the arbitral tribunal an opportunity to resume the
arbitral proceedings or to take such other action as in the opinion of
arbitral tribunal will eliminate the grounds for setting aside the
arbitral award.
(5) An application under this section shall be filed by a party only
after issuing a prior notice to the other party and such application
shall be accompanied by an affidavit by the applicant endorsing
compliance with the said requirement.
(6) An application under this section shall be disposed of
expeditiously, and in any event, within a period of one year from the
date on which the notice referred to in sub-section (5) is served
upon the other party.]”
11. It is very much lucid and candid from a reading of the above
provisions of law that the application for setting aside an arbitral award
is maintainable only in the contingencies stipulated under Section 34
(2)(a)(i to v) and Section 34(2)(b) and Section 34(2A) and Section 34
(3) of the Act, 1996. The issues in the instant Commercial Court Appeal
are required to be examined, analyzed and resolved within the
parameters of the above said provisions of law.
12. Respondent No. 1 herein filed a claim statement, claiming as
many as 15 claims and the particulars of the same including the
amounts awarded by the Arbitral Tribunal, vide Award dated
15.12.2016 are as follows:—
Sl. No. Claim Amount Amount Whether
claimed Rs. awarded Rs. interest
Ps. Ps. granted
1. Release of 1,01,16,368 96,66,136- Granted
final bill, -43 00
Labour wages,
PQL, material
escalation
2. Refund of 2,17,653- 2,17,018- Granted
amount 00 00
deducted
towards
payment of
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labourers
3. Release of 34,90,000- 34,90,000- Not granted
Performance 00 00
guarantee
bond
submitted by
the Claimant
in lieu of
security
deposit under
provision of
SSI
4. Payment 1,19,30,185 79,27,943- Granted
towards -73 00
expenditure in
executing 12
Nos. of extra
items
5. Delay in issue 68,25,022- 40,95,013- Granted
of drawings, 00 00
materials and
nonavailability
of fronts
6. Change in 96,84,406- Rejected Not granted
specification 00 the claim
7. Fixing of 44,00,714- 23,30,236- Granted
higher BOQ 48 00
rates for the
additional
scope of work
for JH44A to
JH49A
8. Revision of bill 54,83,000- 36,49,047- Granted
of quantities 00 00
(BOQ) rates to
increase all
input costs for
the period
beyond
original
schedule date
of completion.
9. Semi 8,93,279- 6,14,457- Granted
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Fabrication of 00 00
steel
structures
lying at the
site
10. Collection, 15,29,545- 13,33,247- Granted
transportation, 00 00
stocking, etc.,
of steel drawn
from VSP.
11. Additional 5,08,000- 4,16,000- Granted
expenditure 00 00
met by
engaging
higher
capacity
traitors 30
TON instead of
originally
engaged 20
Ton
12. Additional 25,62,500- Claim Not granted
expenditure 00 rejected by
for engaging Arbitral
heavy cranes Tribunal
13. Additional 4,15,000- 3,81,800- Granted
expenditure 00 00
for
development
of fabrication
site
14. Payment of As per @ 20.25% --
interest as per MSMED Act, at monthly
Government 2006 rates i.e., 3
norms from times of
time to time Banks rate
SSI (MSME) of 6.75% as
units as all the published
claims from by RBI on
the date of 09.12.2016
eligibility till vide
the actual Annexure 8
date of at Page 207
payment as in line with
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per the MSMED Act,

MSMED Act, 2006.
2006.
15. Costs 26,20,068- Rejected by --
00 Tribunal
Total 5,80,55,719 3,41,20,897
-64 -00
13. Appellant herein raised six counter claims and out of which the
Arbitral Tribunal allowed counter claim No. 4 and disallowed counter
claim Nos. 1, 2, 3, 5 and 6 on the ground of limitation and the
particulars of the same are as follows:
Sl. No. Claim Amount Amount Whether
claimed Rs. awarded Rs. interest
Ps. Ps. granted
1. Rist and 1,97,65,552 Rejected --
costs -30
2. Recovery of 95,96,585- Rejected --
amount of 68
failure of
RMEE to
account for
the steel
3. Cost 5,75,335-00 Rejected --
incurred for
returning
the surplus
steel, cut
pieces and
scrap
4. Crane hire 91,725-00 91,725-00 --
purchases
5. Charges for 15,28,340- Rejected --
power 00
consumption
6. Recovery of 2,19,361-00 Rejected --
il. building
cess
7. Total 3,17,76,641 4,91,725-00
-55
14. As against the Award passed by the learned Arbitral Tribunal on
15.12.2016, the appellant herein preferred CAOP No. 38 of 2017 on the
file of the Court of the Special Judge, and the Special Judge, by way of
the questioned order and decree dated 16.08.2019, dismissed CAOP
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No. 38 of 2017, confirming the Award passed by the Arbitral Tribunal.

15. Though the present appeal came to be preferred against the
entire Award, as confirmed by the learned Special Judge, learned
Senior Counsel, Sri. V. Ravinder Rao, during the course of arguments,
mainly confined and advanced arguments on claims 4, 5, 7, 8, 13 and
14 only and did not press the appeal in respect of the other claims and
the counter claims. Therefore, this Court deems it appropriate to deal
with the said claims only.
16. Findings on Claims 5 and 8:
Claims 5 and 8 are as follows:
Claim No. 5: Compensation for breach of contract such as non-
issue of drawings, materials and non-availability of fronts, etc. by
the respondent, resulting in the time of completion getting
extended. The claim is on account of compensation of loss of profits
and over-heads on the balance works as on 29.04.2008; claim
amount : Rs. 68,25,022/- + Service Tax + interest.
Claim No. 8: Revision of rates of the BOQ (Bill of Quantities) due
to increase in all input costs for the period beyond the original
schedule date of completion till the claimant was allowed to execute
the work (i.e. from 29.04.2008 to 31.08.2010). Claim amount Rs.
54,83,040/- (+) service tax (+) interest as applicable to SSI Units.
Against the amounts so claimed, the Arbitral Tribunal, vide Award
dated 15.12.2016, granted Rs. 40,95,013/- + service tax of Rs.
6,14,252/- and Rs. 36,49,047/- + service tax of Rs. 5,47,357/- +
interest, respectively, against the claim Nos. 5 and 8.
17. While attacking the grant of claims 5 and 8, learned Senior
Counsel for the appellant, Sri. V. Ravinder Rao, maintains that having
allowed claim No. 1, which pertains to release of final bill, labour wage
escalation, POL escalation and material escalation, the Arbitral Tribunal
grossly erred in granting claims 5 and 8 and the same tantamounts to
duplication in granting the reliefs. It is the further submission of
learned Senior Counsel that the Tribunal totally ignored clauses 18.5.1,
21.1, 21.3 and 23.1 of the General Conditions of Contract, while
awarding the claims and also condition No. 15 of the Special Conditions
of Contract and Annexure-4 thereof. In this context, it may be apt to
extract the said conditions of contract.
18. Clause 18.5.1 of the General Conditions of Contract reads thus:
Extension of time for Completion: Should the quantum of
extra or additional work of any kind or other special circumstances of
any kind whatsoever which may occur be such as fairly entitle the
Contractor to an extension of time for the completion of the Work,
the Engineer shall decide the amount of such extension. However the
Engineer is not bound to take into account any extra or additional
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work or other special circumstances, unless the Contractor has within

thirty (30) days after such work has been commenced or such
circumstances have arisen or as soon thereafter as is practicable but
not later than thirty (30) days delivered to the Engineer full and
detailed particulars of any claim for extension of time to which he
may consider himself entitled in order that such claim may be
investigated at that time. In my case, the Contractor shall not be
entitled to Revision of Price, any compensation or damages on
account of such extension of completion period.”
19. Clause 21.0 deals with alterations, additions and omissions and
the same read as infra:
“Clause 21.1 : Variations : The Engineer/Consultant shall have
the right to make any variations of the form, quality or quantity of
the Work or any part thereof that may in his opinion be
necessary/required for the completeness of the Work and for any
other reasons which in his opinion be desirable/required, he shall
have right to order the Contractor to do any of this following:—
a) increase or decrease the quantity of any work/works included in
the Contract.
b) omit any such work/works.
c) change the character or quality or kind of any such work/works.
d) change the levels, lines, position and dimensions of any part
the work/works.
e) execute additional work of any kind necessary for the
completion of the work/works.
and no such variation shall in any way vitiate or invalidate the
Contract but the value of all such variations shall be taken into
account in ascertaining the amount of the Contract Price and
adjustment of time for completion, if required.
Clause 21.2 : Orders for variations to be in writing: No such
variation shall be made by the Contractor without an order in writing
of the Engineer/Consultant. Provided that no order in writing shall be
required for increase or decrease in the quantity of any work where
such increase or decrease is not the result of any order given order
this Clause, but is the result of the quantities exceeding or being
less than those stated in the Bill of Quantities.
Provided also that if for any reason, the Engineer/Consultant shall
consider it desirable to give any such order, verbally, the Contractor
shall comply with such order and confirmation by the Contractor in
writing of such verbal order given by Engineer/Consultant shall be
deemed to be an order in writing subject to Clause No. 5.3 hereof.”
20. Clause 23.1 of the General Conditions of Contract reads as
follows:
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“Clause 23.1: Prices or the Rates for the Work stipulated in the
Contract, shall remain firm and binding during the Contract Period
subject to the variations stipulated in the Special Conditions of the
Contract.”
21. Clause 15.0 of the General Conditions of Contract reads as
under:
“Clause 15.0 : Price Variation:
Clause 15.1: The price variation on accepted rates of the Bill of
Quantities will be permissible to the extent given in Annexure-4
enclosed. The rates quoted by the Tenderer shall be inclusive of all
taxes, levies, duties, etc., but exclusive of Service tax and Education
Cess thereon prevailing on the date of opening of Envelop-2.
Clause 15.2: During tenure of the Contract, if any new taxes,
duties/levies, etc., are imposed or tax rates undergo changes as
notified by the Govt. and become applicable to the subject works,
the same shall be reimbursed by the Employer on production of
documentary evidence in respect of payment of the same. Benefits
accruing to the Contractor on account of withdrawal/reduction in any
existing taxes and duties, the same shall be passed on to the
Employer.
Clause 15.3: The variations due to 15.1 and 15.2 above shall not
be permissible during the extended period of contract, if the delay is
attributable to the Contractor.”
22. Annexure-4 of the Special Conditions of Contract which deals
with Price Variation Formula reads as follows:
“ANNEXURE-4
(As per Clause No. 15.0 of Special Conditions of
Contract)
PRICE VARIATION FORMULA
The following clause relating to variation in wages shall be
applicable. No other claim on account of any other variation either
statutory or otherwise shall be applicable.
(CLARIFICATION : In case of revision of rates of materials, wages
& POL prices with effect from any date in a month say March, 2006.
The work done with effect from subsequent month (i.e., April, 2006)
only will qualify for price variation as per the above formula.)
1.0. PRICE VARIATION DUE TO LABOUR:
1.1 Price variation on account of wages for fabrication of steel
structures/pipe work:
For every rupee per month of 208 hours by which the wage
structure of minimum rates workers varied from the base month as a
result of Government action (direct or indirect), adjudication
(legislative or otherwise), the selling price, exclusive of escalation
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claims shall be adjusted by Rs. 2.0 (Rupees two only) per tonne and
such adjustment shall be applied to such selling prices in respect of
structures inspected and accepted after the first day of the
subsequent month of such wage revision.
i) For the purpose of this order, the base date shall be the date of
opening of the Envelope-2.
For the purpose of this clause the wage structure of minimum
rated workers shall be defined as comprising:
1) Average of minimum rates of monthly wages of skilled, semi-
skilled & unskilled workers applicable for the area of work as
notified by the Commissioner of Labour, Andhra Pradesh,
Hyderabad published in the Andhra Pradesh Gazette.
2) Leave with pay. 3)Provident Fund
4) Employees State Insurance Contribution.
1.2 Escalation for erection in the composite rate of fabrication and
erection:
For the purpose of calculating the price variation for erection
work, the erection cost component in the awarded composite rates
of fabrication and erection shall be taken as 30% of the relevant
items. Against this 30% value, representing the erection cost, the
labour component in the erection cost shall be taken as 40%. On
this basis, the payable/deductible price variation towards erection
shall be computed as per the following formula:
V = W × 0.40 × 0.3 (X-X0)/XO
Where
V = Escalation or de-escalation payable or deductable.
W = Value of the work done based on the accepted composite
rates of the Bill of Quantities for the period for which variation is
applicable.
RASHTRIYA ISPAT NIGAM LIMITED
X = Average of revised minimum rates of wages of skilled, semi-
skilled and un-skilled workers applicable for the area of site of work
as per minimum rates of wages as notified by Commissioner of
Labour, Andhra Pradesh, Hyderabad, published in the Andhra
Pradesh Gazette for the period under consideration.
XO = Average of minimum rates of wages of skilled, semi-skilled
and unskilled workers on the base date (.e., the date of opening of
the Envelope-2) applicable for the area of site of work as per
minimum rates of wages as notified by Commissioner of Labour,
Andhra Pradesh, Hyderabad, published in the Andhra Pradesh
Gazette.
1.3 Labour escalation on Erection/Installation (without cost of
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materials) (excluding pure painting works).

For calculating escalation for erection/installation rates excluding
cost of materials and fabrication, the following formula shall be
applicable:
V = 0.40 × W × (X - XO)/XP
The notations here will be same as given at Clause No. 1.2
1.4 Labour escalation for items of pure painting:
For calculating labour escalation for items of pure painting
works, the following formula shall be applied:
V = 0.15 × W × (X - XO)/XO
2.0 PRICE VARIATION FOR ALL OTHER ITEMS OF THE WORK
(excluding the items at Clause Nos. 1.1 to 1.4).
For calculating labour escalation for all other items (excluding the
cost of materials), the following formula shall be applied.
V = 0.4 xwx (X-XO)/XO
3.0 PRICE VARIATON DUE TO MATERIALS:
Formula as below shall be applicable during the contract
period. The payment or deduction on account of variation shall be
claimed in January and July of every year for the preceding
periods of si : months and also on completion of contract along
with necessary details/documents to the satisfaction of the
Engineer. The contractor shall submit the detailed documents
even if there is variation or not.
3.1 Amount payable/deductible due to variation (inclusive of pure
painting items) in the price of consumables like electrodes, industrial
gases, paint etc. and also the cost of material to be supplied by the
party shall be determined on the basis of the following formula:
V = 0.40 × W (X-XO)/XO
Where
V = the amount payable/deductible due to variation in the prices
X = all commodity whole sale price index for the month under
reference.
XO = all commodity whole sale price index as on the date of
opening of the Envelope-2.
W = gross value of the work done at contract rates for all items
for the period for which the variation is applicable. The variation will
be applicable for the quantities measured one (1) month after the
date of effect of the revised rates and the above variation in prices
shall be applicable only during the contract period.
NOTE : The wholesale price index for all commodities shall be
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based on average of month Bulletins published by RBI.

