ZAFAR HUSSAIN MIRZA, J.--This appeal arises out of a contract for the construction of Sea-Wall- cum-Reclamation Bund, opposite Keamari Groyne at Karachi harbour. The contract was awarded to appellant Ghulam Abbas on 9th January, 1970, by the respondents, Trustees of the Port of Karachi, . For a total sum of Rs.27,43,000. For the sake of convenience, we shall refer to the parties to the contract as the "contractor" and "K.P.T," respectively. The work under the contract was to be completed within 12 months. However. In the events that happened, there was a delay of 16 months in completing the work. But the K.P.T. Condoned the delay of 15 months and imposed a token penalty of Rs.10,000 on the contractor for one month's delay. The contractor claimed to have carried out the work of the total value of Rs.25,73,194.31 but the K.P.T. Paid him only Rs.23,14,903.36, refusing to pay the balance of Rs.2,58,290.95. After adjustment of Rs.10,000 imposed as penalty, the claim of the contractor, so far as the work done under the contract, was reduced to Rs.2,48,290.95.
In addition the contractor claimed refund of a sum of Rs.1,36,150 on account of encashment of the bank guarantee furnished by him under the terms of contract which the K.P.T. Was liable to refund.
Lastly the contractor also set u_ p a claim for certain extra items of work carried out by him during the .Execution of the contracted works, for which an amount of Rs.8,73,462.45 was claimed.
2.The K.P.T. Vide their letter dated 19th May, 1973, repudiated all claims preferred by the contractor as unjustified and not payable.
3. The contractor having failed to receive payment of his claim invoked the arbitration clause of the contract between the parties with the result that the K.P.T. Appointed Mr. Justice (Rtd.) Feroze Ghulam Ali Nana as the sole Arbitrator to decide the dispute between the parties. In pursuance of notice by the Arbitrator the contractor filed his claim, relevant part of which giving the details thereof is as under:--- "I.Amount of final bill after adjusting penalty of Rs.10,000Rs.2,48,290.95 II.Bank GuaranteeRs.1,37,290.00 III (a)Bedding and joints with "No Fines" concrete on the sea face side of the wall under and between precast hollow section armour blocks Quantity 31,261 Cft. @ 225 per % Cft.Rs.70,337.25 (b)Average 30 thick "No Fines" cement concrete bedding under pre-case blocks done under instructions from the Engineer-in-Chief of the defendants.
Quantity 2,16,033.75 Cft. @ Rs.85.50 per % Cft.Rs.1,84,708.85 (c)Extra excavationexecuted due to leakage and bursting of the KPT Dredger pipe between Rail No. 30 to
36. Quantity 1,16,Q00 Cft. @ Rs.30 per % Cft.Rs. 34,800.00 (d)Extra cost for casting in situ of Corner Blocks (contract item No. 11) in consequence of change of specifications.
Quantity 49,062.59 Cft. @ Rs.125 per % Cft.Rs.61,328.23
(e) Extra FilterMatressprovided in consequence of sinkage of filter matress laid at the base of the sea-wall under the contract. Quantity 1,80,064 Cft. @ Rs.70 per % Cft.Rs.1,26,044.80 (f)Extra "A" grade stone consumed due to sinkage of filter matress above the foreshore levels taken at commencement of work. Quantity 1,80,064 Cft. @ Rs.70 per % Cft.Rs.1,26,044.80 (g)Damage caused to material due to leakage and bursting of KPT dredger pipe line running across the plaintiff's block casting yards.Rs.24,335.00
(h) Additional overhead like salaries of staff, technical and non technical, organisation expenses transport conveyance charges etc. @ 5% of the contract valueRs.1,29,650.00 (i)Interest by way of compensation for wrongful retention of money due to the plaintiff at 10$ (ten per cent) p.a. As under. Amount of final bill for Rs.2,48,290.95 from1-7-1972to 3-10-1973 @ 10%)Rs. 33,105.00 Amount of security deposit of Rs.1,37,150.00 from12-5-1973to 31-10-1973 (@ 10)Rs.6,477.00 Amount of item (a) to (h)above Rs.7,57,248.93 from1-7-1972to 31-10-1973.Rs.1,00,966.52 Rs.12,63,238.40 4.The K.P.T. Denied the claim of the contractor and set up a counter claim before the learned Arbitrator as under:-- Rs.2,74,300.00
(A) Liquidated Damages.
(B) Deduction Memo. (i) Cement-859 tons @ Rs.150 per ton.Rs.1,28,850.00
(ii) M.S. Bars-2 Cwt. @ 24 Lbs @ Rs.1,400 Rs,155.00 per ton.
Rs.97.00
(iii) Bitumen sheets-4 Nos-- Rs.3,903.00
(iv) Hire of Mixer machine.
(v) Empty Jute bags--17514 Nos. @ Rs.2 Rs.35,028.00 each.
(vi) Below Specification work.Rs.25,000.0( Rs,31,688.01 (vii)Tractor hire charges.
(viii)Non-supply of flap valves--52 Nos. @ Rs.300 eachRs.15,600.00
(ix) C . E .'s bill for mixer hireRs.50.00 Rs,1,430.00
(x) Labour charges bill.
Rs.7,200.00
(xi) Cost of repair & maintenance.
