UNION OF INDIA versus M/S. CONCRETE PRODUCTS & CONST. CO. ETC.

Citation: [2014] 3 S.C.R. 535 · Decided: 03-03-2014 · Supreme Court of India · Bench: S.S. NIJJAR · Disposal: Appeal(s) allowed

Judgment (excerpt)

[2014] 3 S.C.R. 535 
UNION OF INDIA 
v. 
MIS. CONCRETE PRODUCTS & CONST. CO. ETC. 
(Civil Appeal Nos. 2950-2951 of 2014) 
MARCH 3, 2014 
[SURINDER SINGH NIJJAR AND FAKKIR MOHAMED 
IBRAHIM KALIFULLA, JJ.] 
A 
B 
Arbitration and Conciliation Act, 1996: s.37(1) - Interest C 
for the amount withheld by the railway administration - Grant 
of - Held: Arbitrator passed an award directing the railway 
administration to refund the amount along with interest and 
subsequent interest @ 18% PA. - Arbitrator in awarding 
interest to the contractors failed to take into ac.count the 
D 
provisions contained in Indian Railways Standard Conditions 
of Contract which disentitled the contractors from claiming any 
interest or damages for withholding or retention under lien by 
railway administration - Also, as per s.37(1), the arbitrator 
could not have awarded any interest from the date when the 
E 
recovery was made till the award was made - Interest would 
have been payable from the date when the award was made 
till the money was deposited in the court - Upon the amount 
being deposited, no further interest could be paid to the 
contractors - Interest. 
F . 
The appellant-Railway administration and the 
contractor-respondents entered into contract for supply 
of concrete sleepers. By letter dated 12 July 1997, 
appellant-Railway 
administration 
informed 
the 
respondents that the excess payments had been made 
G 
to the respondents and, therefore, certain amount was 
recoverable from the respondents and that said amount 
would be recovered from sum due or payable from 
535 
H 
536 
SUPREME COURT REPORTS 
(2014] 3 S C.R 
A running contract. This gave rise to dispute which was 
referred to arbitrator. The arbitrator passed an award 
directing the appellant to refund the amount along with 
interest and subsequent interest @ 18% PA. The 
respondents filed an application seeking direction to the 
B appellant to pay amount awarded from the amount 
deposited by the appellant with the High Court along with 
the accrued interest as on date on the said amount. The 
application was allowed. The appellant filed intra court 
appeals challenging the order of the single judge 
c principally on the ground that the appellant was not liable 
to pay any interest for the period subsequent to the 
deposit of the principal amount into the court. The 
Division Bench of the High Court dismissed the appeal 
holding that appellant had not questioned the power of 
0 the sole arbitrator to award interest; that the said issue 
was also not raised before the single judge and a pie.a 
was raised for the first time before the Division Bench that 
the award of interest was contrary to Clause No. 2401 of 
the Indian Railways Standard Conditions of Contract. 
E 
The question which arose for consideration in the 
F 
instant appeals was whether the contractors are entitled 
to interest for the amount withheld. 
Allowing the appeals, the Court 
HELD: 1.1. Clause 2401 provides that the railways 
shall be entitled to withhold and also have a lien to retain 
any amount deposited as security by the contractor to 
satisfy any claims arising out of or in the contract. In such 
circumstances, the railways can withhold the amount 
G deposited by the contractors as security and also have 
lien over the same pending finalization or adjudication of 
the claim. In case, the security deposit is insufficient to 
cover the claim of the railways, it is entitled to withhold 
and have lien to the extent of the amount claimed from 
H any sum payable for any works done by the contractor 
UNION OF INDIA v. MIS. CONCRETE PRODUCTS & 537 
CONST. CO. ETC. 
thereafter under the same contract or any other contract. 
A 
This withholding of the money and the exercise of the lien 
is pending finalization or adjudication of any claim. This 
clause further provided that the amount withheld by the 
railways over which it is exercising lien will not entitle the 
contractor to claim any interest or damages for such 
B 
withholding or retention under lien by the railways. [Para 
15) [548-D-G] 
1.2. Clause 2403 provides that any sum of money due 
and payable to the contractor under the contract may be 
C 
withheld or retained by way of lien by the railway 
authorities or the Government in respect of payment of 
a sum of money arising out of or under any other cont~act 
made by the contractor with the railway authority or the 
Government. Clause 2403(b) further provides that it is an 
agreed term of the c

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