3.2 Price variation due to change in POL prices shall be applicable
as per formula given below:
V = 0.04 × W (X-XO)/XO
V = Escalation of de-escalation (variation) payable or deductable.
W = Gross value of the work done at contract rates for all items
for the period for which the variation is applicable.
X = Revised rate of Ordinary High Speed Diesel Oil per litre as
fixed by Public Sector Oil Company applicable for the area of site of
work for the period under considerations.
XO = Rate of Ordinary High Speed Diesel Oil per litre as fixed by
Public Sector Oil Company applicable for the area of site of work on
the base date (i.e., the date of opening of Envelope-2).
0.04 = is assumed to be the POL content of contract rates.
CLARIFICATION:
i) In case of revision of rates of Ordinary High Speed Diesel Oil
with effect from anydate in a month, say March, 2006, the work
done with effect from the first day of subsequent month (i.e.,
15 April, 2006) only will qualify for price variation as per the
above formula.
ii) In case of more than one revision in the rate of Ordinary High
Speed Diesel Oil, in a month, the latest revision in the rates
shall be considered for payment of escalation.”
23. In this context, it may be apt to refer to the observations of the
Arbitral Tribunal while dealing with claim No. 5. The Tribunal, on the
basis of the material available came to a conclusion that the
RINL/appellant herein did not provide any fronts till 28.04.2008 for
erection of fabricated structures thereby committed breach of contract
and the Tribunal also took into consideration Section 73 of the Indian
Contract Act, 1872 which reads as follows:
“73. Compensation for loss or damage caused by breach of
contract.-When a contract has been broken, the party who suffers
by such breach is entitled to receive, from the party who has broken
the contract, compensation for any loss or damage caused to him
thereby, which naturally arose in the usual course of things from
such breach, or which the parties knew, when they made the
contract, to be likely to result from the breach of it. Such
compensation is not to be given for any remote and indirect loss or
damage sustained by reason of the breach.
COMPENSATION FOR FAILURE TO DISCHARGE OBLIGATION
RESEMBLING THOSE CREATED BY CONTRACT-When an obligation
resembling those created by contract has been incurred and has not
been discharged, any person injured by the failure to discharge it, is
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entitled to receive the same compensation from the party in default,

as if such person had contracted to discharge it and had broken his
contract.
Explanation : In estimating the loss or damage, arising from a
breach of contract, the means which existed of remedying the
inconvenience caused by the non-performance of the contract must
be taken into account.”
24. It is very much manifest from a reading of the above provision of
law that when there is a breach of contract, the party who commits
such breach, shall compensate the person who suffers by such breach
by way of paying compensation for any loss or damage caused.
25. The Tribunal also took into account the letters of the claimant
dated 16.04.2008 and 26.04.2008 and found that the extension of time
granted to the claimant was without liquidated damages and with
escalations. The Tribunal also found that respondent No. 1-contractor,
at no point of time, was responsible for the delays and all the delays
were attributable only to the appellant herein. The Special Court also
while placing reliance on the decision of the Hon'ble Supreme Court in
P.M. Paul v. Union of India15 , eventually held in respect of claim No. 5
that there was nothing to discredit the findings of the Arbitral Tribunal
on claim No. 5. In view of the said cogent and convincing reasons
assigned by the learned Arbitral Tribunal, as confirmed by the Special
Judge, this Court does not find any valid reasons to disturb the findings
recorded on claim No. 5 by the Special Judge. It is also significant to
note, as pointed out by the learned counsel for the 1st respondent
herein, that RINL/appellant herein did not plead specifically either
before the Arbitral Tribunal or before the Special Court or before this
Court in the Memorandum of Grounds of Appeal in the present appeal,
in the manner now sought to be projected during the course of
arguments.
26. Coming to Claim No. 8 - Which pertains to revision of BOQ rates
under the period beyond the original schedule of compensation, the
claimant laid a claim of Rs. 54,83,040/- on the ground that during the
currency of the contract, all input costs went up considerably including
costs of labour and overhead charges. The Tribunal recorded a finding
that had the Visakhapatnam Steel Plant come forward in fulfilling their
obligations, the project might have been completed by the claimant in
time and the present situation could have been averted. The appellant
herein contended before the Arbitral Tribunal that due to inadequate
mobilization of the resources by the claimant, the contract could not be
completed within the agreed period. After taking into account all the
contentions including clauses 18.4 and 28.1 and contention that these
claims are excepted matters, the Tribunal turned down the contentions
of the appellant on the ground that the breach was solely attributable
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to the appellant and eventually found that the Visakhapatnam Steel

Plant had to compensate when it committed breach of contract. The
learned Special Judge by placing reliance on the judgments of the
Hon'ble Supreme Court in Associate Builders v. Delhi Development
Authority (1 supra), Oil and Natural Gas Corporation Limited v. Saw
Pipes Limited reported in (2003) 5 SCC 705 : AIR 2003 SC 2629 and
J.K. Cold Tyres Retreads v. Union of India reported in (2015) 1 ALD
532, declined to interfere with the Award of the Arbitral Tribunal.
Therefore, this Court does not find any valid reason to disturb the
finding recorded by the Arbitral Tribunal and the Special Judge on
Claim No. 8 also.
27. In this context, it may be appropriate to refer to the judgments
cited by the learned Advocates. In the case of Mahanagar Telephone
Nigam Limited v. Tata Communications Limited (2 supra), the Hon'ble
Apex Court, at paragraphs 11 to 13, held in the following manner.
“11. In Kailash Nath Associates v. DDA, (2015) 4 SCC 136, after
considering the case law on Section 74, this Court held:
“43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can be
stated to be as follows:
43.1. Where a sum is named in a contract as a liquidated
amount payable by way of damages, the party complaining of a
breach can receive as reasonable compensation such liquidated
amount only if it is a genuine pre-estimate of damages fixed by
both parties and found to be such by the court. In other cases,
where a sum is named in a contract as a liquidated amount
payable by way of damages, only reasonable compensation can
be awarded not exceeding the amount so stated. Similarly, in
cases where the amount fixed is in the nature of penalty, only
reasonable compensation can be awarded not exceeding the
penalty so stated. In both cases, the liquidated amount or
penalty is the upper limit beyond which the court cannot grant
reasonable compensation.
43.2. Reasonable compensation will be fixed on well-known
principles that are applicable to the law of contract, which are
to be found inter alia in Section 73 of the Contract Act.
43.3. Since Section 74 awards reasonable compensation for
damage or loss caused by a breach of contract, damage or loss
caused is a sine qua non for the applicability of the section.
43.4. The section applies whether a person is a plaintiff or a
defendant in a suit.
43.5. The sum spoken of may already be paid or be payable
in future.
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43.6. The expression “whether or not actual damage or loss

is proved to have been caused thereby” means that where it is
possible to prove actual damage or loss, such proof is not
dispensed with. It is only in cases where damage or loss is
difficult or impossible to prove that the liquidated amount
named in the contract, if a genuine pre-estimate of damage or
loss, can be awarded.”
12. In the present case, clauses 16.2 to 16.4 are relevant, and are
set out as under:
“16.2 (a) FOR DELIVERY OF STORES:
Should the supplier fail to deliver the store/services or any
consignment thereof within the period prescribed for delivery, the
purchaser shall be entitled to recover 0.5% of the value of the
delayed supply for each week of delay or part thereof for a period up
to 10 (TEN) weeks and thereafter at the rate of 0.7% of the value of
the delayed supply for each week of delay or part thereof for another
TEN weeks of delay. In the case of package supply where the
delayed portion of the supply materially hampers installation and
commissioning of the systems, L/D charges shall be levied as above
on the total value of the concerned package of the Purchase Order.
However, when supply is made within 21 days of QA clearance in the
extended delivery period, the consignee may accept the stores and
in such cases the LD shall be levied upto the date of QA clearance.
16.2 (b) FOR INSTALLATION & COMMISSIONING Should the
supplier fail to install and commission the project within the
stipulated time the purchaser shall be entitled to recover 0.5% of the
value of the purchase order for each week of delay or part thereof for
a period upto 10 (TEN) weeks and thereafter @ 0.7% of the value of
purchase order for each week of delay or part thereof for another 10
(TEN) weeks of delay. In cases, where the delay affects
installation/commissioning of part of the project and part of the
equipment is already in commercial use, then in such cases, LD shall
be levied on the affected part of the project.
16.2 (c). The Liquidated Damages, as per Clause 16.2
(a) and 16.2 (b) above shall be limited to a maximum of 12%,
even in case the DP extension is given beyond 20 weeks.
16.3. Provisions contained in Clause 16.2(a) shall not be
applicable for durations (periods) which attract L.D. against clause
16.2(b) above.
16.4.Quantum of liquidated damages assessed and levied by the
purchaser shall be final and not challengeable by the supplier.”
13. As has been correctly held by the impugned judgment, a
maximum of 12% can be levied as liquidated damages under the
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contract, which sum would amount to a sum of INR 25 lakh. Since

this clause governs the relations between the parties, obviously, a
higher figure, contractually speaking, cannot be awarded as
liquidated damages, which are to be considered as final and not
challengeable by the supplier. This being the case, the appellant can
claim only this sum. Anything claimed above this sum would have to
be refunded to the respondent.”
In case of Kailash Nath Associates v. Delhi Development Authority
(3 supra), the Hon'ble Supreme Court ruled as follows : (paragraphs
31 to 43).
“31. Section 74 as it originally stood read thus:
“When a contract has been broken, if a sum is named in the
contract as the amount to be paid in case of such breach, the
party complaining of the breach is entitled, whether or not actual
damage or loss is proved to have been caused thereby, to receive
from the party who has broken the contract reasonable
compensation not exceeding the amount so named.”
32. By an amendment made in 1899, the Section was amended to
read:“74. Compensation for breach of contract where penalty
stipulated for.- When a contract has been broken, if a sum is named
in the contract as the amount to be paid in case of such breach, or if
the contract contains any other stipulation by way of penalty, the
party complaining of the breach is entitled, whether or not actual
compensation not exceeding the amount so named or, as the case
may be, the penalty stipulated for.
Explanation.-A stipulation for increased interest from the date
of default may be a stipulation by way of penalty.
Exception.-When any person enters into any bail-bond,
recognizance or other instrument of the same nature, or, under
the provisions of any law, or under the orders of the Central
Government or of any State Government, gives any bond for the
performance of any public duty or act in which the public are
interested, he shall be liable, upon breach of any condition of any
such instrument, to pay the whole sum mentioned therein.
Explanation.-A person who enters into a contract with
Government does not necessarily thereby undertake any public
duty, or promise to do an act in which the public are interested.”
33. Section 74 occurs in Chapter 6 of the Indian Contract Act,
1872 which reads “Of the consequences of breach of contract”. It is
in fact sandwiched between Sections 73 and 75 which deal with
compensation for loss or damage caused by breach of contract and
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compensation for damage which a party may sustain through non-

fulfillment of a contract after such party rightfully rescinds such
contract. It is important to note that like Sections 73 and 75,
compensation is payable for breach of contract under Section 74 only
where damage or loss is caused by such breach.
34. In Fateh Chand v. Balkishan Das, (1964) 1 SCR 515, this
Court held:“The section is clearly an attempt to eliminate the
somewhat elaborate refinements made under the English common
law in distinguishing between stipulations providing for payment of
liquidated damages and stipulations in the nature of penalty. Under
the common law a genuine pre-estimate of damages by mutual
agreement is regarded as a stipulation naming liquidated damages
and binding between the parties : a stipulation in a contract in
terrorem is a penalty and the Court refuses to enforce it, awarding to
the aggrieved party only reasonable compensation. The Indian
Legislature has sought to cut across the web of rules and
presumptions under the English common law, by enacting a uniform
principle applicable to all stipulations naming amounts to be paid in
case of breach, and stipulations by way of penalty.
….
Section 74 of the Indian Contract Act deals with the measure of
damages in two classes of cases (i) where the contract names a sum
to be paid in case of breach and (ii) where the contract contains any
other stipulation by way of penalty. We are in the present case not
concerned to decide whether a covenant of forfeiture of deposit for
due performance of a contract falls within the first class. The
measure of damages in the case of breach of a stipulation by way of
penalty is by Section 74 reasonable compensation not exceeding the
penalty stipulated for. In assessing damages the Court has, subject
to the limit of the penalty stipulated, jurisdiction to award such
compensation as it deems reasonable having regard to all the
circumstances of the case. Jurisdiction of the Court to award
compensation in case of breach of contract is unqualified except as
to the maximum stipulated; but compensation has to be reasonable,
and that imposes upon the Court duty to award compensation
according to settled principles. The section undoubtedly says that
the aggrieved party is entitled to receive compensation from the
party who has broken the contract, whether or not actual damage or
loss is proved to have been caused by the breach. Thereby it merely
dispenses with proof of “actual loss or damages”; it does not justify
the award of compensation when in consequence of the breach no
legal injury at all has resulted, because compensation for breach of
contract can be awarded to make good loss or damage which
naturally arose in the usual course of things, or which the parties
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knew when they made the contract, to be likely to result from the
breach.” (At page 526, 527) Section 74 declares the law as to
liability upon breach of contract where compensation is by
agreement of the parties pre-determined, or where there is a
stipulation by way of penalty. But the application of the enactment is
not restricted to cases where the aggrieved party claims relief as a
plaintiff. The section does not confer a special benefit upon any
party; it merely declares the law that notwithstanding any term in
the contract predetermining damages or providing for forfeiture of
any property by way of penalty, the court will award to the party
aggrieved only reasonable compensation not exceeding the amount
named or penalty stipulated. The jurisdiction of the court is not
determined by the accidental circumstance of the party in default
being a plaintiff or a defendant in a suit. Use of the expression “to
receive from the party who has broken the contract” does not
predicate that the jurisdiction of the court to adjust amounts which
have been paid by the party in default cannot be exercised in dealing
with the claim of the party complaining of breach of contract. The
court has to adjudge in every case reasonable compensation to
which the plaintiff is entitled from the defendant on breach of the
contract. Such compensation has to be ascertained having regard to
the conditions existing on the date of the breach.” (At page 530)
35. Similarly, in Maula Bux v. Union of India (UOI), (1969) 2 SCC
554 : (1970) 1 SCR 928, it was held:
“Forfeiture of earnest money under a contract for sale of
property-movable or immovable-if the amount is reasonable, does
not fall within Section 74. That has been decided in several
cases : Kunwar Chiranjit Singh v. Har Swarup, AIR 1926 PC 1;
Roshan Lal v. The Delhi Cloth and General Mills Company Ltd.,
Delhi, I.L.R. All. 166; Muhammad Habibullah v. Muhammad Shafi,
I.L.R. All. 324; Bishan Chand v. Radha Kishan Das, I.D. 19 All.
49. These cases are easily explained, for forfeiture of a reasonable
amount paid as earnest money does not amount to imposing a
penalty. But if forfeiture is of the nature of penalty, Section 74
applies. Where under the terms of the contract the party in breach
has undertaken to pay a sum of money or to forfeit a sum of
money which he has already paid to the party complaining of a
breach of contract, the undertaking is of the nature of a penalty.
Counsel for the Union, however, urged that in the present case
Rs. 10,000/- in respect of the potato contract and Rs. 8,500 in
respect of the poultry contract were genuine pre-estimates of
damages which the Union was likely to suffer as a result of breach
of contract, and the plaintiff was not entitled to any relief against
forfeiture. Reliance in support of this contention was placed upon
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the expression (used in Section 74 of the Contract Act), “the party