(xii)Income-tax arrears.Rs.40,576.00 (xiii)Income-tax @ 3% of Rs.3,34,360.71Rs.10,030.82 Rs.2,99,609.6U Total to be recovered from the contractor. (A + B)Rs. 5,73,909.60 Less payable(1)Amount of to contractorfinal billRs. 3,34,360.71 (2)Bank guaranteeRs. 1,37,150.00 Net recoverable from the contractor.Rs.1,02,398.89"
5,The learned Arbitrator after recording evidence and hearing the parties made an award dated 14th July, 1975, granting a sum of Rs.8 72,583.24 in favour of the contractor inclusive of items mentionedin clause (a), (c), (e)--- (h) and (i) as enumerated in item III of the claim of the contractor reproduced above. The details of the claims awarded by the learned Arbitrator in his award are as follows:-- "(1) Total amount of award against items (a), (b), (c), (e), (g) and (h) under paragraph 4 of the plaintiff's claim.Rs.4,95,225.90
(ii) Amount of final bill claimed in para. 2 of the plaintiff's memo. Ofclaim.Rs.1,23,792.95 (iii)Interest at 6% on above amount I.e. (Rs.4,95,225 + 86.1,23,792.95 from 1st July,- 1972 to 30th June, 1975Rs.1,11,423.39 (iv)Refund of guarantee amount encashed.Rs.1,37,150.00 (v)Interest at 6% on guarantee amount of Rs.1,37,150 from 19th May, 1973 to 30th June, 1975.Rs. 17,427.00
(vi) Cost of suit.
10,000.00 Rs.8,95,019.24 Less: Income Tax @ 3% on item against (i), (ii), (iii) & (v).Rs. 22,436.90 Net amount payable to plaintiff.Rs.8,72,583.24 6.The award was filed in the High Court of Sind under section 14(2) of the Arbitration Act and rule 29(2) of the Sind Chief Rules.
Pursuant to the notice issued by the Court the K . P. T . Filed objections to the said award which were rejected by the learned Single Judge on the original side who made the award the rule of the Court on 21st July, 1976.
7. Being aggrieved by the decision of the learned Single Judge, the K.P.T. Filed an Intra-Court Appeal which was partly allowed by the Division Bench of the High Court vide judgment dated 19th October, 1982, whereby the award passed by the learned Arbitrator was modified and the amount granted in favour of the contractor was reduced from Rs.8,72,583.24 to Rs.4,97,423.80.
8.The contractor then challenged the judgment of the Division Bench in this Court and leave was granted in order to examine the contention that "the learned Judges of the Division Bench virtually acted as an Appellate Court by substituting their own findings only the various items of the claim which the learned Arbitrator had awarded to the petitioner for valid reasons, and thus the learned Judges acted beyond the scope of the powers under section 30 of the Arbitration Act."
9. Before the learned Judges of the Division Bench no controversy was raised by either party in respect of item No. (ii) allowed in the award relating to the amount of final bill awarded at Rs.1,23,792.95 as mentioned in para. 5 above. Similarly the learned Judges upheld the refund of guarantee amount at item No. (iv) amounting to Rs.1,37,050.00 (para. 5 above), and also granted interest on this amount at Rs.17,427 as in item (v). There is no dispute before us as regards these items. As regards item No. (iii) relating to interest on the amount of the final bill and the amount found due to the appellant in respect of extra work dealt with in item No. (i) , the Arbitrator had awarded Rs.1,11,423.39 but the learned Judges of the Division Bench expressed the view that this was beyond the scope of the reference made to the Arbitrator and consequently disallowed this item. In regard to item No. (i) which deals with extra work mentioned in the claim of the appellant in clauses (a), (b), (c), (e), (g) and (h) in paragraph 3 above the learned Arbitrator had awarded a total sum of Rs.4.95,225.90. Out of these six sub-items the learned Judges of the Division Bench allowed only two, namely, sub-items in clauses (b) and (g) and disallowed the claims contained in clauses (a), (c), (e), (h) and (i) partly. The final break up of the items accepted by the learned Division Bench as payable to the appellant is as under:-- On account of final billRs.1,23,792.95 Bank GuaranteeRs.1,37,150.00 Interest on Bank GuaranteeRs. 17,427.00 Amount under clause (i)(b)Rs.1,84,708.00 Amount under clause (i)(g)Rs. 24,355.00 Cost of the suitRs. 10,000.00 Total:Rs.4,97,423.80
10. Learned counsel for the appellant reiterated his submission that the learned Judges of the Division Bench in re-examining and reassessing evidence in regard to various items of claim set up by the appellant and upsetting the findings of the Arbitrator had acted as a Court of appeal, which was wholly extraneous to the limited jurisdiction that the Court possessed under section 30 of the Arbitration Act. The submission of the learned counsel was that even otherwise the learned Arbitrator had assigned sound reasons for reaching his conclusions in respect of each item of extra work which the Court was not competent to review or probe into by going beyond the award. On the other hand, on behalf of the respondents it was submitted that the Court has acted within the ambit of its jurisdiction and has rejected the items of the award on the basis of error apparent on the face of the record and on the ground that the Arbitrator had misconstrued the terms of the contract which was within the ambit of the jurisdiction of the Court to determine.
