State of
Orissa Vs. Niranjan Swain [1989] INSC 235
(10 August 1989)
Verma,
Jagdish Saran (J) Verma, Jagdish Saran (J) Sharma, L.M. (J)
CITATION:
1990 AIR 685 1989 SCR (3) 821 1989 SCC (4) 269 JT 1989 (3) 366 1989 SCALE
(2)345
CITATOR
INFO : D 1990 SC1128 (5,6)
ACT:
Arbitration
Act, 1940: Award--Absence of reasons--Whether affects validity--Valid and
invalid part--Severability and effect of-Arbitrator--A competent witness--Court
to exercise power of calling him as witness cautiously.
Interest
Act, 1978: Arbitration--Reference before the commencement of
Act--Arbitrator--Whether empowered to grant interest upto the date of
submission or pendente lite upto the date of award.
HEAD NOTE:
The
respondent was awarded a contract for construction of Earth Dam by the
appellant-State of Orissa. His dispute relating to the remaining Claim for
payment was referred to an arbitrator for adjudication. Before the arbitrator
the respondent claimed (i) the balance amount due to him; (ii) his security
deposit with the appellant; and (iii) interest, on the balance amount due and
security deposit, upto the date of award. On 2.12.1980 the arbitrator gave a
lump-sum award in favour of the respondent inclusive of interest upto the date
of award.
The
Trial Court made the award a rule of the Court and accordingly passed a decree
in favour of the respondent for the amount awarded together with interest at
the rate of six per cent from the date of decree. The appeal filed by the State
was dismissed by the High Court.
In
this appeal it was contended on behalf of the State that the award was invalid
because; (i) the arbitrator gave no reasons; (ii) no interest could be awarded
by the arbitrator upto the date of award, and the award being inclusive of
interest was not severable. it was also contended that the High Court was wrong
in assuming that the Trial Court was correct in refusing to call the arbitrator
for being examined.
Allowing
the appeal partly,
HELD:
1. The absence of reasons in the award does not by itself result in its invalidity
except where the giving of reasons by the 822 arbitrator for the award is the
requirement of the arbitration agreement or the deed of submission or an order
made by the Court or statute governing the arbitration. [823G-H] Raipur Development Authority & Ors. v.
M/s Chokhamal Contractors and Ors., [1989] 2 S.C.C. 721, applied.
2.
Even though an arbitrator is a competent witness, the Court must exercise the
power of calling him as a witness cautiously and sparingly and not in a routine
manner. When the Court is requested to call the arbitrator for examination as a
witness it must be shown that there is some cogent ground for his examination
within the permissible limits.
[826D]
In the instant case, nothing has been shown to indicate that it was at all
necessary to call the arbitrator as a witness to depose on any matter which
could legitimately be examined by the Court in the proceedings. The High Court
was, therefore, justified in refusing to call the arbitrator for examination.
[826E] State of Orissa v. D.C. Routray, A.I.R. 1983 Orissa
163, approved.
3. In
cases wherein the reference to arbitrator was made prior to the commencement of
the Interest Act, 1978, on August 19, 1981
the arbitrator is not empowered to grant interest for the period either before
the commencement of the proceedings or during the pendency of the arbitration.
In the
instant case, the reference to arbitrator was made and even the award was given
prior to the commencement of the Interest Act, 1978. Therefore, the arbitrator
had no jurisdiction to grant any amount as interest for any period either upto
the date of submission of the claim before him or pendente lite upto the date
of the award. [827F-G] Executive Engineer (Irrigation), Balimela & Ors. v. Abhaduta
Jena & Ors., [1988] 1 SCC 418, applied.
Gujarat
Water Supply and Sewerage Board v. Unique Erectors (Gujarat) (P) Ltd. & Anr., [1989] 1 SCC
532, held inapplicable.
4. In
the instant case, the inclusion of the amount of interest in the lumpsam award
by the arbitrator does not render the whole award 823 invalid since it is
possible to sever the invalid part relating to interest. The balance amount of
award remaining after deduction of interest would not be tainted with any
invalidity, and it would be just and proper to sustain the award to this extent
only. The decree is, therefore, modified to this extent. [828E-F; 829C]
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 3297 of 1981.
From
the Judgment and Order dated 17.8.1981 of the Orissa High Court in Misc. Appeal
No. 145 of 1981.
R.K.
Mehta for the Appellant.
A.K. Sen,
Arun Madan, R.K. Sahoo and J.D.B. Raju for the Respondent.
The
Judgment of the Court was delivered by VERMA, J. This appeal by special leave
under Article 136 of the Constitution challenges the judgment dated 17.8.1981
of the High Court of Orissa dismissing Misc. Appeal No. 145 of 1981 against the
judgment dated February 28, 1981 passed by the Subordinate Judge, Baripada,
District Mayurbhanj in Title Suit No. 106 of 1980 by which the arbitrator's
award for a sum of Rs.21,11,835.00 in favour of the plaintiffrespondent, Niranjan
Swain, was made a rule of the court and a decree was passed for that amount
together with interest at the rate of six per cent per annum from the date of
the decree.