complaining of the breach is entitled, whether or not actual
compensation”. It is true that in every case of breach of contract
the person aggrieved by the breach is not required to prove actual
loss or damage suffered by him before he can claim a decree, and
the Court is competent to award reasonable compensation in case
of breach even if no actual damage is proved to have been
suffered in consequence of the breach of contract. But the
expression “whether or not actual damage or loss is proved to
have been caused thereby” is intended to cover different classes
of contracts which come before the Courts. In case of breach of
some contracts it may be impossible for the Court to assess
compensation arising from breach, while in other cases
compensation can be calculated in accordance with established
rules. Where the Court is unable to assess the compensation, the
sum named by the parties if it be regarded as a genuine pre-
estimate may be taken into consideration as the measure of
reasonable compensation, but not if the sum named is in the
nature of a penalty. Where loss in terms of money can be
determined, the party claiming compensation must prove the loss
suffered by him.
In the present case, it was possible for the Government of
India to lead evidence to prove the rates at which potatoes,
poultry, eggs and fish were purchased by them when the plaintiff
failed to deliver “regularly and fully” the quantities stipulated
under the terms of the contracts and after the contracts were
terminated. They could have proved the rates at which they had
to be purchased and also the other incidental charges incurred by
them in procuring the goods contracted for. But no such attempt
was made.” (At page 933,934)
36. In Shree Hanuman Cotton Mills v. Tata Aircraft Limited,
(1969) 3 SCC 522 : (1970) 3 SCR 127 it was held:
“From a review of the decisions cited above, the following
principles emerge regarding “earnest”:
(1) It must be given at the moment at which the contract is
concluded.
(2) It represents a guarantee that the contract will be fulfilled
or, in other words, ‘earnest’ is given to bind the contract.
(3) It is part of the purchase price when the transaction is
carried out.
(4) It is forfeited when the transaction falls through by reason
of the default or failure of the purchaser.
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(5) Unless there is anything to the contrary in the terms of the

contract, on default committed by the buyer, the seller is
entitled to forfeit the earnest” (At page 139) “The learned
Attorney General very strongly urged that the pleas covered
by the second contention of the appellant had never been
raised in the pleadings nor in the contentions urged before
the High Court. The question of the quantum of earnest
deposit which was forfeited being unreasonable or the
forfeiture being by way of penalty, were never raised by the
appellants. The Attorney General also pointed out that as
noted by the High Court the appellants led no evidence at all
and, after abandoning the various pleas taken in the plaint,
the only question pressed before the High Court was that
the deposit was not by way of earnest and hence the
amount could not be forfeited. Unless the appellants had
pleaded and established that there was unreasonableness
attached to the amount required to be deposited under the
contract or that the clause regarding forfeiture amounted to
a stipulation by way of a penalty, the respondents had no
opportunity to satisfy the Court that no question of
unreasonableness or the stipulation being by way of penalty
arises. He further urged that the question of
unreasonableness or otherwise regarding earnest money
does not at all arise when it is forfeited according to the
terms of the contract.
In our opinion the learned Attorney General is well founded in his
contention that the appellants raised no such contentions covered by
the second point, noted above. It is therefore unnecessary for us to
go into the question as to whether the amount deposited by the
appellants, in this case, by way of earnest and forfeited as such, can
be considered to be reasonable or not. We express no opinion on the
question as to whether the element of unreasonableness can ever be
considered regarding the forfeiture of an amount deposited by way of
earnest and if so what are the necessary factors to be taken into
account in considering the reasonableness or otherwise of the
amount deposited by way of earnest. If the appellants were
contesting the claim on any such grounds, they should have laid the
foundation for the same by raising appropriate pleas and also led
proper evidence regarding the same, so that the respondents would
have had an opportunity of meeting such a claim.” (At page 142)
37. And finally in ONGC Ltd. v. Saw Pipes Ltd., (2003) 5 SCC 705,
it was held:
“64. It is apparent from the aforesaid reasoning recorded by
the Arbitral Tribunal that it failed to consider Sections 73 and 74
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of the Indian Contract Act and the ratio laid down in Fateh Chand
case [AIR 1963 SC 140 : (1964) 1 SCR 515 at p. 526] wherein it
is specifically held that jurisdiction of the court to award
compensation in case of breach of contract is unqualified except
as to the maximum stipulated; and compensation has to be
reasonable. Under Section 73, when a contract has been broken,
the party who suffers by such breach is entitled to receive
compensation for any loss caused to him which the parties knew
when they made the contract to be likely to result from the breach
of it. This section is to be read with Section 74, which deals with
penalty stipulated in the contract, inter alia (relevant for the
present case) provides that when a contract has been broken, if a
sum is named in the contract as the amount to be paid in case of
such breach, the party complaining of breach is entitled, whether
or not actual loss is proved to have been caused, thereby to
receive from the party who has broken the contract reasonable
compensation not exceeding the amount so named. Section 74
emphasizes that in case of breach of contract, the party
complaining of the breach is entitled to receive reasonable
compensation whether or not actual loss is proved to have been
caused by such breach. Therefore, the emphasis is on reasonable
compensation. If the compensation named in the contract is by
way of penalty, consideration would be different and the party is
only entitled to reasonable compensation for the loss suffered. But
if the compensation named in the contract for such breach is
genuine pre-estimate of loss which the parties knew when they
made the contract to be likely to result from the breach of it,
there is no question of proving such loss or such party is not
required to lead evidence to prove actual loss suffered by him.
67 …….. In our view, in such a contract, it would be difficult to
prove exact loss or damage which the parties suffer because of
the breach thereof. In such a situation, if the parties have pre-
estimated such loss after clear understanding, it would be totally
unjustified to arrive at the conclusion that the party who has
committed breach of the contract is not liable to pay
compensation. It would be against the specific provisions of
Sections 73 and 74 of the Indian Contract Act. There was nothing
on record that compensation contemplated by the parties was in
any way unreasonable. It has been specifically mentioned that it
was an agreed genuine pre-estimate of damages duly agreed by
the parties. It was also mentioned that the liquidated damages
are not by way of penalty. It was also provided in the contract
that such damages are to be recovered by the purchaser from the
bills for payment of the cost of material submitted by the
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contractor. No evidence is led by the claimant to establish that

the stipulated condition was by way of penalty or the
compensation contemplated was, in any way, unreasonable. There
was no reason for the Tribunal not to rely upon the clear and
unambiguous terms of agreement stipulating pre-estimate
damages because of delay in supply of goods. Further, while
extending the time for delivery of the goods, the respondent was
informed that it would be required to pay stipulated damages.
68. From the aforesaid discussions, it can be held that:
(1) Terms of the contract are required to be taken into
consideration before arriving at the conclusion whether the
party claiming damages is entitled to the same.
(2) If the terms are clear and unambiguous stipulating the
liquidated damages in case of the breach of the contract
unless it is held that such estimate of
damages/compensation is unreasonable or is by way of
penalty, party who has committed the breach is required to
pay such compensation and that is what is provided in
Section 73 of the Contract Act.
(3) Section 74 is to be read along with Section 73 and,
therefore, in every case of breach of contract, the person
aggrieved by the breach is not required to prove actual loss
or damage suffered by him before he can claim a decree.
The court is competent to award reasonable compensation in
case of breach even if no actual damage is proved to have
been suffered in consequence of the breach of a contract.
(4) In some contracts, it would be impossible for the court to
assess the compensation arising from breach and if the
compensation contemplated is not by way of penalty or
unreasonable, the court can award the same if it is genuine
pre-estimate by the parties as the measure of reasonable
compensation.”
38. It will be seen that when it comes to forfeiture of earnest
money, in Fateh Chand's case, counsel for the appellant conceded on
facts that Rs. 1,000/- deposited as earnest money could be forfeited.
(See : 1964 (1) SCR Page 515 at 525 and 531).
39. Shree Hanuman Cotton Mills which was so heavily relied by
the Division Bench again was a case where the appellants conceded
that they committed breach of contract. Further, the respondents
also pleaded that the appellants had to pay them a sum of Rs.
42,499/- for loss and damage sustained by them. (See : (1969) 3
SCC 522 : (1970) 3 SCR 127 at Page 132). This being the fact
situation, only two questions were argued before the Supreme
Court : (1) that the amount paid by the plaintiff is not earnest
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money and (2) that forfeiture of earnest money can be legal only if
the amount is considered reasonable. (at page 133). Both questions
were answered against the appellant. In deciding question two
against the appellant, this Court held:—
“But, as we have already mentioned, we do not propose to go
into those aspects in the case on hand. As mentioned earlier, the
appellants never raised any contention that the forfeiture of the
amount amounted to a penalty or that the amount forfeited is so
large that the forfeiture is bad in law. Nor have they raised any
contention that the amount of deposit is so unreasonable and
therefore forfeiture of the entire amount is not justified. The
decision in Maula Bux's, (1969) 2 SCC 554 : (1970) 1 SCR 928
had no occasion to consider the question of reasonableness or
otherwise of the earnest deposit being forfeited. Because, from
the said judgment it is clear that this Court did not agree with the
view of the High Court that the deposits made, and which were
under consideration, were paid as earnest money. It is under
those circumstances that this Court proceeded to consider the
applicability of Section 74 of the Contract Act. (At page 143)”
40. From the above, it is clear that this Court held that Maula
Bux's case was not, on facts, a case that related to earnest money.
Consequently, the observation in Maula Bux that forfeiture of earnest
money under a contract if reasonable does not fall within Section 74,
and would fall within Section 74 only if earnest money is considered
a penalty is not on a matter that directly arose for decision in that
case. The law laid down by a Bench of 5 Judges in Fateh Chand's
case is that all stipulations naming amounts to be paid in case of
breach would be covered by Section 74. This is because Section 74
cuts across the rules of the English Common Law by enacting a
uniform principle that would apply to all amounts to be paid in case
of breach, whether they are in the nature of penalty or otherwise. It
must not be forgotten that as has been stated above, forfeiture of
earnest money on the facts in Fateh Chand's case was conceded. In
the circumstances, it would therefore be correct to say that as
earnest money is an amount to be paid in case of breach of contract
and named in the contract as such, it would necessarily be covered
by Section 74.
41. It must, however, be pointed out that in cases where a public
auction is held, forfeiture of earnest money may take place even
before an agreement is reached, as DDA is to accept the bid only
after the earnest money is paid. In the present case, under the
terms and conditions of auction, the highest bid (along with which
earnest money has to be paid) may well have been rejected. In such
cases, Section 74 may not be attracted on its plain language
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because it applies only “when a contract has been broken”.

42. In the present case, forfeiture of earnest money took place
long after an agreement had been reached. It is obvious that the
amount sought to be forfeited on the facts of the present case is
sought to be forfeited without any loss being shown. In fact it has
been shown that far from suffering any loss, DDA has received a
much higher amount on re-auction of the same plot of land.
43. On a conspectus of the above authorities, the law on
compensation for breach of contract under Section 74 can be stated
to be as follows : - Where a sum is named in a contract as a
liquidated amount payable by way of damages, the party
complaining of a breach can receive as reasonable compensation
such liquidated amount only if it is a genuine pre-estimate of
damages fixed by both parties and found to be such by the Court. In
other cases, where a sum is named in a contract as a liquidated
amount payable by way of damages, only reasonable compensation
can be awarded not exceeding the amount so stated. Similarly, in
cases where the amount fixed is in the nature of penalty, only
reasonable compensation can be awarded not exceeding the penalty
so stated. In both cases, the liquidated amount or penalty is the
upper limit beyond which the Court cannot grant reasonable
compensation.
Reasonable compensation will be fixed on well known principles
that are applicable to the law of contract, which are to be found inter
alia in Section 73 of the Contract Act.
Since Section 74 awards reasonable compensation for damage or
loss caused by a breach of contract, damage or loss caused is a sine
qua non for the applicability of the Section.
The Section applies whether a person is a plaintiff or a defendant
in a suit.
The sum spoken of may already be paid or be payable in future.
The expression “whether or not actual damage or loss is proved to
have been caused thereby” means that where it is possible to prove
actual damage or loss, such proof is not dispensed with. It is only in
cases where damage or loss is difficult or impossible to prove that
the liquidated amount named in the contract, if a genuine pre-
estimate of damage or loss, can be awarded.
Section 74 will apply to cases of forfeiture of earnest money under
a contract. Where, however, forfeiture takes place under the terms
and conditions of a public auction before agreement is reached,
Section 74 would have no application.”
28. In case of Bharat Sanchar Nigam Limited v. Reliance
Communication Limited (4 supra), the Hon'ble Supreme Court held as
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under : (paragraph 53).

“53. Lastly, it may be noted that liquidated damages serve the
useful purpose of avoiding litigation and promoting commercial
certainty and, therefore, the court should not be astute to categorize
as penalties the clauses described as liquidated damages. This
principle is relevant to regulatory regimes. It is important to bear in
mind that while categorizing damages as “penal” or “liquidated
damages”, one must keep in mind the concept of pricing of these
contracts and the level playing field provided to the operators
because it is on costing and pricing that the loss to BSNL is
measured and, therefore, all calls during the relevant period have to
be seen. [See Communications Law in India by Vikram Raghavan at
page 639]. Since clause 6.4.6 represents pre-estimate of reasonable
compensation, Section 74 of the Contract Act is not violated. Thus, it
is not necessary to discuss various judgments of this Court under
Section 74 of the Contract Act.”
29. In the case of Union of India v. Raman Iron Foundry (5 supra),
the Hon'ble Supreme Court held as under : (Para 11).
“11. The language used in the body of cl. 18 also supports the
view that it is with recovery of sums presently due and payable by
the, contractor to the purchaser that this clause deals. It may be
noted that cl. 18 does not lay down the substantive rights and
obligations of the parties under the contract. It is merely intended to
provide a mode of recovery of a claim for payment of a sum of
money arising out of or under the contract”. It, therefore, postulates
a claim for a sum which is due and payable, that is. presently
recoverable and may be recovered by the mode therein provided. it
is difficult to believe that the contracting parties could have intended
that even though a sum is not due and payable by the contractor to
the purchaser under the contract, the purchaser should be entitled to
recover it. It is important to note that cl. 18 does not-create a lien
on other sums due to the contractor or give to the purchaser a right
to retain such sums until his claim against the contractor is satisfied.
If merely a right of lien or retention were given to secure payment of
a claim, then even if the claim were for a sum not presently due and
payable, the provision perhaps would not have been so startling, or
unusual. But here the right given to the purchaser under. cl. 18 is a
right to recover the amount of his claim by appropriating other sums
due to the contractor and, on the, interpretation of the appellant,
this can be done even if the claim is for a sum which is not due or
payable in praesenti and the purchaser is otherwise not entitled to
recover it. That would indeed be a highly extra-ordinary result which
we would be loathe to reach in the absence of clear and compelling
language. This interpretation, if accepted, would mean that as soon
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as a claim is made by the purchaser, it would immediately become

