UNION OF INDIA versus SARASWAT TRADING AGENCY & ORS.

Citation: [2009] 10 S.C.R. 1063 · Decided: 16-07-2009 · Supreme Court of India · Bench: TARUN CHATTERJEE · Disposal: Case Partly allowed

Cited by 2 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2009] 10 S.C.R. 1063 
UNION OF INDIA 
A 
v. 
SARASWAT TRADING AGENCY & ORS. 
(Civil Appeal No. 4427 of 2009) 
JULY 16, 2009 
B 
[TARUN CHATTERJEE AND AFTAB ALAM, JJ.) 
j 
Arbitration and Conciliation Act, 1996: 
Escalation - Works contract - Arbitration agreement c 
between the parties - In terms of agreement, contractor bound 
to pay to the labourers not Jess than the fair wages notified at 
the time of inviting tenders for the work - Subsequently 
statutory revision in wages - Agreement not containing 
.. 
escalation clause -
Contractor's claim for enhanced D 
payments - Allowed by arbitrator - High Court upheld the 
same - Interference with - Held: Not called for - By asking 
the contractor to give tender by taking into account the fair 
wages notified at the time of inviting tenders, the authorities 
did give an impression that fair wages to be paid would be 
E 
the one then notified/prescribed - In such a situation, if rates 
of fair wages were raised afterwards, the tendered sum cannot 
be taken to be agreed amount for completing the contract, in 
the face of the directions of the authorities requiring the 
contractor to pay revised wages - On this fact situation, the 
F 
State had by necessary implication agreed to reimburse the 
increased payment. 
Interest - Bar on payment of any interest or .damage to 
the contractor in the arbitration agreement - Claim for pre-
reference or pendente lite interest for the period when 
G 
agreement was subsisting and for the period when agreement 
was terminated and respondent was carrying on the work on 
the request of the appellant -'- Held: No pre-reference or 
pendente lite interest was payable for the period when 
1063 
H 
1064 
SUPREME COURT REPORTS [~009] 10 S.C.R. 
A agreement was subsisting - However, bar on payment of 
interest would not apply to the period after the termination of 
• 
agreement. 
An arbitration agreement was entered between the 
B parties. The work contract was given for the period 
August 3, 1991 to December 31, 1992. At the time of 
submission of tender by respondent, the base fair rate of 
wages for the casual labourer was Rs.31.15 as per the 
• 
circular dated January 17, 1990. The clause 14 stated that 
c 
the contractor was bound to pay to the labourers 
engaged by him not less than the fair wage. It further 
provided that 'fair wage' would be the wage including the 
allowances, notified at the time of inviting tenders for the 
work. During the period of contract, the Railway 
authorities issued circulars revising the rates of casual 
D labourer from the retrospective dates. The respondent's 
• -
claim for enhanced payments was on the ground that 
rates stated in the agreement were based on circular 
dated January 17, 1990 that had undergone number of 
revisions and as a result the contract became unrealistic 
E and unviable. 
The questions which arose for consideration in the 
present appeal were whether in the absence of any 
i 
escalation clause in the arbitration agreement the 
F respondent's claim for enhanced payments for the period 
August 3, 1991 to December 31, 1992 during which the 
agreement was in force was sustainable and whether the 
arbitrator and Division Bench of High Court were justified 
in granting claim for that period and whether the 
G respondent was entitled to the interest on the amounts 
arrived at by allowing claim for higher rates for the work 
done by it. 
Partly allowing the appeal, the Court 
H 
HELD: 1.1. It has to be assumed that when the 
' 
r 
. --
) 
J, 
UNION OF INDIA v. SARASWAT TRADING AGENCY &1065 
ORS. 
appellant was required to pay fair wages at increased 
A 
rates, the authorities did visualize that the appellant 
would not do so by cutting down its profit. By asking the 
appellant to give tender by taking into account the fair 
wages notified at the time of inviting tenders, the 
authorities did give an impression that fair wages to be 
B 
paid would be the one then notified/prescribed. In such 
a situation, if rates of fair wages were raised afterwards, 
the tendered sum cannot be taken to be agreed amount 
for completing the contract, in the face of the directions 
of the authorities requiring the appellant to pay wages at c 
rates higher than those prescribed or notified at the time 
of inviting tenders. On this fact situation, the State had 
by necessary implication agreed to reimburse this 
increased payment. [Para 12] [1075-A-D] 
Tarapore & Co. vs. State of M.f'., (1994) 3 SCC 521; 
D 
Food 

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