11. It will be appropriate to take up first the items of the claim of the appellant which were awarded by the Arbitrator and were rejected by the learned Division Bench individually. These items are mentioned in para. 3 above as items No. III(a) to (i). As already stated the only disputed items before us are items (a), (c), (e), (h) and (i) partly. Before the Arbitrator items of work contained in (b), le) and (g) were not denied to have been duly executed by the appellant. In regard to these items the plea of the respondents only was that the appellant had agreed not to claim for these items of work if the respondents condone the delay in completion of work and extended the time.
This plea of the respondents was found to be unsustainable and these items were awarded to the appellant. The Division Bench upheld the finding as regards item (b) on the admission of the respondents which was proved on the record. Similarly item (g) was also allowed by the Division Bench. But item (c) was rejected by the Court which would be considered along with the other items in this judgment.
12. Coming to the item (a) for Rs.70,337.25 which was claimed as the price of work of bedding and joints with no fines concrete on the sea face side of the wall etc. The Arbitrator has pointed out in the award that the controversy between the parties in regard to this item revolved around the interpretation of the words in clause (18) of the Particulars and Specifications in the contract. There was no denial that this work was executed. The only plea in defence by the respondents was that in terms of the aforesaid clause (18) the appellant was not entitled to claim extra payment for no fines concrete. The learned Arbitrator reached the conclusion that the claim for this work did not involve extra payment as the respondents contended for on the following reasoning:-- "Now the plaintiff says that he claims payment for 'No Fines' concrete in joints and hollow portions at the contractual rate in item 12 in the bill of quantities. The plaintiff's contention is that in item No. 11 as explained by him in his letter to the Chairman of the defendants, dated 20th March, 1973 (Ex. P- 38) there is no indication of a no fines concrete bed but in the Sectional Drawing attached to the tender documents this bed has been provided thickness whereof admittedly comes to 1/2". He further contends that the joints of block have been filled with no fines concrete and no fines concrete bed of 4" thickness provided under the blocks. The bed of 1/2" thickness has been provided as shown on the drawing and 3J" thick extra bed provided under the orders of the Engineer-in-Chief. The item (b) of paragraph 4 of the plaintiff's statement of claim which has been allowed herein above includes the payment for 3J" thick extra bed, and the item under consideration relates to I" thick bed and the joints and there is no reason for denying payment for this item of work. Under item 12 of the Bill of Quantities the plaintiff says that two types of filling had to be done namely hollow portion of the c.c. Armoured Blocks with 1:2:4 cement concrete and the joints with 1:6 'No fines' concrete. Since the mortars differ and in order to avoid confusion and disputes it has been made clear that the rate for both the types of mortars will be one and the same as quoted against item No. 12 and no extra payment will be made over and above that rate.
The plaintiff says that in this item he does not claim any rate over and above the contractual rate of item No. 12 and therefore no extra payment is involved."
The learned Judges of the High Court, with all due respect to them, did not advert to the reasons assigned by the Arbitrator for holding that the claim did not involve extra payment as envisaged in clause (18) of the contract but the payment was being claimed at the contractual rate of the item No. 12 of the Bill of Quantities. The learned Judges merely stated as follows:-- "So far as the amount specified against clause 4(a) amounting to Rs.70,337.25 is concerned, the learned counsel for the appellants has referred us to clause 18 of Particular Specifications, according to which no extra payment was payable to the respondent for this work. In our view the learned Arbitrator has not correctly interpreted clause 18 of the Particulars Specifications, which provided that no extra payment will be made for "No Fines" concrete. Learned counsel for the respondent has been unable to satisfy us as to how in view of this clause the respondent could claim extra payment for this work. We are, therefore, of the view that the learned Arbitrator had awarded the amount under this clause to the respondent by wrongly interpreting clause 18 of the Particular Specifications. "
Learned counsel for the appellant invited our attention to the arbitration clause of the contract (vide para. 60 of the contract) which is extensive and includes a dispute even with regard to the interpretation of the contract document. Even the learned counsel for the respondents conceded before us that in view of the all embracing nature of the arbitration clause the Arbitrator had power to interpret the contract but his only submission was that his interpretation was not conclusive and was subject to correction by the Court in its exercise of jurisdiction under section 30 of the Arbitration Act. Even on that basis we find no justification for the Court to hold that the interpretation placed by the learned Arbitrator on clause 18 of the contract was erroneous as no reasons have been assigned for such a conclusion. The conclusion therefore, is that the learned Judges of the High Court rejected this item of the award unjustifiably. The next item to consider is item (c). As already pointed out the learned Arbitrator having rejected the plea of the respondents that the appellant had agreed not to claim for this item along with other items in lieu of extension of time for completion of work under the contract, he allowed this item of claim along with the said other items. The learned Judges of the Division Bench rejected this item on the ground that no extra amount was to be paid to the contractor on account of works necessitated by contractual risk.