recoverable and the purchaser would be entitled to sell off the
securities of the contractor and appropriate the sale proceeds in or
towards satisfaction of such claim and in case that is insufficient,
recover the balance by appropriating other sums due to the
contractor and if there is even then a shortfall, recover it personally
from the contractor, for the last words of cl. 18 provide that “the
contractor shall on demand pay to the purchaser the balance
remaining due”. And this consequence would ensue even if the claim
is for a sum which the-contractor is under no existing obligation to
pay or which is not presently payable or is disputed as regards the
existence of liability or its quantum. A mere making of a claim by the
purchaser would impose a liability on the contractor to pay it. That
surely could-not have been the intention of the contracting parties.
It would be more consonant with reason and good sense to take the
view, which, as pointed out above, is plainly and indubitably
supported by the language used by the contracting parties, that cl.
Is does no more than merely provide an additional mode of recovery
to the purchaser, and the purchaser is entitled to exercise the right
conferred, under that clause only where there is a claim for a sum
which is presently due and payable by the contractor.”
30. In Fateh Chand v. Balkishan Dass (6 supra), the Hon'ble
Supreme Court held as under : (Paras 10 and 15).
“10. Section 74 of the Indian Contract Act deals with the measure
of damages in two classes of cases
(i) where the contract names a sum to be paid in case of breach
and ‘ii) where the contract contains any other stipulation by way of
penalty. We are in the present case not concerned to decide whether
a covenant of forfeiture of deposit for due performance of a contract
falls within the first class. The measure of damages in the case of
breach of a stipulation by way of penalty is by s. 74 reasonable
compensation not exceeding the penalty stipulated for. In assessing
damages the Court has, subject to the limit of the penalty
stipulated, jurisdiction to award such compensation as it deems
reasonable having regard to all the circumstances of tile case.
jurisdiction of the Court to award compensation in case of breach of
contract is unqualified except as to the maximum stipulated; but
compensation has to be reasonable, and that imposes upon the
Court duty to award compensation according, to settled principles.
The section undoubtedly says that the aggrieved party is entitled to
receive compensation from the party who has broken the contract,
whether or not actual damage or loss is proved to have been caused
by the breach. Thereby it merely dispenses with proof of “actual loss
or damages”; t does not justify the award of compensation when in
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consequence of the breach no legal injury at all has resulted,

because compensation for breach of contract can be awarded to
make good loss or damage which naturally arose in the usual course
of things, or which the parties knew when they made the contract, to
be likely to result from the breach.
…
15. Section 74 declares the law as to liability upon breach of
contract where compensation is by agreement of the parties
predetermined, or where there is a stipulation by way of penalty. But
the application of the enactment is not restricted to cases where the
aggrieved party claims relief’ as a plaintiff. The section does not
confer a special benefit upon any party; it merely declares the law
that notwithstanding any term in the contract predetermining
damages or providing for forfeiture of any property by way of
penalty, the court will award to the party aggrieved only reasonable
compensation not exceeding the amount named or penalty
stipulated. The jurisdiction of the court, is not determined by the
accidental circumstance of the party in default being a plaintiff or a
defendant in a suit. Use of the expression “to receive from the party
who has broken the contract” does not predicate that the jurisdiction
of the court to adjust amounts which have been paid by the party in
default cannot be exercised in dealing with the claim of the party
complaining of breach of contract. The court has to adjudge in every
case reasonable compensation to which the plaintiff is entitled from
the defendant on breach of the contract. Such compensation has to
be ascertained having regard to the conditions existing on the date
of the breach.”
31. In the considered opinion of this Court, the amounts awarded
under claims 5 and 8, having regard to the reasons assigned by the
learned Arbitral Tribunal and the Special Judge, by any stretch of
imagination, cannot be termed to be unreasonable. The contention
advanced by the learned counsel for the appellant that since the
Arbitral Tribunal awarded amounts under claim No. 1 in the form of
price variation, the Tribunal ought not to have granted the reliefs under
claims 5 and 8, cannot be sustained in the eye of law, having regard to
the language of the provisions of Sections 73 and 74 of the Indian
Contract Act, 1872. Therefore, the judgments sought to be pressed into
service by the leaned counsel for the appellant would not render any
assistance to the appellant herein in view of the facts and
circumstances of the case.
32. Coming to the judgments cited by the learned counsel for the 1st
respondent-Contractor, in the case of Associate Builders v. Delhi
Development Authority (1 supra), the Hon'ble Apex Court at
paragraphs 2, 7 to 10, 12, 57 to 62, held as follows:
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“2. The appellant herein was awarded a certain construction work

contract by the DDA vide a letter of award dated 14th May, 1992.
DDA was building a colony consisting of 7,000 houses in Trilok Puri
in the trans-Yamuna area. 168 Middle Income Group houses and 56
Lower Income Group houses, Grade-A Pocket-B (balance work) was
awarded for the tendered amount of Rs. 87,66,678/-. The contract
was to be completed in 9 months. Admittedly, it was ultimately
completed only in 34 months, the contractor completing 166 Middle
Income Group houses and 36 Lower Income Group houses. The total
value of work that was done amounted to Rs. 62,84,845/-. As many
as 15 claims were made by the contractor and the High Court of
Delhi appointed one Shri K.D. Bali to arbitrate the present dispute.
…
7. The Arbitrator by a reasoned award dated 23rd May, 2005 held
that the entire delay of 25 months in the execution of the project
was thanks to the DDA, none of this delay being attributable to the
contractor. The learned Arbitrator found:
“That all the above four claims are inter linked being related to
the overhead expenses and therefore dealt together.
That the date of commencement of work was 24.5.92 and the
period for completion was 9 months and therefore, the disputed
date of completion was 23.2.93 but the work could be actually
completed on 28.3.95.
That there was delay of 25 months in completion of the work
beyond the stipulated date of completion.
That the Claimants urged that there had been various delays in
the execution of work due to the lapses and defaults of the
Respondents from the very commencement of work. The progress
was held up time and again and the claimants therefore, as back
as 17.2.93 advised the Respondents (C-9 page 167) that the
Claimants are not interested to execute the work beyond the
stipulated date of completion and therefore, their contract be
finalized on the stipulated date of completion as the Claimants
shall be exposed to incur heavy expenditure in overheads for
maintaining establishment watch and ward and tools and plants
and other shuttering material but the Respondents did not refute.
The chief reasons for delay are highlighted below:—
I) Delay in supply of structural and architectural drawings.
II) That out of 9 Blocks 2 blocks are abnormally delayed as the
site of the said 21 blocks was made available in piecemeal
which stretched till 26.2.94 whereas the stipulated
completion was 23.2.93.
III) Delay in laying the conduit by the electrical agency
-----------------------------------------------------------------------------------------------------------------------------------------------------------
resulting in delay in casting of RCC slab and plastering work

besides development work. The said hindrance was removed
lastly on 28.3.95.
IV) Abnormal delay in making availability of the alignment
sketch for electrical cables.
V) Inordinate delay in supply of stipulated material such as
cement, steel and pipes.
VI) Delay in decision of finishing work in kitchen and bath
rooms.
VII) There was inordinate delay in making availability of colour
scheme.
VIII) That the Respondents also abnormally delayed the supply
of door shutters which were to be supplied by the
Respondents. The same were supplied as late as 8.11.94.
IX) Inordinate delay in writing in the electrical conduits
resulting in delay in completion of finishing work.
X) Suspension of work by the Respondents for the period
17.1.94 to 25.2.94 and from 7.8.94 to 22.3.95 because of
non-removal of hindrances.
XI) Delayed payment due to non-sanction of Administrative
Approval and Expenditure Sanction.
That all the delays as set out had been duly recorded 733 to
739 and M.A.S. register pages from 747 to 768 as highlighted by
the Claimants. The Claimants also relied upon certain documents
of MAS Register supplied by the Respondents.
That the Claimants further stated that the Claimants had also
filed reasons for delay and hold up of the work various defaults of
the Respondents in Annexure pages 740 to 746. The Claimants
also highlighted the correspondence made by the Claimants with
Respondents.
That the Claimants further stated that the said hindrances were
avoidable but the Respondents did not take timely steps.
That the Claimants also referred the contents of the letter
dated 10.7.95 (page 885) wherein it was observed that the
Superintending Engineer appreciated the working of the
Claimants and also observed that there was no fault of the
contractor and they have successfully completed the work. The
Claimants further stated that, they had incurred heavy
expenditure on overheads of the lapses and default of the
Respondents.
As against this the Respondents stated that there was poor
planning of the claimants and also contended that since the
compensation has been levied under Clause 2 of the agreement
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therefore, claim of the claimants deserves to be rejected.

That on record it is conclusively proved that the Respondents
committed breach of contract as they failed to discharge their
obligations in time resulting in prolongations did not deny the
deployment of the tools and plants and machinery at site besides
watch and ward during the prolongation.”
8. It is important to note that before the Division Bench, the
learned counsel for the DDA conceded that this being a pure finding
of fact, he would not be challenging it before the Division Bench.
9. Of the total claim of Rs. 37.28 lakhs, the learned Arbitrator
awarded an amount of Rs. 23.39 lakhs. Further, the learned
Arbitrator has laboriously gone through all the evidence and
answered each claim giving reasons for the same.
10. By a judgment dated 3rd April, 2006, the learned Single Judge
of the High Court of Delhi dismissed the objections of the DDA and
upheld the award. In an appeal filed under Section 37 of the
Arbitration Act, vide the impugned judgment dated 8th February,
2012, a Division Bench of the High Court of Delhi set aside the
judgment of the Single Judge on claims 9, 10, 11 and 15, and
negatived these claims in toto. Further, claims 12 and 13 were
scaled down doing “rough and ready justice”. Resultantly, the
awarded amount of Rs. 7,20,000/- was scaled down to Rs.
5,57,137.50/-.
…
12. Mr. Amarendra Sharan, learned Senior Advocate appearing on
behalf of the DDA has relied strongly on clause 10C and clause 22 to
support the judgment of the Division bench and has further argued
that there has been duplication so far as certain claims are
concerned. He argued that an award in the teeth of clause 10C and
clause 22 would be a jurisdictional error which would vitiate the
award.
…
57. We come now to the arguments of Mr. Sharan in support of
the Division Bench judgment. The learned counsel strongly relied on
clause 10C and clause 22. These two clauses are set out as below:
Clause 10C of the agreement reads as follows:
“If during the progress of the works, the price of any
material incorporated in the works, (not being a material
supplied from the Engineer-in-Charge's stores in accordance
with Clause 10 hereof and/or wages of labour increases as
direct result of the coming into force of any fresh law, or
statutory rule or order (but not due to any changes in sales
tax) and such increase exceed ten per cent of the price and/or
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wages prevailing at the time of receipt of the tender for the

work, and contractor thereupon necessarily and properly pays
in respect of the material (incorporated in the work) such
increased price and/or in respect of labour engaged on the
execution of the work such increased wages, then the amount
of the contract shall accordingly be varied provided always that
any increase so payable is not, in the opinion of the
Superintending Engineer (whose decision shall be final and
binding) attributable to delay in execution of the contract
within the control of the contractor. Provided, however, no
reimbursements shall be made if the increase is not more than
10% of the said prices/wages and if so the reimbursements
shall be made only on the excess over 10% and provided
further that any such increase shall not be payable if such
increase has become operative after the contract or extended
date of completion of the work in question.
If during the progress of the works, the price of any material
incorporated in the works (not being a material supplied from
the Engineer-in-Charge's stores in accordance with Clause 10
hereof) and/or wages of labour is decreased as a direct result of
the coming into force of any fresh law or statutory rule or order
(but not due to any changes in sales tax) and such decrease
exceeds ten per cent of the prices and/or wages prevailing at
the time of receipt of the tender for the work, Delhi
Development Authority shall in respect of materials
incorporated in the work (not being materials supplied from the
Engineer-in-Charge's stores in accordance with Clause 10
hereof) and/or labour engaged on the execution of the work
after the date of coming into force of such law, statutory rule or
order be entitled to deduct from the dues of the contractor
such amount as shall be equivalent of difference between the
prices of materials and/or wages as they prevailed at the time
of receipt of tender for the work minus ten per cent thereof and
the prices of materials and/or wages of labour on the coming
into force of such law, statutory rule or order.
The contractor shall for the purpose of this condition keep
such books of account and other documents as are necessary to
show the amount of any increase claimed or reduction available
and shall allow inspection of the same by a duly authorised
representative of Delhi Development Authority and further
shall, at the request of the Engineer-in-Charge furnish, verified
in such a manner as the Engineer-in-Charge may require. Any
document, so kept and such other information as the Engineer-
in-Charge may require.
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The contractor shall, within a reasonable time of his

becoming aware of any alteration in the prices of any such
materials and/or wages of labour give notice thereof to the
Engineer-in-Charge stating that the same is given in pursuance
to the condition together with all information relating thereto
which he may be in a position to supply.”
Clause 22 reads as follows:
“All sums payable by way of compensations under any of these
conditions shall be, considered as reasonable compensation to be
applied to this use of Delhi Development Authority without
reference to the actual loss or damage sustained, and whether or
not any damage shall have been sustained.
Specifications and Conditions:
1. The contractor must get acquainted with the proposed site
for the works and study specifications and conditions carefully
before tendering. The work shall be executed as per programme
approved by the Engineer-in-Charge. If part of site is not
available for any reasons or there is some unavoidable delay in
supply of materials stipulated by the Departments, the
programme of construction shall be modified accordingly and the
contractor shall have no claim for any extras or compensation on
this account.”
58. Clause 10C concerns itself with the price of material
incorporated in the works or wage or labour increases. It has been
seen that claims 9, 10 and 11 have nothing to do with either of the
aforesaid subjects. In seeking to apply this clause to claim 15, the
simple answer is that this clause will not apply when a claim for
damages is made. Further, the Arbitrator considered this clause in
detail and only awarded amounts under this clause in excess of 10
percent as required by the clause when it came to awarding amounts
under claims 2, 3 and 4, which fell within the ambit of clause 10C.
The DDA in the appeal before the Division Bench correctly gave up
any challenge to these claims as has been recorded in paragraph 4 of
the order under appeal.
59. The Arbitrator has dealt with this clause in detail and has
construed and applied the same correctly while dealing with claims
2, 3 and 4 and has obviously not applied the said clause to claims 9,
10, 11 and 15 as no occasion for applying the same arose. The award
cannot be faulted on this ground.
60. Also, so far as clause 22 is concerned, the DDA did not raise
any argument based on this clause before the learned Arbitrator.
However, it must in fairness be stated that it was argued before the
learned Single Judge. In para 15 of his judgment, the learned Judge
sets the clause out and then follows a judgment of the High Court of
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Delhi in Kochhar Construction Works v. DDA, (1998) 2 ALR 209.

