STATE OF U.P. versus HARISH CHANDRA AND CO.

Citation: [1998] SUPP. 2 S.C.R. 660 · Decided: 11-11-1998 · Supreme Court of India · Bench: S.B. MAJMUDAR · Disposal: Disposed off

Judgment (excerpt)

A 
STATE OF U.P. 
v. 
HARISH CHANDRA AND CO. 
.. 
NOVEMBER 11, 1998 
..... 
B 
[S.B. MAJMUDAR, S. SAGHIR AHMAD AND 
K. VENKATASWAMl, JJ.] 
Arbitration Act, 1940 : 
c 
Sec. 29-Award of interest-Works contract-Claim for payment for the 
works done-Dispute-Arbitration-Award granting interest-Clause 1.9 of 
Special Conditions of Contracts stipulating that interest cannot be claimed 
for the amount lying with the Government due to any dispute-Effect of-
Held, claim of interest for payment for the work done, is not covered under 
D 
the specified type of amount mentioned in Clause 1.9-Thus, the claim is not 
barred-Award of interest justified. 
Sec. 29-Power of Arbitrator to grant interest pendente lite-Held, 
Arbitrator has power and authority to grant interest even for pre-reference 
period after Interest Act, 1978. 
E 
Sec. 30-Grounds for setting aside Award-Arbitration Award-
Challenge on the merit of the Award-Validity of-Held, question purely on 
merits of award cannot be entertained. 
F 
Para 7-A inserted in the First Schedule (by U.P. Act 57 of 1976 Sec. 
24)-Power of Arbitrator to grant interest-Award of interest beyond 6 per 
cent barred-Held, the bar is only on the Arbitrator and not on the Court-
High Court erred in reducing the rate of interest awarded by trial court in 
exercise of its discretionary power. 
G 
An agreement was entered into between the appellant-State and 
<!"·· 
respondent-contractor for carrying out certain excavation and construction 
work. The respondent contractor failed to complete the work within the 
stipulated period and even after extension of time, left the work incomplete. 
Consequently, the appellant-State got the work done through other agencies 
by incurring additional expenses. A dispute arose between the parties over 
H 
660 
• 
STA TE v. HARISH CHANDRA 
661 
the payment of dues for the work done. On reference, the sole arbitrator A 
awarded interest pendente lite at the rate of 15 per cent and 6 per cent 
interest on the amounts due from the date of award till actual payment. The 
trial Court made the award rule of the Court and granted 15.5 per cent 
interest on the amount awarded. On appeal, High Court while dismissing the 
appeal reduced the rate of interest from 15.5 per cent to 6 per cent. Aggrieved, 
both the State and respondent contractor have preferred the appeals. 
B 
The contention of appellant-State was that the arbitrator had no 
power to grant pre-reference period interest in view of the prohibition 
contained in Clause 1.9 of the Special Conditions of the Contract; paragraph 
7-A inserted in the First Schedule to the Arbitration Act, 1940 (U.P. Act 57 C 
of 1976 Section 24), barred the power of the arbitrator in granting more 
than 6 per cent interest on the awarded amount and, therefore, High Court 
was justified in reducing the interest from 15.5 per cent to 6 per cent. 
The contention of the respondent-contractor was that the High Court D 
had committed a patent error in reducing the rate of interest from 15.5 per 
cent to 6 per cent; interpretation of Clause 1.9 by the arbitrator could not 
have been made a subject matter of objections under Section 30 of the 
Arbitration Act. 
Dismissing the appeal of the State and partly allowing the appeal of the E 
contractor, the Court 
HELD : 1. The claim for interest even for pre-reference period was 
within the power and authority of the arbitrator after the Interest Act, 1978. 
It is not a dispute between the parties in the instant case, that the cause of p 
action for reference arose after coming into force of the Interest Act. 
[665-E) 
Secretary, Irrigation Deptt. Govt. of Orissa v. G.C. Roy, (1992) l SCC 
508 and State of Orissa v. B.N. Agarwal/a, [1997) 2 SCC 469, relied on. 
2. The High Court was right in holding that clause 1.9 of Special 
Conditions of the Contracts was not a bar to the ~laim of interest. Clause 
G 
1.9 states that the claim for interest by way of damages was not to be 
entertained against the Government with respect to only a specified type of 
amount, namely, any moneys or balances which may be lying with the H 
662 
SUPREME COURT REPORTS [1998] SUPP. 2 S.C.R. 
A Government owing to any dispute or difference between the Engineer-in-
Charge and the contractor; or misunderstanding between the Engineer-in-
Charge and the contractor in making periodical or final payments or in any 
other respect whatsoever. The words "or in any other respect whatsoever" 
also referred to the dispute pertainin

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