Learned Judges held that the appellant must have anticipated leakage of dredger pipe and therefore this was a contractual risk duly anticipated and accommodated at the time rates were quoted by the contractor. It was submitted on behalf of the appellant that bursting of KPT dredger pipe was not and could not be an anticipated risk. In any event this being a question of fact whether the work under this item was executed or not and whether it was an anticipated risk, was a matter within the exclusive jurisdiction of the Arbitrator to decide. We find force in this submission as there appears no error C on the face of the award in view of the positive findings by the Arbitrator that the contractor had executed this item of work which finding was based on the evidence produced before the Arbitrator. The Court could not go behind the award and indeed no evidence has been pointed out for sustaining the conclusion that the contractor had opportunity of anticipating leakage from the dredger pipe, which is at best a conclusion based on surmise and conjecture. This can hardly be a basis for up setting an award given by an Arbitrator. In any case the claim in this item is connected with the claim under item (g) which related to damage caused to material due to leakage and bursting of KPT dredger pipe line running across the plaintiff's block casting yards. Now the learned Arbitrator had allowed the claim of the appellant under item (g) and the Court, as already observed also did not reverse the finding of the learned Arbitrator on this item. In both items the common factor apparently was the damage done by the bursting of the KPT dredger pipe line. Therefore, the learned Division Bench was not right in applying different standards for assessing the liability for damage sustained by the contractor on account of identical circumstances. The claim under item (c) was also, therefore, rightly awarded.
13. The next item for consideration is the claim under item (e) for Rs.1,26,044.80 which is described as follows:-- "(e) Extra Filter Matress provided in consequence of sinkage of filter matress laid at the base of the sea-wall under the contract.
Quantity 1,80,064 Cft. @ Rs.70 per%Cft.Rs.1,26,044.80"
The learned Judges disallowed this claim for the same reason for which the claim under item (c) was disallowed and gave no further reasons. The reason for which item (c) was disallowed by the learned Judges was that the works for which that claim was made were necessitated by contractual risk. Learned Arbitrator has explained in his award that the filter matre'ss of 12" thickness had to be laid in the base of the wall, but when the work was taken up the filter matress sank to the extent of 1" due to sinkage in the swampy soil. The contractor had, therefore, put an extra 12" thick material to raise the level in accordance with the drawings. The learned Arbitrator accepted this claim on the following grounds:-- "The defence to this claim is vague and raises only hypothetical questions that no sinkage of filter matress could take place under its own weight, and that it was a contractual risk. Now it is significant to note that in clause 13 of the particular specification which deals with the item of filter matress it has not been provided that sinkage will not be allowed or paid for, whereas in other items e.g. Items 5, 9 and 10 it has been specifically provided that the contractor will cover in his rates all allowances for sinking and penetration of stone in the ground including all settlement below the foreshore levels. The absence of such a specific provision excluding the liability for payment in. Case of sinkage clearly indicated that this was not a contractual risk to be provided against the contract. It stands to reason that filter matress which is also stone will naturally sink in a swa mpy ground especially when it forms the base and takes the impact of other material placed over it."
Clearly, therefore, the learned Judges did not advert, if at all they could review the conclusions on questions of fact, the reasons assigned by the learned Arbitrator in support of his conclusion. Once again, therefore, the decision of the learned Judges on this item is based on conjecture.
14. Item (h) of the claim put up by the respondent for Rs.1,29,650 was on account of additional overheads like salaries of staff, technical and non-technical, organisation expenses transport and conveyance charges etc. @ 5% of the contract value. The learned Arbitrator observed that no details of this claim had been produced in evidence before him. Nevertheless he found the claim justified to the extent of Rs.55,000 as reasonable proportion of the claim, on account of delay for maintaining establishment for 16 months more than the stipulated period for the completion of work. This additional period over which the work was extended, in the opinion of the learned Arbitrator, was for reasons beyond the control of the contractor. The learned Judges of the Division Bench found no justification for awarding this claim even partially, as the delay had occurred at the instance and due to the contractor, on account of which the latter was imposed a penalty under clause 39 of the general conditions of the contract and granted extension as requested by the contractor. It was argued before us on behalf of the respondent that this claim was totally outside the contract and was accordingly not within the jurisdiction of the Arbitrator to adjudicate upon.
Learned counsel for the appellant was unable to reply to this argument and we find no justification for the Arbitrator to apply the rule of the thumb and award the claim without there being any basis in the evidence as patently appears on the face of the award. We, therefore, find no warrant for interfering with the decision of the learned Judges in regard to item (h).
15. Coming to the last item, namely, item (i) which was partly allowed by the learned Arbitrator, it may be stated that this claim relates to interest claimed by respondent by way of compensation for alleged wrongful retention of money due to the appellant at 10$ per annumas under:-- "Amount of final bill for Rs.2,48,290.95 from 1-7-1972 to 3-10-1973 (@10$).Rs.33,105.00 Amount of security deposit of Rs.1,37,150.00 from 12-5-1973 to 31-10-1973.Rs.6,477.00 Amountof item (a) to (h) above Rs.7,57,248.93 from 1-7-1972 to 31-10-1973. Rs.1,00,966.52."