Apart from the fact that a learned Single Judge of the same court is
bound by a previous judgment of a Single Judge, the conclusion of
the learned Single Judge that if the appellant is at fault and the
contract is prolonged for an inordinate period of time, it cannot be
said that the respondents cannot be compensated for the same is
correct. Besides, this point was not urged before the Division Bench
and must be taken to be given up. Mr. Sharan cited Harsha
Constructions v. Union of India, (2014) 9 SCC 246 to say that in
respect of excepted matters, no arbitration is possible, and that this
being a jurisdictional point, he should be allowed to raise it before
us. Unfortunately for Mr. Sharan, the clause does not operate
automatically. It only operates if an objection is taken stating that
part of the site is not available for any reason. Nowhere has the DDA
stated which part of the site is not available for any reason. Further,
the learned Single Judge's reason for rejecting an argument based
on this clause also commends itself to us as the object of this clause
is that no claim for extras should be granted only if there is an
unavoidable delay. We have seen that the delay was entirely
avoidable and caused solely by the DDA itself.
61. One more point needs to be noted. An argument was made
before the learned Single Judge that there has been a duplication of
claims awarded. The learned Judge dealt with this argument as
follows:
“18. Learned counsel for the petitioner in respect of ground P,
once again makes a reference to the issue that there is
overlapping of the claim. I am unable to accept the submission
made by the learned counsel. The consequence of delay may have
more than one ramifications including the cost of material the
supervision required at the site, the inability of the contractor to
utilise the manpower at some other place, the inability of the
contractor to make, profits from some other contract by utilisation
of the same resources. All these aspects are liable to be
considered. The Arbitrator has considered the claims separately
and has dealt with, claims 9, 10, 11 & 15 together. Claims 12 &
13 have been thereafter dealt with on the same principles since it
was found that it was not the respondent, who was responsible for
the delay for a period of 25 months beyond the stipulated
condition of 9 months.
There is thus no question of overlapping in different heads and
the grievance of the petitioner is rejected.”
62. The Single Judge is clearly right. We have gone through all
the 15 claims supplied to us and we find that none of these claims
are in fact overlapping. They are all contained under separate heads.
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This argument, therefore, must also fail.

33. The law laid down in Central Bank of India v. Virudhunagar Steel
Rolling Mills Limited (10 supra), in the considered opinion of this Court,
is squarely applicable to the case on hand.
34. Findings on Claims 4 and 7 : Respondent No. 1 claimed under
claim No. 4, a sum of Rs. 1,19,30,185-75 ps plus service tax and
interest and respondent No. 1 claimed the said amount towards
expenditure met by him in executing 12 number of extra items. Under
claim No. 7 i.e. fixation of higher BOQ rates for the additional scope of
work entrusted to the claimant for JH 44A to JH 49A and making
payment thereof, respondent No. 1 herein claimed a sum of Rs.
44,00,714.48 ps. Against claim No. 4, the Arbitral Tribunal granted Rs.
79,27,943/- + service tax and interest, and against claim No. 7, the
Arbitral Tribunal granted Rs. 23,33,236/- + service tax and interest.
35. The principal contention advanced by the learned counsel for the
appellant as regards these claims is, in view of clause 21.3 of the
General Conditions of Contract, these claims are excepted matters, as
such, the contractor is not entitled for the said claims and the Arbitral
Tribunal has no jurisdiction to entertain these claims for arbitration
under Clause 28 of the General Conditions of Contract. In this context,
it may be appropriate to refer to clause 21.0 of the Special Conditions
of Contract, which reads as under:
“EXCEPTED MATTERS:
In the above clauses, wherever it is mentioned that the
decision/instructions/opinions of the Engineer/Employer will be
final/binding and are conclusive, these will also be treated as
excepted matters as defined in General Conditions of Contract.”
36. The Tribunal, while dealing with these claims, categorically found
that having breached the contract, it would not be open for the
appellant herein to take the plea of the excepted matters. Learned
Special Judge, by placing reliance on the judgment of the Hon'ble
Supreme Court in Mc Dermott International INC v. Burn Standard Co.
Ltd., reported in (2006) 11 SCC 181 and Hind Construction Contractors
by its Sole Proprietor Bhikamchand Mulchand Jain (Dead) by LRs. v.
State of Maharashtra reported in (1979) 2 SCC 70 : AIR 1979 SC 720,
also turned down the plea of the appellant Company, as regards the
plea of the excepted matters. Clause 26.3 of the General Conditions of
Contract reads as follows:
“Clause 26.3 : Valuation at the date of termination of
Contract: The Engineer shall as soon as may be practicable after
any such entry and expulsion by the Employer fix and determine ex-
party or by or after reference to the parties or after such
investigation or enquiries as he may think fit to make or institute
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and shall certify what amount (if any) had at the time of such entry
and expulsion been reasonably earned by or would reasonably accrue
to the Contractor in respect of work then actually done by him under
the Contract and what was the value of any unused or partially used
materials, any Constructional plant and Temporary works which have
been deemed to become the property of the Employer Under Clause
No. 9.29 herein above upon the Site.”
37. In support of his contentions and submissions, learned Senior
Counsel appearing for the appellant seeks to place reliance on the
judgment of the Hon'ble Apex Court in the case of Mitra Guha Builders
(India) Company v. Oil and Natural Gas Corporation Limited (7 supra).
In the said judgment, paragraphs 16 to 29 read as under:
“16. In order to appreciate the claim of ONGC in levying the
damages in terms of Clause 2, it is necessary to refer to Clause 2 of
the agreement which reads as under:—
“Clause 2 : Compensation for Delay The time allowed for
carrying out the work as entered in the tender shall be strictly
observed by the contractor and shall be deemed to be the essence
of the contract on the part of the contractor and shall be reckoned
from the 15th day after the date on which the order to commence
the work is issued to the contractor. The work shall throughout
the stipulated period of the contract be proceeded with all due
diligence and the contractor shall pay compensation on amount
equal to½ % per week as the Superintending Engineer (whose
decision in writing shall be final) may decide on the amount of the
contract, value of the whole work as shown in the agreement, for
every week that the work remains uncommenced, or unfinished,
after the proper dates. After further to ensure good progress
during the execution of the work, the contractor shall be bound in
all cases in which the time allowed for any work exceeds, one
month (save the special jobs) to complete one-eighth of the work,
before one-fourth of the whole time allowed under the contract
has elapsed and three-eights of the work, before one-half of such
time has elapsed, and three-fourth of such time has elapsed.
However, for special jobs if a time schedule has been submitted
by the contractor and the same has been accepted by the
Engineer-in-Charge, the Contractor shall comply with the said
time schedule. In the event of the contractor failing to comply
with this condition, he shall be liable to pay as compensation an
amount equal to½ % per week as the Superintending Engineer
(whose decision in writing shall be final) may decide on the said
contract value if the whole work for every week that the due
quantity of works remains incomplete provided always that the
entire amount of compensation to be paid under the provisions of
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the clause shall not exceed ten per cent (10%) of the tendered
cost of the work as shown in the tender.”
[Emphasis added]
17. A reading of Clause 2 makes it clear that the Superintending
Engineer has been conferred with not only a right to levy
compensation; but it also provides a mechanism for determination of
the liability/quantum of compensation. The very Clause 2 itself
would show that such a decision taken by the Superintending
Engineer shall be final. The finality clause in the contract in terms of
Clause 2 makes the intention of the parties very clear that there
cannot be any further dispute on the said issue between the parties;
much less before the arbitrator.
18. Clause 25 of the agreement - Settlement of disputes by
Arbitration, reads as under:—
“Clause 25 - Settlement of disputes by Arbitration If any
dispute, difference, question or disagreement shall, at any time,
hereafter arises between the parties hereto or the respective
representatives or assigns in connection with or arising out of the
contract, or in respect of meaning of specifications, design,
drawings, estimates, scheduled, annexures, orders, instructions,
the construction, interpretation of this agreement, application of
provisions thereof or anything hereunder containing or arising
hereunder or as to rights, liabilities or duties of the said parties
hereunder or arising hereunder any matter whatsoever incidental
to this contract or otherwise concerning the works of execution or
failure to execute the same whether during the progress of work
or stipulated/extended period or before or after the completion or
abandonment thereof shall be referred to the sole arbitration of
the person appointed by a Director of ONGC Ltd. at the time of
dispute. There will be no objection to any such appointment that
the arbitrator so appointed is an employee of ONGC Ltd. or that he
had to deal with the matters to which the contract relates and
that in the course of this duties as ONGC Ltd. employees, lie had
expressed views on all or any of the matters in dispute or
difference. If the arbitrator to whom the matter is originally
referred dies or refuses to act or resigns for any reason from the
position of arbitrator, it shall be lawful for the Director of ONGC
Ltd. to appoint another person to act as arbitrator in the manner
aforesaid. Such person shall be entitled to proceed with the
reference from the stage at which it was left by his predecessor if
both the parties consent to this effect, failing which the arbitrator
will be entitled to proceed de-novo. ………..
It is also a term of the contract that if the contractor(s)
do/does not make any demand for arbitration in respect of any
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claim(s) in writing within 90 days of receiving the intimation from

the corporation that the bill is ready for payment, the claim of the
contractor(s) will be deemed to have been waived and absolutely
barred and the Corporation shall be discharged and released of all
liabilities under the contract in respect of these claims.
The decision of the Superintending Engineer regarding the
quantum of reduction as well as his justification in respect of
reduced rates for sub-standard work, which may be decided to be
accepted, will be final and would not be open to arbitration.
………..”.
[Emphasis added]
19. The intention of the parties to exclude some of the decisions
of the Superintending Engineer from the purview of arbitration is
clearly seen from the abovesaid clause. Claim No. 6 made by the
appellant is to declare that the penalty imposed by ONGC under
Clause 2 was illegal and unwarranted and the amount withheld by
ONGC was payable to the appellant. The very prayer to declare the
amount levied by the Superintending Engineer as illegal is against
the tenor of the terms of the contract (Clause 2) between the
parties. By virtue of the finality clause in the contract, any decision
taken by the Superintending Engineer in levying compensation
cannot be referred to an arbitrator. The parties have consciously
agreed to have finality to the decision of the Superintending
Engineer and the same cannot be frustrated by challenging the same
as illegal. Any other meaning to the finality clause in the contract
and allowing further adjudication by another authority would make
the agreed Clause 2 and Clause 25 of the agreement meaningless
and redundant.
20. As held by the Division Bench of the High Court, whether
there was delay in completion of work and the levy of liquated
damages, could not have been determined by the arbitrator. Vide
letters dated 08.12.1999, 09.12.1999, 17.12.1999, 11.02.2000 and
17.04.2000, ONGC called upon the respondent/contractor to remove
the defects failing which it would get the defects remedied at his
cost. According to ONGC, the completion time was extended without
prejudice to the right of ONGC to recover compensation in
accordance with Clause 2 of the agreement. The contention of ONGC
is that by the letter dated 15.05.2001, the contractor was put on
notice that in exercise of the power conferred on the Superintending
Engineer under Clause 2, the contractor is liable to pay 10% of the
contract value by way of compensation. The contractor was informed
by the said letter dated 15.05.2001 that the compensation is levied
on him for the period of 39 weeks at half per cent per week subject
to maximum of 10% of the contract value and that the actual
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amount of compensation shall be worked out on checking the final

bill and the same shall be recovered by ONGC from the final bill. By
the subsequent letter dated 25.05.2001, the claimant was informed
that the final bill is ready and the claimant was required to reconcile
the final bill after adjusting the compensation.
21. A reading of the other terms of the contract would further
indicate that under Clauses 13 and 14 of the agreement, the parties
have agreed for payment of compensation and non-payment of
compensation in certain situations. Significantly, Clauses 13 and 14
of the agreement do not have any finality clause which indicates that
any dispute arising out of such clauses may be a dispute referable to
arbitration. However, in respect of levy of compensation for the
delay, Clause 2 of the agreement specifically makes the decision of
the Superintending Engineer, final. The entire contract between the
parties and the terms thereon have to be read as a whole to decide
the rights and liabilities of the parties arising out of the contract. In
claim No. 6, the contractor has sought for declaration “that the
penalty under Clause 2 imposed by ONGC was illegal and
unwarranted and the amount withheld by ONGC was payable to the
contractor with interest @ 24%”. Claim No. 6 sought for by the
contractor is clearly in violation of Clause 2 of the agreement
between the parties, in and by which, the parties have agreed that
the decision taken by the Superintending Engineer levying
compensation shall be final. The finality clause in the contract cannot
therefore be frustrated by calling upon the arbitrator to decide on the
correctness of levy of compensation by the Superintending Engineer.
22. While considering similar contractual provisions viz. Clause 2
of the agreement as in the present case, in Vishwanath Sood v.
Union of India (1989) 1 SCC 657, the Supreme Court held as under:
—
“8. ……… As we see it, clause 2 contains a complete machinery
for determination of the compensation which can be claimed by
the Government on the ground of delay on the part of the
contractor in completing the contract as per the time schedule
agreed to between the parties. The decision of the Superintending
Engineer, it seems to us, is in the nature of a considered decision
which he has to arrive at after considering the various mitigating
circumstances that may be pleaded by the contractor or his plea
that he is not liable to pay compensation at all under this clause.
In our opinion the question regarding the amount of
compensation leviable under clause 2 has to be decided only by
the Superintending Engineer and no one else.
9. ……..After referring to certain judicial decisions regarding the
meaning of the word “final” in various statutes, the Division Bench
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concluded that the finality cannot be construed as excluding the

jurisdiction of the arbitrator under Clause 25. We are unable to
accept this view. Clause 25 which is the arbitration clause starts
with an opening phrase excluding certain matters and disputes
from arbitration and these are matters or disputes in respect of
which provision has been made elsewhere or otherwise in the
contract. These words in our opinion can have reference only to
provisions such as the one in parenthesis in clause 2 by which
certain types of determinations are left to the administrative
authorities concerned. If that be not so, the words “except where
otherwise provided in the contract” would become meaningless.
We are therefore inclined to hold that the opening part of clause
25 clearly excludes matters like those mentioned in clause 2 in
respect of which any dispute is left to be decided by a higher
official of the Department. Our conclusion, therefore, is that the
question of awarding compensation under clause 2 is outside the
purview of the arbitrator and that the compensation, determined
under clause 2 either by the Engineer-in-charge or on further
reference by the Superintending Engineer will not be capable of
being called in question before the arbitrator.
10. ……. But we should like to make it clear that our decision
regarding non-arbitrability is only on the question of any
compensation which the Government might claim in terms of
Clause 2 of the contract. We have already pointed out that this is
a penalty clause introduced under the contract to ensure that the
time schedule is strictly adhered to. It is something which the
Engineer-in-charge enforces from time to time when he finds that
the contractor is being recalcitrant, in order to ensure speedy and
proper observance of the terms of the contract. This is not an
undefined power. The amount of compensation is strictly limited
to a maximum of 10 per cent and with a wide margin of discretion
to the Superintending Engineer, who might not only reduce the
percentage but who, we think, can even reduce it to nil, if the
circumstances so warrant. It is this power that is kept outside the
scope of arbitration. We would like to clarify that this decision of
ours will not have any application to the claims, if any, for loss or
damage which it may be open to the Government to lay against
the contractor, not in terms of clause 2 but under the general law
or under the Contract Act. As we have pointed out at the very
outset so far as this case is concerned the claim of the
Government has obviously proceeded in terms of clause 2 and
that is the way in which both the learned Single Judge as well as
the Division Bench have also approached the question. Reading
clauses 2 and 25 together we think that the conclusion is
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irresistible that the amount of compensation chargeable under