The learned Arbitrator as already mentioned in paragraph 5 above had awarded interest at 6$ on the total amount of items of extra work (Rs.4,95,225) and the amount of final bill outstanding in favour of the appellant Rs.1,23,792.95 from first July, 1972 to 30th June, 1975, amounting to Rs.1,11,423.39. He also awarded interest at the same rate on the guarantee amount from 19th May, 1973, to 30th June, 1975. The total amount awarded by the Arbitrator towards interest claimed under this item was Rs.1,28,850.95. The learned Judges of the Division Bench did not agree with the learned Arbitrator with regard to the award of interest on the first two amounts mentioned above and held that the appellant was entitled only to the interest on the guarantee amount. The reason for disallowing the said claim was that according to the learned Judges the same was beyond the scope of reference to Arbitrator. In this connection learned Judges referred to section 29 of the Arbitration Act and held that the matter of awarding interest should have been left to the court under the said provisions. So far as the first reason is concerned the learned Judges were in error to hold that the question of interest on the amount claimed by the contractor for the various items of extra work was beyond the scope of reference. The two heads of interest in item (i) which have been disallowed by the Division Bench were very much in issue framed by the Arbitrator with reference to the pleadings of the parties before him. In this connection suffice it to refer to the claim of the contractor before the learned Arbitrator (page 146 of the printed record) in which the item of interest has been mentioned in paragraph 4 (i). Similarly in their reply the respondents (page 150 of the printed record) repudiated the claim of the contractor in regard to interest and inter alia pleaded that under the terms of the contract the contractor was not entitled to claim any interest. On the contrary the respondents claimed interest on their counter claim. On these pleadings the parties were clearly at issue on the question of interest which was a part of the reference to be decided by the Arbitrator. Indeed the learned Arbitrator settled the issues in presence of the parties and issue No.4 reads as follows:- "Which of the parties is entitled to what sum (covers the counter claim and the question of interest)?"
16. As far as the other ground that prevailed with the learned Judges of the Division Bench it may be stated that in holding that the matter of interest should have been left for the Court the learned Judges overlooked and misconceived the real import of section 29 of the Arbitration Act which is a provision whereby power has been conferred on the court to order payment of interest, while making the award the rule of the Court, if the same is for payment of L money and this interest covers the post-decree period on the principal sum in the award. By its own terms, therefore, this section does not contemplate or create any embargo on the power of the Arbitrator to award interest in adjudicating upon the reference before him. This was, therefore, not a sound basis for the court to disallow interest on the ground that the Arbitrator should not have decided this question.
17. The matter, however, does not conclude here. The question still remains to be determined whether the Arbitrator was competent to award interest in the circumstances of this case or in other words whether in having awarded interest an error of law apparent on the face of the award was committed. Now the general rule of law is that an award is final as to both fact and law but there is a rule that an error of law, if it appears on the face of the award, is a ground for setting it aside which is an exception to the general rule as stated, There is a further rider to this rule, namely, that if the parties have specifically referred a question of law to arbitration then the general rule would apply and the award will be beyond reproach even if such a question is decided erroneously. Before going further it may also be stated that as a general principle the Arbitrator has always been considered to have implied authority to follow the ordinary rules of law. The intentional disregard of the law would, therefore, seem to be such a misconduct on the part of Arbitrator as would justify setting his award aside (Russell on Arbitration 19 Edition Page 440).
18. In order to further examine this question it is necessary to analyse the nature of right to interest on a money claim before a court of law and on the same analogy before the domestic forum of an Arbitrator. The right to interest, for the period prior to the date of suit or prior to the reference to arbitration is a matter of substantive law, as contrasted with the power given to a court of law under section 34 CPC or section 29 of the Arbitration Act which is a statutory power within the domain of procedural law. In the present controversy firstly we are concerned with the right claimed substantively by the contractor for a period before the matter reached the forum, for adjudication as a liquidated claim based on a legal right. The right to interest, for the period prior to the suit, arises in one of the four following ways: (i)agreement, express or implied between the parties, (ii)mercantile usage, (iii)statutory provisions (iv)interest may be also allowed on equitable grounds in proper cases.
Thus in Bengal Nagpur Railway Co. Ruttanji Ramji and others AIR 1938 PC 67, it was observed:- The crucial question however is whether the Court has authority to allow interest for the period prior to the institution of the suit; and the solution of this question depends, not upon the Civil Procedure Code, but upon substantive law. Now, interest for the period prior to the date of the suit may be awarded, if there is an agreement for the payment of interest at a fixed rate, or it is payable by the usage of trade having the force of law, or under the provision of any substantive law entitling the plaintiff to recover interest as for instance, under section 80, Negotiable Instruments Act, 1881, the Court may award interest at the rate of 6 per cent per annum, when no rate of interest is specified in the promissory note or bill ofd exchange."
But admittedly in the present case the claim for interest as incorporated in the statement of claim filed by the appellant before the Arbitrator vide paragraph 4 (i) was couched in the following terms: "interest by way of compensation for wrongful retention of moneys due to the plaintiff Clearly, therefore, in the submission before the Arbitrator the question was whether the appellant was entitled to interest by way of compensation for breach of contract, in that, the respondents who were required by the terms of the contract to make payment for the works executed did not do so at the stipulated time. It is not the case of the appellant that he was entitled to interest by the express or implied terms of the contract or on the basis of mercantile usage or any statutory provisions. In M/s A.Z. Company v. M/s S. Maula Bukhsh Muhammad Bashir (PLD 1965 SC 505), this court has already ruled that generally in the absence of express or implied contract to pay interest, or of usage of trade, interest cannot be allowed on damages for breach of contract. The compensation for breach of contract qua the claims accepted by the Arbitrator as awarded could not, therefore, be subjected to a further liability to pay interest according to the dictum laid down in the aforesaid decision.
19. However, before dealing with the effect of the legal position discussed above that in the facts of this case the appellant was not entitled to claim interest by way of damages, reference may briefly be made to the case law on which each side relied in regard to the legal question whether the Arbitrator was competent to award interest in the present case. Mr. Fakhruddin G, Ebrahim, learned counsel for the appellant while supporting the award of interest relied upon, (1) Syed Altaf Hussain v. Pakistan Steel Mills Corporation (1985 CLC 914), (2) The Union of India and another v. M/s. D.P.