clause 2 is a matter which has to be adjudicated in accordance
with that clause and which cannot be referred to arbitration under
clause 25”.
[Underlining added]
23. The ratio of the above decision squarely applies to the present
case. Once the parties have decided that certain matters are to be
decided by the Superintending Engineer and his decision would be
final, the same cannot be the subject matter of arbitration.
24. In this regard, reliance was also placed upon Food Corporation
of India v. Sreekanth Transport (1999) 4 SCC 491 wherein, the
Supreme Court interpreted Clause 12 of the agreement thereon.
Clause 12 of the agreement in Food Corporation of India reads as
under:—
“The decisions of the Senior Regional Manager regarding such
failure of the contractors and their liability for the losses etc.
suffered by the Corporation shall be final and binding on the
contractors….”.
25. While interpreting the clause on ‘excepted matters’, in Food
Corporation of India, the Supreme Court held as under:— “3.
“Excepted matters” obviously, as the parties agreed, do not require
any further adjudication since the agreement itself provides a named
adjudicator - concurrence to the same obviously is presumed by
reason of the unequivocal acceptance of the terms of the contract by
the parties and this is where the courts have been found out lacking
in their jurisdiction to entertain an application for reference to
arbitration as regards the disputes arising therefrom and it has been
the consistent view that in the event of the claims arising within the
ambit of excepted matters, the question of assumption of jurisdiction
of any arbitrator either with or without the intervention of the court
would not arise. The parties themselves have decided to have the
same adjudicated by a particular officer in regard to these matters;
what these exceptions are however are questions of fact and usually
mentioned in the contract documents and form part of the
agreement and as such there is no ambiguity in the matter of
adjudication of these specialised matters and being termed in the
agreement as the excepted matters.
……..
9. ……… The Food Corporation, therefore, as a matter of fact
desired an adjudication of their claim to the extent of Rs. 1,89,775
together with interest at the rate of 18 per cent per annum from the
civil court rather than relying on the adjudicatory process available in
the contract itself through their own Senior Regional Manager. The
agreement as noticed above expressly provides that the adjudication
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shall be effected by the Senior Regional Manager and by no other

authority and the decision, it has been recorded in the agreement, of
the Senior Regional Manager would be final and binding on the
parties…..”.
26. In the present case, the parties themselves have agreed that
the decision of the Superintending Engineer in levying compensation
is final and the same is an “excepted matter” and the determination
shall be only by the Superintending Engineer and the correctness of
his decision cannot be called in question in the arbitration
proceedings and the remedy if any, will arise in the ordinary course
of law.
27. The learned counsel for the appellant has relied upon Bharat
Sanchar Nigam Limited v. Motorola India (P) Ltd. (2009) 2 SCC 337
and by referring to Clause 16(2) in the concerned agreement
submitted that for quantification of liquidated damages, first of all,
there has to be a delay and for ascertaining as to who was
responsible for the delay, such an issue will be within the jurisdiction
of the arbitrator. The learned ASG however, submitted that in the
present case, Clause 2 of the agreement is not only a mechanism for
quantification of liquidated damages, but Clause 2 also makes the
contractor liable for payment of the same and in terms of Clause 2 of
the agreement, the decision of the Superintending Engineer is final
and the present case is therefore, distinguishable from BSNL's case.
28. As rightly contended by the learned ASG, in BSNL's case,
Clause 16(2) of the agreement does not create any kind of liability to
pay liquidated damages; but only provides for entitlement of BSNL
to collect the damages in case of any delay in supply on the part of
the supplier under Clause 16(2). While interpreting Clause 16(2) and
Clause 21 of the contract which was under consideration in BSNL's
case, in paras (23) and (26), the Supreme Court held as under:—
“23. The question to be decided in this case is whether the
liability of the respondent to pay liquidated damages and the
entitlement of the appellants, to collect the same from the
respondent is an excepted matter for the purpose of Clause 20.1
of the general conditions of contract. The High Court has pointed
out correctly that the authority of the purchaser (BSNL) to
quantify the liquidated damages payable by the supplier Motorola
arises once it is found that the supplier is liable to pay the
damages claimed. The decision contemplated under Clause 16.2
of the agreement is the decision regarding the quantification of
the liquidated damages and not any decision regarding the fixing
of the liability of the supplier. It is necessary as a condition
precedent to find that there has been a delay on the part of the
supplier in discharging his obligation for delivery under the
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agreement.
………..
Quantification of liquidated damages may be an excepted
matter as argued by the appellants, under Clause 16.2, but for
the levy of liquidated damages, there has to be a delay in the first
place. In the present case, there is a clear dispute as to the fact
that whether there was any delay on the part of the respondent.
For this reason, it cannot be accepted that the appointment of the
arbitrator by the High Court was unwarranted in this case. Even if
the quantification was excepted as argued by the appellants
under Clause 16.2, this will only have effect when the dispute as
to the delay is ascertained. Clause 16.2 cannot be treated as an
excepted matter because of the fact that it does not provide for
any adjudicatory process for decision on a question, dispute or
difference, which is the condition precedent to lead to the stage of
quantification of damages.”
29. In BSNL's case, Clause 16 provided for entitlement of the
party to recover liquidated damages. In Clause 16(2), the phrases
used “value of delayed quantity” and “for each week of delay” clearly
show that it is necessary to find out whether there has been delay on
the part of the supplier in discharging his obligation. Thus, in BSNL's
case, in determining whether there is delay or not, a process of
adjudication is envisaged. Per contra, in the present case, Clause 2
of the agreement is a complete mechanism for determination of
liability. The right to levy damages for delay is exclusively conferred
upon the Superintending Engineer and Clause 2 of the present
agreement is a complete mechanism for determination of liability
and when such compensation is levied by the Superintending
Engineer, the same is final and binding. The parties have also
consciously agreed that for the delay caused, the Superintending
Engineer shall levy the compensation of the amount equal to half per
cent and the said amount shall not exceed from 10% of the cost of
the work and the determination by the Superintending Engineer is
final and cannot be the subject matter of arbitration. In claim No. 6,
the prayer sought for by the contractor to declare the compensation
levied by the Superintending Engineer as illegal is contradictory to
the agreed terms between the parties. So far as the liquidated
damages determined and levied, by virtue of Clause 2, is out of the
purview of the arbitration especially in view of the fact that under
the very same clause, the parties have agreed that the decision of
the Superintending Engineer shall be final.”
38. With due respect to the judgment of the Hon'ble Apex Court, in
the contract, which fell for consideration before the Hon'ble Supreme
Court in the above-referred judgment, there was a clause in the
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contract which stipulated that the decision of the Engineer should be

final, and in the instant case, the same is not the contingency even as
per clause No. 21.3 of the General Conditions of Contract. Therefore,
the said judgment of the Hon'ble Apex Court would not render any
assistance to the case of the appellant herein.
39. Coming to the judgments relied on, by the learned counsel for
respondent No. 1, in J.G. Engineers Private Limited v. Union of India16 ,
the Hon'ble Apex Court, at paragraphs 18 to 20, 22 to 24, held in the
following manner.
“18. Thus what is made final and conclusive by clauses (2) and
(3) of the agreement, is not the decision of any authority on the
issue whether the contractor was responsible for the delay or the
department was responsible for the delay or on the question whether
termination/rescission is valid or illegal. What is made final, is the
decisions on consequential issues relating to quantification, if there
is no dispute as to who committed breach. That is, if the contractor
admits that he is in breach, or if the Arbitrator finds that the
contractor is in breach by being responsible for the delay, the
decision of the Superintending Engineer will be final in regard to two
issues. The first is the percentage (whether it should be 1% or less)
of the value of the work that is to be levied as liquidated damages
per day. The second is the determination of the actual excess cost in
getting the work completed through an alternative agency. The
decision as to who is responsible for the delay in execution and who
committed breach is not made subject to any decision of the
respondents or its officers, nor excepted from arbitration under any
provision of the contract.
19. In fact the question whether the other party committed
breach cannot be decided by the party alleging breach. A contract
cannot provide that one party will be the arbiter to decide whether
he committed breach or the other party committed breach. That
question can only be decided by only an adjudicatory forum, that is,
a court or an Arbitral Tribunal.
20. In State of Karnataka v. Shree Rameshwara Rice Mills ((1987)
2 SCC 160) this Court held that adjudication upon the issue relating
to a breach of condition of contract and adjudication of assessing
damages arising out of the breach are two different and distinct
concepts and the right to assess damages arising out of a breach
would not include a right to adjudicate upon as to whether there was
any breach at all. This Court held that one of the parties to an
agreement cannot reserve to himself the power to adjudicate
whether the other party has committed breach. This court held:
“Even assuming for argument's sake that the terms of Clause
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12 afford scope for being construed as empowering the officer of

the State to decide upon the question of breach as well as assess
the quantum of damages, we do not think that adjudication by
the other officer regarding the breach of the contract can be
sustained under law because a party to the agreement cannot be
an arbiter in his own cause. Interests of justice and equity require
that where a party to a contract disputes the committing of any
breach of conditions the adjudication should be by an
independent person or body and not by the other party to the
contract. The position will, however, be different where there is no
dispute or there is consensus between the contracting parties
regarding the breach of conditions. In such a case the officer of
the State, even though a party to the contract will be well within
his rights in assessing the damages occasioned by the breach in
view of the specific terms of Clause 12. We are, therefore, in
agreement with the view of the Full Bench that the powers of the
State under an agreement entered into by it with a private person
providing for assessment of damages for breach of conditions and
recovery of the damages will stand confined only to those cases
where the breach of conditions is admitted or it is not disputed.”
…
22. In view of the above, the question whether appellant was
responsible or respondents were responsible for the delay in
execution of the work, was arbitrable. The arbitrator has examined
the said issue and has recorded a categorical finding that the
respondents were responsible for the delay in execution of the work
and the contractor was not responsible. The arbitrator also found
that the respondents were in breach and the termination of contract
was illegal. Therefore, the respondents were not entitled to levy
liquidated damages nor entitled to claim from the contractor the
extra cost (including any escalation in regard to such extra cost) in
getting the work completed through an alternative agency. Therefore
even though the decision as to the rate of liquidated damages and
the decision as to what was the actual excess cost in getting the
work completed through an alternative agency, were excepted
matters, they were not relevant for deciding claims 1, 3 and 11, as
the right to levy liquidated damages or claim excess costs would
arise only if the contractor was responsible for the delay and was in
breach.
23. In view of the finding of the arbitrator that the appellant was
not responsible for the delay and that the respondents were
responsible for the delay, the question of respondents levying
liquidated damages or claiming the excess cost in getting the work
completed as damages, does not arise. Once it is held that the
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contractor was not responsible for the delay and the delay occurred
only on account of the omissions and commissions on the part of the
respondents, it follows that provisions which make the decision of
the Superintending Engineer or the Engineer-in-Charge final and
conclusive, will be irrelevant. Therefore, the Arbitrator would have
jurisdiction to try and decide all the claims of the contractor as also
the claims of the respondents. Consequently, the award of the
Arbitrator on items 1, 3 and 11 has to be upheld and the conclusion
of the High Court that award in respect of those claims had to be set
aside as they related to excepted matters, cannot be sustained.
Re : Question (ii)
24. The arbitrator had considered and dealt with claims (1), (2,
4 and 5), (6), (7 and 8), (9) and (11) separately and distinctly.
The High Court found that the award in regard to items 1, 3, 5
and 11 were liable to be set aside. The High Court did not find any
error in regard to the awards on claims 2, 4, 6, 7, 8 and 9, but
nevertheless chose to set aside the award in regard to these six
items, only on the ground that in the event of counter claims 1 to
4 were to be allowed by the arbitrator on reconsideration, the
respondents would have been entitled to adjust the amounts
awarded in regard to claims 2, 4, 6, 7, 8 and 9 towards the
amounts that may be awarded in respect of counter claims 1 to 4;
and that as the award on counter claims 1 to 4 was set aside by it
and remanded for fresh decision, the award in regard to claim
Nos. 2, 4, 6, 7, 8 and 9 were also liable to be set aside.”
40. In Bharat Sanchar Nigam Limited v. Motorola India Private
Limited17 , it is held thus : (paragraphs 5, 9, 18, 23 and 32).
“It is the case of the appellants that the respondent had failed to
complete phase I and phase II of the project within the schedule as
provided in the tender document, and therefore, liquidated damages
were imposed by the Tamil Nadu Circle of the appellant on 21st of
May, 2004 under clause 16.2 of the tender document, quantification
of which was beyond the purview of the arbitration agreement.
…
The High Court, as noted herein earlier, by the impugned
judgment allowed the arbitration request of the respondents holding
that the imposition of liquidated damages by the appellant was not
an “excepted matter” and therefore, subject to arbitration. It is this
judgment of the High Court, which is impugned in this appeal, in
respect of which leave has already been granted.
…
We may keep on record that the appellants alleged that
respondents had not completed phase I and phase II of the project
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within the schedule as provided in the tender document whereupon