Wadia and sons (AIR 1977 Bombay 10), (3) Bhowanidas Ramgobind v. Harasukhdas Balkishendas (AIR 1924 Calcutta 524) (4) Province of West Bengal v. Basant Properties Ltd. (AIR 1956 Calcutta 36),
(5) L.M. Das v. State of West Bengal (AIR 1961 Calcutta 456) (6) Union of India v. Vungo Steel Furniture Ltd (AIR 1963 Calcutta 70) and (7) Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd (AIR 1967 SC 1030). The first case dealt with the recoverability of interest from the date of the award and the question whether the Arbitrator was competent to direct payment of interest in regard to claims under the contract for the period prior to the reference was not directly dealt with in this case. Therefore, the decision is not relevant for the present controversy. As regards the second case it affirms the proposition that the Arbitrator would be competent to award interest provided the claim for such interest is based either on the agreement between the parties or substantive provisions of law applicable thereto or upon an equitable principle impinging thereon.
As observed above in the case before us none of the elements mentioned in the cited judgment were invoked by the appellant. It may further be pointed out that the learned Judges in this case were called upon to examine the validity of the proposition that an Arbitrator wholly lacks competence to award interest in adjudicating the reference before him and a dispute as to the payment of interest was not capable of reference to arbitration. This question of law was answered by learned Judges in the negative on the law expounded by the Supreme Court of India in Mahabir Prasad Rungla v. Durga Datta (AIR 1961 SC 990), which was to the effect that interest for a period prior to the commencement of suit is claimable either under an agreement, or usage of trade or under a statutory provision or under the Interest Act, for a sum certain where notice is given.
Interest is also awarded in some cases by Courts of equity. As regards interest pendente lite, the Court expressed the opinion that such interest can be granted also on the same basis so far as the right to claim interest is concerned. As to the competency of the Arbitrator to make a grant by way of interest in the context of his duties and powers, the learned Judges proceeded upon the well recognized principle that an Arbitrator is under an obligation to adhere to the provisions of law that may be attracted to the matters coming up before him. The learned Judges held that on the analogy of the powers enjoyed by the civil Court under section 34 of the CPC, the Arbitrator was competent to direct payment of interest as a Court was empowered under the said provisions, so far as interest from the date of the award till the date of the decree is concerned. The case was finally decided by the learned Judges on the basis that the award in respect of interest would constitute an error on the face of the award if the Arbitrator were to give reasons, which then show that the basis on which the interest was awarded was groundless and without foundation so far as the substantive law on the basis of which interest can be claimed. The award was upheld by the Court in the peculiar facts of the case inasmuch as the Arbitrator had given no reasons for awarding interest and there was nothing on the record to show as to how and upon what basis the award as to the payment of interest was assailed. This decision appears to have been pressed into service on the similarity of circumstances inasmuch in the present case also so far as the operative part of the award is concerned the learned Arbitrator gave no reasons but only a direction for the payment of interest with effect from the lst July, 1972, to 30th June, 1975 in respect of the disputed items of interest. Whether on the basis of similarity of facts the rule of decision applied by the learned Judges of the Bombay High Court is applicable to the present case will be considered at a later stage after reference to the other decisions relied upon is made. The third case from Calcutta' eed not be discussed as it is covered by Bombay decision already referred to.
The fourth case is al8o from Calcutta but is not relevant for the present controversy as it deals with the power of granting interest in requisition proceedings under the Defence of India Rules. The fifth case also lays down the same principle that one of the grounds on which an Arbitrator can award interest is equitable consideration, but it has been clarified that under this ground generally there should be fiduciary relationship existing between the parties and in this connection specifically dealt with the case of security deposit, about which there is no dispute in the present case. In the 6th case the proposition laid down is that the umpire acting under the arbitration agreement has authority to direct payment of interest on the principal sum adjudged from the date of the award upto the date of the decree to be passed by the Court. The last case referred to by the learned counsel is from the Supreme Court of India which was the basis on which the Bombay High Court has held in the second case referred above, that though in terms, section 34 CPC does not apply to arbitration proceedings, the principle of that section can be applied by the Arbitrator for awarding interest in cases where court in a suit having jurisdiction of the subject matter covered by section 34 could grant decree for interest. In this case the grant of interest from the date of the award to the date of decree was upheld.
19. On the other hand Mr. Muhammad Ali Saeed, learned counsel for the respondents placed strong reliance upon the case of A.Z. Company (PLD 1965 SC 505) to which reference has already been made, in support of his contention that the claim for compensation in regard to the breach of contract on which interest has been claimed could not be awarded by way of damages in accordance with the dictum laid down in this case. It was urged that as interest could not be claimed in accordance with law, in awarding the same the learned Arbitrator committed an error floating on the surface of the award, which vitiates at least the portion of the award relating to illegally granted interest which can be struck of, and the award modified if the entire award cannot be set aside.