the appellants had to impose liquidated damages and invoke clause
16.2 of the tender document. But the respondents refuted these
allegations. The contention of the respondent in this case was that
the delay, if any, was caused due to the appellant's delay in
supplying necessary inputs to the respondent. So the respondent
contends that it had performed its part of the contract in time and
the blame for delay lies on the appellant. Thus it is to be noted that
there is a dispute between the parties on the question whether any
breach was committed in this case.
…
The question to be decided in this case is whether the liability of
the respondent to pay Liquidated Damages and the entitlement of
the appellant, to collect the same from the respondent is an
excepted matter for the purpose of clause 20.1 of the General
Conditions of contract. The High Court has pointed out correctly that
the authority of the purchaser (BSNL) to quantify the Liquidated
Damages payable by the supplier Motorolla arises once it is found
that the supplier is liable to pay the damages claimed. The decision
contemplated under clause 16.2 of the agreement is the decision
regarding the quantification of the Liquidated Damages and not any
decision regarding the fixing of the liability of the supplier. It is
necessary as a condition precedent to find that there has been a
delay on the part of the supplier in discharging his obligation for
delivery under the agreement.
…
In view of the discussions made hereinabove, we hold that the
disputes raised by the respondents are arbitrable and not excepted
from the scope of arbitration.”
41. In view of the above reasons, this Court finds sufficient force in
the submission of the learned counsel for respondent No. 1 that having
regard to clause 26.3 of the General Conditions of Contract, contention
of the appellant that these are excepted matters and there cannot be
any claim for the same in view of clause 21.3 of the General Conditions
of Contract, is not tenable, and it cannot be said that these claims are
excepted matters. Therefore, this Court is not inclined to interfere with
the findings recorded by the Special Judge and the Arbitral Tribunal in
respect of the claims 4 and 7 in the absence of any patent illegality and
in the absence of necessary requirements and contingencies as
stipulated under Section 34 of the Act, 1996.
42. Finding on Claim No. 13:
Claim No. 13 reads as follows:
43. Additional expenditures met by the claimant for development of
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fabrication site to the extent possible as the allotted fabricated site area
was slushy pond. Claim amount : Rs. 4,15,000/- (+) service tax and
interest.
44. Against the abovesaid claim, the Arbitral Tribunal granted Rs.
3,81,800/-. The essence of the stance of the learned Senior Counsel
appearing for the appellant as regards this claim is that in view of
Clause 9.3 of the General Conditions of Contract, respondent No. 1 is
not entitled for any amount under this head. In this connection, it
would be apposite to refer to the said clause No. 9.3 of the General
Conditions of Contract, which reads as follows:
“Clause No. 9.3 : Inspection of Site: The Contractor shall visit,
inspect and examine the Site and its surroundings and shall satisfy
himself before submitting the Tender as to the various facilities
available at the Site for the receipt storage and custody of the
materials, as to the nature of the ground and sub-soils (as far as it is
practicable) the form and nature of the Site, the conditions, the
quantities and nature of the work and materials, facilities necessary
for transportation, erection, testing and other works and the means
of access to the Site, the accommodation and other facilities that
may be required and, in general, shall himself obtain all necessary
information as to the working conditions, risk, contingencies and
other circumstances which may influence or affect his Tender. The
Tenderer shall note that no claim on this ground will be admissible.”
45. The learned Arbitral Tribunal, while dealing with this claim, took
into consideration the obligation on the part of the employer to make
available the land, free of charge, within and/or near the employer's
work site for the contractor to put up stores, site fabrication yard,
office, etc. as required for execution of the contract. The Tribunal also
took into consideration the photographs depicting the site conditions
and found that it was not possible to be used for keeping the raw
material, for carrying out fabrication and stacking fabricated structures,
and found further that movement of heavy cranes was impossible and it
was difficult event to walk. Having regard to the findings of the learned
Arbitral Tribunal, on factual situations, in the absence of any patent
illegality, this Court is not inclined to meddle with the Award rendered
by the learned Arbitral Tribunal, as confirmed by the learned Special
Judge.
46. Finding on claim No. 14 : The sum and substance of the case
of the appellant as regards this claim is that in view of Clause 28.4 of
the General Conditions of Contract read with Section 31(7)(a) of the
Arbitration and Concilliation Act, 1996, the Arbitral Tribunal has no
jurisdiction to award the interest. It is also the submission of the
learned counsel for the appellant that the Arbitral Tribunal grossly erred
in granting interest under the provisions of the MSMED Act, 2006 and
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the said Act cannot be pressed into service and the Arbitral Tribunal
being creature of the statute i.e. the 1996 Act, it cannot usurp the
jurisdiction of the Facilitation Council as per the MSMED Act, 2006. In
this context, it may be appropriate to refer Clause 28.4 of the General
Conditions of Contract.
“Clause 28.4: No interest shall be awarded by the Arbitrator in
any Arbitration proceedings.”
47. In order to adjudicate claim No. 14, it would also be appropriate
to refer to the provisions of the Micro, Small and Medium Enterprises
Development Act, 2006. The said legislation, enacted by the
Parliament, came into force on 18.07.2006, and the Parliament brought
the said legislation to provide for facilitating the promotion and
development and enhancing the competitiveness of micro, small and
medium enterprises and the matters connected therewith or incidental
thereto. Section 2(d) and (n) of the Act, 2006 define the terms ‘buyer’
and ‘supplier’ and the said provisions of law read as follows:
“Section 2(d):“Buyer” means whoever buys any goods or receives
any services from a supplier for consideration.
Section 2(n):“Supplier” means a micro or small enterprise, which
has filed a memorandum with the authority referred to in sub-
section (1) of section 8, and includes,-
(i) the National Small Industries Corporation, being a company,
registered under the Companies Act, 1956 (1 of 1956);
(ii) the Small Industries Development Corporation of a State or a
Union territory, by whatever name called, being a company
registered under the Companies Act, 1956 (1 of 1956);
(iii) any company, co-operative society, trust or a body, by
whatever name called, registered or constituted under any law
for the time being in force and engaged in selling goods
produced by micro or small enterprises and rendering services
which are provided by such enterprises;”
48. Sections 15 to 18 of the said enactment read as under:
“Section 15 : Liability of buyer to make payment.- Where any
supplier supplies any goods or renders any services to any buyer, the
buyer shall make payment therefor on or before the date agreed
upon between him and the supplier in writing or, where there is no
agreement in this behalf, before the appointed day : Provided that in
no case the period agreed upon between the supplier and the buyer
in writing shall exceed forty-five days from the day of acceptance or
the day of deemed acceptance.
Section 16 : Date from which and rate at which interest is
payable.-Where any buyer fails to make payment of the amount to
the supplier, as required under section 15, the buyer shall,
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notwithstanding anything contained in any agreement between the

buyer and the supplier or in any law for the time being in force, be
liable to pay compound interest with monthly rests to the supplier on
that amount from the appointed day or, as the case may be, from
the date immediately following the date agreed upon, at three times
of the bank rate notified by the Reserve Bank.
Section 17. Recovery of amount due.-For any goods supplied
or services rendered by the supplier, the buyer shall be liable to pay
the amount with interest thereon as provided under section 16.
Section 18. Reference to Micro and Small Enterprises
Facilitation Council.-
(1) Notwithstanding anything contained in any other law for the
time being in force, any party to a dispute may, with regard to
any amount due under section 17, make a reference to the
Micro and Small Enterprises Facilitation Council.
(2) On receipt of a reference under sub-section (1), the Council
shall either itself conduct concilliation in the matter or seek the
assistance of any institution or centre providing alternate
dispute resolution services by making a reference to such an
institution or centre, for conducting concilliation and the
provisions of sections 65 to 81 of the Arbitration and
Concilliation Act, 1996 (26 of 1996) shall apply to such a
dispute as if the concilliation was initiated under Part III of that
Act.
(3) Where the concilliation initiated under sub-section (2) is not
successful and stands terminated without any settlement
between the parties, the Council shall either itself take up the
dispute for arbitration or refer it to any institution or centre
providing alternate dispute resolution services for such
arbitration and the provisions of the Arbitration and
Concilliation Act, 1996 (26 of 1996) shall then apply to the
dispute as if the arbitration was in pursuance of an arbitration
agreement referred to in sub-section (1) of section 7 of that
Act.
(4) Notwithstanding anything contained in any other law for the
time being in force, the Micro and Small Enterprises Facilitation
Council or the centre providing alternate dispute resolution
services shall have jurisdiction to act as an Arbitrator or
Conciliator under this section in a dispute between the supplier
located within its jurisdiction and a buyer located anywhere in
India.
(5) Every reference made under this section shall be decided
within a period of ninety days from the date of making such a
reference.”
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49. Section 24 of the said Act reads as follows:

Section 24. Overriding effect.-The provisions of sections 15 to
23 shall have effect notwithstanding anything inconsistent therewith
contained in any other law for the time being in force.
50. While referring to the provisions of Section 16 of the said Act, it
is submitted by the learned counsel for respondent No. 1 that
respondent No. 1 is entitled for interest as stipulated under Section 16
of the MSMED Act, 2006, i.e., three times of the bank rate. In terms of
the said legislation, the Arbitral Tribunal granted interest in favour of
respondent No. 1 herein. To substantiate his submission as regards the
applicability of this enactment, learned counsel for respondent No. 1
places reliance on the judgment of the Bombay High Court in Steel
Authority of India Ltd. v. Micro, Small Enterprise Facilitation Council,
through Joint Director of Industries, Nagpur Region, Nagpur reported in
AIR 2012 Bom 178. Relevant portion of the said judgment at paragraph
11, reads as follows:
“11. Having considered the matter, we find that Section 18 (1) of
the Act, in terms allows any party to a dispute relating to the
amount due under Section 17 i.e. an amount due and payable by
buyer to seller; to approach the facilitation Council. It is rightly
contended by Mrs. Dangre, the learned Addl. Government Pleader,
that there can be variety of disputes between the parties such as
about the date of acceptance of the goods or the deemed day of
acceptance, about schedule of supplies etc. because of which a buyer
may have a strong objection to the bills raised by the supplier in
which case a buyer must be considered eligible to approach the
Council. We find that Section 18(1) clearly allows any party to a
dispute namely a buyer and a supplier to make reference to the
Council. However, the question is; what would be the next step after
such a reference is made, when an arbitration agreement exists
between the parties or not. We find that there is no provision in the
Act, which negates or renders an arbitration agreement entered into
between the parties ineffective. Moreover, Section 24 of the Act,
which is enacted to give an overriding effect to the provisions of
Section 15 to 23-including section 18, which provides for forum for
resolution of the dispute under the Act-would not have the effect of
negating an arbitration agreement since that section overrides only
such things that are inconsistent with Section 15 to 23 including
Section 18 notwithstanding anything contained in any other law for
the time being in force. Section 18(3) of the Act in terms provides
that where concilliation before the Council is not successful, the
Council may itself take the dispute for arbitration or refer it to any
institution or centre providing alternate dispute resolution and that
the provisions of the Arbitration and Concilliation Act, 1996 shall
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thus apply to the disputes as an arbitration in pursuance of

arbitration agreement referred to in Section 7 (1) of the Arbitration
and Concilliation Act, 1996. This procedure for arbitration and
concilliation is precisely the procedure under which all arbitration
agreements are dealt with. We, thus find that it cannot be said that
because Section 18 provides for a forum of arbitration an
independent arbitration agreement entered into between the parties
will cease to have effect. There is no question of an independent
arbitration agreement ceasing to have any effect because the
overriding clause only overrides things inconsistent therewith and
there is no inconsistency between an arbitration conducted by the
Council under Section 18 and arbitration conducted under an
individual clause since both are governed by the provision of the
Arbitration Act, 1996.”
51. According to the learned Senior Counsel appearing for the
appellant, since the Arbitral Tribunal, in the instant case, exercised the
jurisdiction under the provisions of the 1996 Act, the Tribunal is bound
by the terms of the contract and Sections 37 and 31(7)(a) of the 1996
Act. It is not in dispute that as per Clause 28.4 of the General
Conditions of Contract, as referred to, supra, grant of interest by the
Arbitral Tribunal, is prohibited. Section 31(7)(a) of the Act, 1996 reads
as follows:
“Section 31(7)(a) : Unless otherwise agreed by the parties,
where and in so far as an arbitral award is for the payment of money,
the arbitral tribunal may include in the sum for which the award is
made interest, at such rate as it deems reasonable, on the whole or
any part of the money, for the whole or any part of the period
between the date on which the cause of action arose and the date on
which the award is made.”
52. Admittedly, in the instant case, there is a condition in the form
of Clause 28.4 of the General Conditions of Contract, which bars the
grant of interest by the Arbitral Tribunal. Therefore, this Court finds
sufficient force in the submission of the learned senior counsel
appearing for the appellant that in view of Section 31(7)(a) of the Act,
1996 read with Clause 28.4 of the General Conditions of Contract, the
Arbitral Tribunal is prohibited from granting interest. In the considered
opinion of this Court, the provisions of the MSMED Act, 2006, cannot be
made applicable to the arbitration proceedings initiated under the
Arbitration and Concilliation Act, 1996. In the considered opinion of this
Court, the judgment sought to be relied upon by the learned counsel
for respondent No. 1 in Steel Authority of India Ltd. v. Micro, Small
Enterprise Facilitation Council, through Joint Director of Industries,
Nagpur Region, Nagpur reported in AIR 2012 Bom 178 would not
render any assistance to respondent No. 1 herein to sustain its stand on
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claim No. 14. In this context, it may be appropriate to refer to the

judgments cited by the learned Senior Counsel appearing for the
appellant.
(a) in Union of India v. Ambica Construction (8 supra), wherein the
Hon'ble Supreme Court held thus : (paragraphs 25 to 28)
“25. A 3-Judge Bench of this Court in Union of India v. Bright
Power Projects (India) Pvt. Ltd. (2015) 9 SCC 695 has considered
the provisions contained in section 31(7)(a) of the Arbitration and
Concilliation Act, 1996 and considered the words “unless otherwise
agreed by parties” in the said section and held that the Arbitrator is
bound by the terms of the contract so far as award of interest from
the date of execution to the date of award is concerned. This Court
considered clause 13(3) of the contract and came to the conclusion
that once agreed that contractor would not claim any interest on the
amount to be paid under the contract, he could not have claimed the
interest. The Arbitrator while awarding interest failed to consider the
provisions of section 31(7)(a) and binding nature of clause 13(3) of
the terms of agreement. With respect to section 31(7)(a) of the
Arbitration & Concilliation Act, 1996 this Court in Union of India v.
Bright Power Projects (supra) has observed thus:
“18. Section 31(7)(a) of the Act ought to have been read and
interpreted by the Arbitral Tribunal before taking any decision
with regard to awarding interest. The said section, which has been
reproduced hereinabove, gives more respect to the agreement
entered into between the parties. If the parties to the agreement
agree not to pay interest to each other, the Arbitral Tribunal has
no right to award interest pendente lite.” Section 31(7)(a) of the
1996 Act confers power on Arbitrator to award interest pendente
lite, “unless otherwise agreed by parties”. Thus, it is clear from
the provisions contained in section 31(7)(a) that the contract
between the parties has been given importance and is binding on
the Arbitrator. Arbitration clause is also required to be looked into
while deciding the power of the Arbitrator and in case there is any
bar contained in the contract on award of interest, it operates on
which items and in the arbitration clause what are the powers
conferred on Arbitrator and whether bar on award of interest has
been confined to certain period or it relates to pendency of
proceedings before Arbitrator.
26. In Sree Kamatchi Amman Constructions (supra), it was
observed that the words “unless otherwise agreed by the parties” in
section 31 of new Act of 1996 clarify that Arbitrator is bound by the
terms of contract for award of interest pendente lite. It was also held
thus:
“19. Section 31(7) of the new Act by using the words “unless
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otherwise agreed by the parties” categorically clarifies that the