20. Having set out the arguments of the learned counsel and the law relied upon by them it now becomes necessary to examine the nature of the direction given by the Arbitrator for payment of interest in respect of the disputed items. In the award after giving a finding as regards the claim of the appellant and determining the amount payable to him in respect of the works done under the contract, the learned Arbitrator allowed interest on the amounts so determined in the following manner:- "(32) I allow the plaintiff interest on the above sum of Rs.6,19,018.85 (rupees six lacs nineteen thousand and eighteen and paisa eighty five only) at the rate of 6% per annum from 1st July, 1972, to 30th June, 1975, which comes to Rs.1,11,423.39 (Rupees one lac eleven thousand four hundred twenty three and paisa thirty nine only) and future interest at the same rate till recovery. (33) I also allow interest at the same rate on the encashed amount of Bank Guarantee of Rs.1,37,150 (rupees one lac thirty-seven thousand one hundred and fifty only) from 19th May, 1973, to 30th June, 1975, which amounts to Rs.17,427 (rupees seventeen thousand four hundred twenty-seven only) and future interest at the same rate till payment."
The Arbitrator was appointed at the request of the appellant by the respondent on 19th September, 1973. The appellant filed' his statement of claim before the Arbitrator on 27th October, 1973.
Therefore, the learned Arbitrator entered on the reference somewhere between these two dates.
Accordingly the interest allowed by him under paragraph 32 of the award, as reproduced above (which comprises the disputed item before us) related to a period prior to his entering upon the reference and extended up to 30th June, 1975, that is, just before the date of the award which was made on 14th July, 1975. He also directed future interest at the same rate till the recovery of the principal amount awarded by him. On this analysis the award of interest may be bifurcated in three categories. The first one to be interest as a substantive claim, the second as pendente lite interest and third future interest from the date of the award until payment of the principal.
21. As noted earlier, in the case before us, interest was being claimed by the contractor as compensation for breach of contract between the parties by way of damages. As discussed above a claim to interest can be based as of right on statue, contract, trade usage or in equity; in absence of such right not being established, in some jurisdictions, it is allowable as damages based on wrongful detention of money. But even in such cases as a general rule interest cannot be recovered as matter of right in an action of contract on an unliquidated or disputed claim (25 Corpus Juris Secundum Damages Note 52 at page 538). So far as the law in this country is concerned, in the case of A.Z. Company (Supra), this court has held that interest on the sum awarded as damages cannot be allowed for period prior to the date of award except on grounds already mentioned which are not applicable in the present case. Even on the assumption that interest was recoverable as damages for wrongful detention of money since the claim of the appellant was disputed and required to 1 be determined by adjudication in the arbitration proceedings, it was an unliquidated claim until the passing of the award and in any event interest could only be awarded if there were a debt or sum certain payable at a certain time, interest on a claim for damages arising out of breach of contract cannot be allowed both on principle and in law. In regard to pendente lite interest, however, strong reliance was placed on behalf of the appellant on Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd. (AIR 1967 SC 1030). The argument was that even apart from the claim of the contractor to interest as of right the arbitrator was competent to award penddnte lite interest on the principal sum found due payable to him and in this regard reliance was placed on the following dictum laid down by the Indian Supreme Court at page 1032; "In the present case, all the disputes in the suit were referred to the arbitrator for his decision. One of the disputes in the suit was whether the respondent was entitled to pendente lite interest. The arbitrator could decide the dispute and he could award pendente lite interest just as a Court could do so under section 34 of the Code of Civil Procedure. Though, in terms, section 34 of the Code of- Civil Procedure does not apply to arbitrations, it was an implied term of the reference in the suit that the arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite interest as the Court could give if it decided the dispute. This power of the arbitrator was not fettered either by the arbitration agreement or by the Arbitration Act, 1940. The contention that in an arbitration in a suit the arbitrator had no power to award pendente lite interest must be rejected."
On a careful perusal of the judgment relied upon, we feel that the learned Judges did not lay down a general proposition in such wide terms to be applicable to every case of arbitration which is referred to an Arbitrator, so that the Arbitrator's power to award interest would be as extensive as that of a Court of law under section 34 CPC. The Indian Supreme Court first declared the law on the subject in the case of Thawardas Pherumal v. Union of India AIR 1955 SC 468. In that case an argument was inter alia advanced to support the award of interest by the Arbitrator on the basis of the analogy of section 34 of the CPC, but the learned Judges of the Supreme Court of India repelled. This contention on the reasoning that section 34 does not apply "because an Arbitrator is not a "Court" within the meaning of the Code nor does the Code apply to Arbitrators". In the cited case also reliance was placed on the dictum laid down in the last mentioned case, but the learned Judges declined to apply the IM laid down in Thawardas' case on the ground that the judgment in that case did not deal with the question whether the Arbitrator can award interest during the pendency of arbitration proceedings if the claim regarding interest is referred to arbitration.
Therefore, the exposition of law earlier made was not overruled but the principles were held not to apply to the facts of the case in the subsequent judgment relied upon by the counsel before us.
The opinion of the learned Judges is, therefore, to be understood in the context of the peculiar facts of the case. These facts are that while in Thawardas's case the validity of the award passed by an Arbitration without intervention of the Court was in question the award in the Firm Madanlal Roshanlal's case under discussion, related to arbitration in a pending suit, on a reference by the Court. The Arbitrator directed the payment of interest on the principal sum awarded from the date of the award until payment. The award was then filed in Court and the application to set aside the same, having been dismissed, the Court passed a decree on the award. The objection before the Supreme Court as reproduced in the judgment was that "the Arbitrator had no power to award interest during the pendency of the suit" (emphasise provided). In the light of these facts, therefore, the Court held that it was an implied term of reference in the suit that the Arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite interest as the Court could give if it decided the dispute. The observations in our opinion, must be viewed in the light of the fact that the matters in dispute, including the pendente lite interest in the suit were referred during the pendency of the proceedings to an Arbitrator and in all fairness the entire dispute including the relief which could be granted if the suit was tried by the Court, was impliedly agreed by the parties to be adjudicated by the Arbitrator instead of the Court. In these circumstances we cannot apply the reasoning adopted by the learned Judges in the facts of the present case qua pendente lite interest. But if the learned judges of the Indian Supreme Court meant to hold that an Arbitrator will generally have the power to grant pendente lite interest for the period covering the pendency of arbitration proceedings even in a case involving damages, we regret our inability to subscribe to such a general proposition of law. In A.Z. Company (supra) the law is settled so far as this Court is concerned and we find no reason to depart from that statement of the law that interest in such a case cannnot be allowed for period prior to date of award and we hold accordingly.
22. As far as the grant of interest from the date of the award until the payment of the principal sum it may be observed that the Arbitrator can under no circumstances award interest for the period beyond the passing of the decree by the Court on the award for the simple reason that the statutory provisions contained in section 29 of the Arbitration Act take over and it is the Court within whose discretion lies the power to order interest from the date of the decree at such rate as the Court deemed reasonable, to be paid on the principal sum as adjudged by the award and confirmed by the decree. From this it necessarily follows that future interest with effect from the date of the decree could not legally be awarded by the Arbitrator. However, the facts are that the award was made the rule of the Court by the learned Single Judge with the result that the part of the award granting interest beyond the date of the decree until payment was also incorporated in the decree passed by the Court. As held in Sheikh Mahboob Alam v. Sheikh Mumtaz Ahmad (P.L.D.
1956 Lahore 276), although, the court could set aside this part of the award, it was open to it to exercise its own power under section 29 of the Arbitration Act and grant interest. Therefore, in making this portion of the award a part of the decree the court must be deemed to have adopted it in the exercise of its own power under section 29. However, in his statement of claim the appellant had claimed interest only upto 3rd October, 1973. The issues were framed by the learned Arbitrator on the pleadings of the parties and therefore, interest beyond 3rd October, 1973, was not the subject matter of reference for adjudication before the Arbitrator. The Arbitrator, therefore, exceeded his authority, in any case, to have awarded future interest for the period between the date of the award and the date of the decree on any basis. The reference was also earlier made to the case of Union of India and another v. H/s D.P. Wadia and sons (AIR 1977 Bombay 10), in which the award of interest was upheld on the ground that no reasons were assigned by the Arbitrator.
We are unable to agree with that view of the law and also feel that the facts in the present case are different. The award on the face of~i it refers to the statement of the claim in which the contractor claimed interest by way of damages and it is on that basis that the decision of the Arbitrator apparently proceeds. As we have held that the Arbitrator in the facts of the present case could not according to law grant interest as claimed, there would be an error of law apparent on the face of the record. The mere fact that pleadings were filed before the Arbitrator and issues were then settled on the pleadings of the parties incorporating the question of interest does not necessarily give rise to the inference that the parties had agreed to refer specifically the question of grant of interest as a question of law for the decision of the Arbitrator, so as to preclude any party to the arbitration from challenging the award on the ground of error of law on the face of the award.
23. The conclusion from the foregoing discussion is that so far as the item of interest in dispute is concerned the Arbitrator committed an illegality in awarding interest except that the interest awarded from the date of decree onwards has been saved by virtue of section 29 of the Arbitration Act.
24. The last question to be considered is as to the effect of the illegality committed by the Arbitrator in granting interest in respect of the item in dispute before us, and item (h) of the extra works claimed by the contractor, which has been held by us to have been rightly disallowed by the learned Judges of the Division Bench. The very fact that some of the items of the claim set up by the contractor were accepted by the KPT and were not objected to, shows that the portion of the award relating to decision in respect of each item of claim was separable from the rest of the award. Therefore, the award can be modified by the court under section 15 of the Arbitration Act and the whole award will not be vitiated. The question of interest. Was clearly consequential as held in A.Z. Company's case. Likewise the decision of the Arbitrator in respect of each item of claim constituted a separate part of the award and no argument was advanced on behalf of the respondent that the decision on any of the items having been found to be unjustified would vitiate the entire award. Indeed no cross appeal was filed by the respondents for setting aside the award on the ground that some portions of the award were found to be illegal by the Division Bench. We, therefore, hold that only the portion of the award relating to matters not upheld finally by this judgment would be struck out and the award shall stand modified to that extent.
25. In the result the award shall be modified so that in addition to the amount of Rs.4,97,423.80 already granted by the Division Bench in respect of the various claims, enumerated in para. 10 of the impugned judgment, the appellant shall be entitled to the following sums (itemwise as mentioned in para. 3 of this judgment):- III (a) Rs.70,337.25 III (c) Rs.34,800.00 III (e) Rs.1,26,044.80 . TOTAL:Rs.2,31,182.05 On the total amount of the award, namely, Rs.7,28,603.85, the appellant will be entitled to futLre interest with effect from 21st July, 1977, (the date of the decree) at 6$ per annum until payment. The appeal is accordingly allowed to the extent as indicated above. As success is divided the parties will bear their own costs.
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