Arbitrator is bound by the terms of the contract insofar as the
award of interest from the date of cause of action to the date of
award. Therefore, where the parties had agreed that no interest
shall be payable, the Arbitral Tribunal cannot award interest
between the date when the cause of action arose to the date of
award.
20. We are of the view that the decisions in Engineers-De-
Space-Age (supra) and Madnani (supra) are inapplicable for yet
another reason. In Engineers-De-Space-Age (supra) and Madnani
(supra) the Arbitrator had awarded interest for the pendente lite
period. This Court upheld the award of such interest under the old
Act on the ground that the Arbitrator had the discretion to decide
whether interest should be awarded or not during the pendente
lite period and he was not bound by the contractual terms insofar
as the interest for the pendente lite period. But in the instant case
the Arbitral Tribunal has refused to award interest for the
pendente lite period. Where the Arbitral Tribunal has exercised its
discretion and refused award of interest for the period pendente
lite, even if the principles in those two cases were applicable, the
award of the Arbitrator could not be interfered with. On this
ground also the decisions in Engineers-De-Space-Age (supra) and
Madnani (supra) are inapplicable. Be that as it may.”
27. This Court in Union of India v. Krafters Engineering & Leasing
Pvt. Ltd. (2011) 7 SCC 279 has held that by a provision in the
agreement, the jurisdiction of the Arbitrator to award interest can be
excluded. This Court considered the nature of the claim vis-à-vis the
provision contained in the relevant clause.
28. It is apparent from various decisions referred to above that in
G.C. Roy (supra) Constitution Bench of this Court has laid down
where agreement expressly provides that no interest pendente lite
shall be payable on amount due. The arbitrator has no power to
award interest. In N.C. Budharaj (supra) a Constitution Bench has
observed that in case there is nothing in the arbitration agreement
to exclude jurisdiction of arbitrator to entertaining claim for interest,
the jurisdiction of arbitrator to consider and award interest in respect
to all periods is subject to section 29 of the Act. In Hindustan
Construction Co. Ltd. (supra) this Court has followed decision in G.C.
Roy (supra) and laid down that on the basis of principles of section
34 arbitrator would have the power to award pendente lite interest
also. In B.N. Agarwalla (supra), this Court has again followed G.C.
Roy (supra) and Hindustan Construction Co. Ltd. (supra) with
respect to power of arbitrator to award pendente lite interest and it
was held that arbitrator has power to award interest. In Harish
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Chandra (supra) this Court interpreted the clause 1.9 which provided
that no claim for interest or damages will be entertained by the
Government in respect to any moneys or balances which may be
lying with the Government. It was held that there was no provision
which could be culled out against the contractor not to claim interest
by way of damages before the arbitrator on the relevant items placed
for adjudication. In Ferro Concrete Construction (P) Ltd. (supra) this
Court considered clause 4 containing a stipulation that no interest
was payable on amount withheld under the agreement. It was held
that clause 4 dealt with rates, material and workmanship did not bar
award of interest by the arbitrator on claims of the contractor made
in the said case. In Sayeed Ahmed (supra) this Court has
emphasized that award of interest would depend upon nature of the
clause in the agreement. In Bright Power Projects (India) Pvt. Ltd.
(supra) this Court has considered the expression “unless otherwise
agreed by parties” employed in section 31(7)(a) of the Act of 1996
and laid down that in case contract bars claim of interest contractor
could not have claimed interest. The provision of section 31(7)(a) of
the Act of 1996 is binding upon the arbitrator. In Sree Kamatchi
Amman Constructions (supra) similar view has been taken.”
(b) In Sri. Chittaranjan Maity v. Union of India (9 supra), it is held as
follows : (paragraphs 14 to 20).
“14. The total interest awarded by the Arbitral Tribunal is Rs.
12,44,546/- which includes interest for the pre-reference period and
also pendente lite interest. Section 31(7)(a) of the 1996 Act
provides for payment of interest, as under:
“31(7)(a) - Unless otherwise agreed by the parties, where and
insofar as an arbitral award is for the payment of money, the
arbitral tribunal may include in the sum for which the award is
made interest, at such rate as it deems reasonable, on the whole
or any part of the money, for the whole or any part of the period
between the date on which the cause of action arose and the date
on which the award is made.” In this Section, a specific provision
has been created, whereby if the agreement prohibits award of
interest for the pre-award period (i.e. pre-reference and pendente
lite period), the Arbitrator cannot award interest for the said
period.
15. Admittedly, the GCC, governing the contract between the
parties, contains a clause which bars the payment of interest, which
is as under:
“16(2) - No interest will be payable upon the earnest money or
the security deposit or amounts payable to the contractor under
the contract, but government securities deposit in terms of sub-
clause (1) of this clause will be repayable (with) interest accrued
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thereon.”
16. Relying on a decision of this Court in M/s. Ambica
Construction v. Union of India 2017 SCC OnLine SC 678, (C.A. No.
410 of 2008, disposed of on 26.04.2017) learned senior counsel for
the appellant submits that mere bar to award interest on the
amounts payable under the contract would not be sufficient to deny
payment on pendente lite interest. Therefore, the Arbitrator was
justified in awarding the pendente lite interest. However, it is not
clear from M/s. Ambica Construction (supra) as to whether it was
decided under The Arbitration Act, 1940 (for short ‘the 1940 Act’) or
under the 1996 Act. It has relied on a judgment of Constitution
Bench in Secretary, Irrigation Department, Government of Orissa v.
G.C. Roy (1992) 1 SCC 508. This judgment was with reference to the
1940 Act. In the 1940 Act, there was no provision which prohibited
the Arbitrator from awarding interest for the pre-reference, pendente
lite or post award period, whereas the 1996 Act contains a specific
provision which says that if the agreement prohibits award of
interest for the pre-award period, the Arbitrator cannot award
interest for the said period. Therefore, the decision in M/s. Ambica
Construction (supra) cannot be made applicable to the instant case.
17. Learned Additional Solicitor General appearing for the
respondent submits that the position of law for cases covered under
the 1996 Act, i.e. if agreement prohibits award of interest then the
grant of pre-award interest is impermissible for the Arbitrator, has
been reiterated by this Court in various judgments.
18. In Sayeed Ahmed and Company v. State of Uttar Pradesh
(2009) 12 SCC 26, this Court noted that the 1940 Act did not
contain any provision relating to the power of the Arbitrator to award
interest. However, now a specific provision has been created under
Section 31(7)(a) of the 1996 Act. As per this Section, if the
agreement bars payment of interest, the Arbitrator cannot award
interest from the date of cause of action till the date of award. The
Court has observed that in regard to the provision in the 1996 Act,
the difference between pre-reference period and the pendente lite
interest has disappeared insofar as award of interest by the
Arbitrator is concerned. Section 31(7)(a) recognizes only two
periods, i.e. pre-award and post-award period.
19. In Sree Kamatchi Amman Constructions v. Divisional Railway
Manager (Works), Palghat (2010) 8 SCC 767, this Court was dealing
with an identical case wherein Clause 16 of the GCC of Railways had
required interpretation. This is the same Clause 16(2) of the GCC
prohibiting grant of interest which is also applicable in the facts of
the present case. The Court held that where the parties had agreed
that the interest shall not be payable, the Arbitral Tribunal cannot
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award interest between the date on which the cause of action arose
to the date of the award.
20.In Union of India v. Bright Power Projects (India) Private
Limited (2015) 9 SCC 695, a three-Judge Bench of this Court, after
referring to the provisions of Section 31(7)(a) of the 1996 Act, held
that when the terms of the agreement had prohibited award of
interest, the Arbitrator could not award interest for the pendente lite
period. It has been held thus:
“10. Thus, it had been specifically understood between the
parties that no interest was to be paid on the earnest money,
security deposit and the amount payable to the contractor under
the contract. So far as payment of interest on government
securities, which had been deposited by the respondent contractor
with the appellant is concerned, it was specifically stated that the
said amount was to be returned to the contractor along with
interest accrued thereon, but so far as payment of interest on the
amount payable to the contractor under the contract was
concerned, there was a specific term that no interest was to be
paid thereon.
11. When parties to the contract had agreed to the fact that
interest would not be awarded on the amount payable to the
contractor under the contract, in our opinion, they were bound by
their understanding. Having once agreed that the contractor
would not claim any interest on the amount to be paid under the
contract, he could not have claimed interest either before a civil
court or before an Arbitral Tribunal.” Therefore, it is clear that the
appellant is not entitled for any interest on the amount awarded
by the Arbitral Tribunal.”
53. Accordingly, this point as regards claim No. 14 is answered in
favour of the appellant and against respondent No. 1.
54. Yet another contention of the learned Senior Counsel appearing
for the appellant is that the Award stands vitiated as the Tribunal did
not have a person with judicial knowledge. In order to rebut the said
contention, learned counsel for respondent No. 1 places reliance on the
following judgments of the Hon'ble Apex Court:
(a) In Municipal Corporation of Delhi v. M/s. Jagannath Ashok Kumar
(10 supra), wherein it is held thus : (paragraphs 4 and 5).
“4. In this case, there was no violation of any principles of natural
justice. It is not a case where the arbitrator has refused cogent and
material factors to be taken into consideration. The award cannot be
said to be vitiated by non-reception of material or non-consideration
of the relevant aspects of the matter. Appraisement of evidence by
the arbitrator is ordinarily never a matter which the Court questions
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and considers. The parties have selected their own forum and the
deciding forum must be conceded the power of appraisement of the
evidence. In the instant case, there was no evidence of violation of
any principle of natural justice. The Arbitrator in our opinion is the
sole judge of the quality as well as quantity of evidence and it will
not be for this Court to take upon itself the task of being a judge of
the evidence before the arbitrator. It may be possible that on the
same evidence the Court might have arrived at a different conclusion
than the one arrived at by the arbitrator but that by it self is no
ground in our view for setting aside the award of an arbitrator.
5. It is familiar learning but requires emphasis that section 1 of
the Evidence Act, 1872 in its rigour is not intended to apply to
proceedings before an arbitrator. P.B. Mukharji, J. as the learned
Chief Justice then was, expressed the above view in Haji Ebrahim
Kassam Cochinwall v. Nothern Indian oil Industries Ltd., AIR 1951
Cal 230 and we are of the opinion that this represents the correct
statement of law on this aspect. Lord Goddard, C.J. in Mediterranean
& Eastern Export Co. Ltd. v. Fortress Fabrics Ltd., (1948) 2 All ER
186 observed at pages 188/189 of the report as follows:
“A man in the trade who is selected for his experience would be
likely to know and indeed to be expected to know the fluctuations
of the market and would have plenty of means of informing
himself or refreshing his memory on any point on which he might
find it necessary so to do. In this case according to the affidavit of
sellers they did take the point before the Arbitrator that the
Southern African market has slumped. Whether the buyers
contested that statement does not appear but an experienced
Arbitrator would know or have the means of knowing whether that
was so or not and to what extent and I see no reason why in
principle he should be required to have evidence on this point any
more than on any other question relating to a particular trade. It
must be taken I think that in fixing the amount that he has, he
has acted on his own knowledge and experience. The day has long
gone by when the Courts looked with jealousy on the jurisdiction
of the Arbitrators. The modern tendency is in my opinion more
especially in commercial arbitrations, to endeavour to uphold
Awards of the skilled persons that the parties themselves have
selected to decide the questions at issue between them. If an
Arbitrator has acted within the terms of his submission and has
not violated any rules of what is so often. called natural justice
the Courts should be slow indeed to set aside his award.””
(b) In P.R. Shah, Shares and Stock Brokers Private Limited v. B.H.H.
Securities Private Limited (11 supra), wherein it is held thus :
(paras 22 and 23)
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“22. The appellant contends that the arbitration had used

personal knowledge to decide the matter. Attention was drawn to the
following observation in the award by the majority:
“Also, it is known fact which is known to the arbitrators that as
per the market practice such kind of transactions of one Broker
takes place with another Broker either in their own name or in
their firm's name or in the name of different entity which is also
owned by the member.” Same way these transactions are done by
respondent no. 2 (appellant herein) in the name of respondent no.
1 (second respondent herein).”
23. An arbitral tribunal cannot of course make use of their
personal knowledge of the facts of the dispute, which is not a part of
the record, to decide the dispute. But an arbitral tribunal can
certainly use their expert or technical knowledge or the general
knowledge about the particular trade, in deciding a matter. In fact,
that is why in many arbitrations, persons with technical knowledge,
are appointed as they will be well-versed with the practices and
customs in the respective fields. All that the arbitrators have referred
is the market practice. That cannot be considered as using some
personal knowledge of facts of a transaction, to decide a dispute.”
55. Therefore, the contention contra advanced by the learned Senior
Counsel appearing for the appellant, cannot stand for judicial scrutiny
and is, accordingly, rejected.
56. For the aforesaid reasons, the COM.CA is partly allowed, setting
aside the Award passed by the Arbitral Tribunal vide Award dated
15.12.2006, as confirmed in the order and decree dated 16.08.2019
passed by the Court of the Special Judge for trial and disposal of the
Commercial Disputes, Visakhapatnam, in CAOP No. 38 of 2017 (Old
AAP No. 306 of 2017) to the extent of Claim No. 14 and in respect of all
other claims, this Appeal is dismissed. No costs.
57. Miscellaneous Petitions pending, if any, in this case shall stand
closed.
———
1
(2015) 3 SCC 49
2
(2019) 5 SCC 341
3 (2015) 4 SCC 136
4
(2011) 1 SCC 394
5 (1974) 2 SCC 231
6 AIR 1963 SC 1405
7
(2020) 3 SCC 222
-----------------------------------------------------------------------------------------------------------------------------------------------------------
8
(2016) 6 SCC 36
9 (2017) 9 SCC 611
10
(1987) 4 SCC 497
11 (2012) 1 SCC 594
12 (2015) 16 SCC 207
13
2021 SCC OnLine SC 204
14 AIR 2012 Bom 178
15 1989 Supp (1) SCC 368
16
(2011) 5 SCC 758
17 (2009) 2 SCC 337
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SCC Online Web Edition, © 2023 EBC Publishing Pvt. Ltd.

Page 1 Sunday, August 13, 2023

2021 SCC OnLine AP 3014

In the High Court of Andhra Pradesh

Rastriya Ispat Nigam Limited

appellant herein, vide letter dated 08.09.2010. Thereafter, vide

35,383-65 ps) and material escalation bill (Rs. 16,38,044-72 ps),

which read as follows:

is satisfied that the applicant was prevented by sufficient cause from

per the MSMED Act,

No. 38 of 2017, confirming the Award passed by the Arbitral Tribunal.

work or other special circumstances, unless the Contractor has within

materials) (excluding pure painting works).

based on average of month Bulletins published by RBI.

entitled to receive the same compensation from the party in default,

to the appellant and eventually found that the Visakhapatnam Steel

43.6. The expression “whether or not actual damage or loss

contract, which sum would amount to a sum of INR 25 lakh. Since

compensation for damage which a party may sustain through non-

the expression (used in Section 74 of the Contract Act), “the party

(5) Unless there is anything to the contrary in the terms of the

contractor. No evidence is led by the claimant to establish that

because it applies only “when a contract has been broken”.

under : (paragraph 53).

as a claim is made by the purchaser, it would immediately become

consequence of the breach no legal injury at all has resulted,

“2. The appellant herein was awarded a certain construction work

resulting in delay in casting of RCC slab and plastering work

therefore, claim of the claimants deserves to be rejected.

wages prevailing at the time of receipt of the tender for the

The contractor shall, within a reasonable time of his

Delhi in Kochhar Construction Works v. DDA, (1998) 2 ALR 209.

This argument, therefore, must also fail.

claim(s) in writing within 90 days of receiving the intimation from

amount of compensation shall be worked out on checking the final

concluded that the finality cannot be construed as excluding the

irresistible that the amount of compensation chargeable under

shall be effected by the Senior Regional Manager and by no other

contract which stipulated that the decision of the Engineer should be

12 afford scope for being construed as empowering the officer of

within the schedule as provided in the tender document whereupon

notwithstanding anything contained in any agreement between the

49. Section 24 of the said Act reads as follows:

thus apply to the disputes as an arbitration in pursuance of

claim No. 14. In this context, it may be appropriate to refer to the

otherwise agreed by the parties” categorically clarifies that the

“22. The appellant contends that the arbitration had used

3 (2015) 4 SCC 136

5 (1974) 2 SCC 231

6 AIR 1963 SC 1405

9 (2017) 9 SCC 611

11 (2012) 1 SCC 594

12 (2015) 16 SCC 207

14 AIR 2012 Bom 178

15 1989 Supp (1) SCC 368

17 (2009) 2 SCC 337

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