The
main ground taken in this appeal was that the arbitrator's award was per se
invalid since it gave no reasons.
Some
other points were raised to which we shall advert later. The question of
invalidity of an arbitrator's award merely on the ground that it gave no
reasons was involved for decision in a large number of matters pending in this
Court and in view of the importance of this common question the bunch of cases
was heard and decided by the Constitution Bench in Raipur Development Authority
and others v. M/s Chokhamal Contractors and others, [1989] 2 SCC 72 1. The
Constitution Bench has held that the absence of reasons in the award does not
by itself result in its invalidity except where the giving of reasons by the
arbitrator for the award is the requirement of the arbitration agreement or the
deed of submission or an order made by the Court or statute governing the
arbitration. Accordingly, this contention raised in the present appeal 824 and
all other similar matters was rejected by the Constitution Bench with a direction
that all such cases should go back to the Division Bench for disposal in
accordance with law on the remaining points surviving therein for decision.
This
is how the present appeal has come before us.
The
conclusion reached by the Constitution Bench in the above case and the
direction given therein is as under:
"Having
given our careful and anxious consideration to the contentions urged by the
parties we feel that law should be allowed to remain as it is until the
competent legislature amends the law. In the result we hold that an award
passed under the Arbitration Act is not liable to be remitted or set aside
merely on the ground that no reasons have been given in its support except
where the arbitration agreement or the deed of submission or an order made by
the court such as the one under Section 20 or Section 21 or Section 34 of the
Act or the statute governing the arbitration requires that the arbitrator or
the umpire should give reasons for the award. These cases will now go back to
the Division Bench for disposal in accordance with law and the view expressed
by us in this decision." The only points now urged by Shri G.L. Sanghi,
learned counsel for the appellant, are two, namely, (1) no interest could be
awarded by the arbitrator in the present case upto the date of the award but
the same is obviously included in the lumpsum award of Rs.21, 11,835.00; and
the invalid part of the award not being severable from the rest, the entire
award must be set aside; and (2) the High Court in its cryptic order has
wrongly assumed as correct the trial court's refusal to call the arbitrator for
being examined in the court. The learned counsel contended that any one of
these defects was sufficient to set aside the entire award.
In
reply Shri Arun Madan, learned counsel for the respondent, primarily contended
that the arbitrator was empowered to award interest upto the date of award. In
the alternative, learned counsel for the respondent contended that the invalid
part of the award relating to grant of interest upto the date of the award was
severable and, therefore, only that part should be set aside instead of setting
aside the whole award. He also contended that the High Court did not make any
wrong assumption and refusal to call the arbitrator for examination 825 was
justified. It was also urged that in the present case there was nothing to
indicate that calling the arbitrator for examination in the court was at all
necessary.
Before
proceeding to consider the surviving points now urged on behalf of the appellant
we may refer briefly to the few facts which alone are relevant at this stage.
The contract for the work "Construction of Earth Dam (balance work) of Sansiali
Nai M.I. Project" in Division Mayurbhanj, Baripada, was given by the
appellant, State of Orissa, to respondent, Niranjan Swain and
the agreement between the parties contained an arbitration clause for
adjudication of disputes arising out of the contract. Consequently, the dispute
relating to the remaining claim for payment made by the respondent was referred
for adjudication to the arbitrator in terms of the arbitration clause contained
in the agreement. The respondent's claim before the arbitrator was for the
amount of Rs. 19,04,689.00 as the balance amount due to him and for return of
the security deposit of Rs.28,000.00 or in all the total of Rs. 19,32,689.00 as
the principal amount. The respondent also claimed interest on the sum of Rs. 19,04,689.00
at the rate of 18 per cent per annum from 15.4.1977 to 15.5.1978, namely, the
date of submission of the statement of claim before the arbitrator amounting to
Rs. 3,71,4 14.00 and interest on the security deposit of Rs. 28,000.00 at the
same rate from 15.9.1977 to 15.5.1978 amounting to Rs.3,360.00. The respondent
further claimed interest at the rate of 18% per annum from 16.5. 1978 till
payment of the amount to the respondent by the appellant. In the statement of
claim the total amount claimed was mentioned at Rs.23,07,463.00 together with
interest @ 18% per annum on Rs. 19,32,689.00 from 16.5.1978 to the date of the
award. The appellant denied the respondent's claim including the claim for
payment of interest.
The
arbitrator gave the award dated 2.12.1980 as under:
"AWARD
After perusal of the claim statements and counter statements, the counter claim
of the respondent, the rejoinder of the claimant, the documentary and oral
evidence and on a careful consideration of the submissions and arguments of the
parties and the IR advocate, I have come to the conclusion that the claimant is
entitled to get a sum of Rs.21,11,835.00 (Rupees twenty-one lakhs eleven
thousand eight hundred thirty-five only) in full and final satisfac826 tion of
his claims till the date of the award from the respondent. The respondent is
not entitled to get any amount towards his counter claim from the claimant.
sd/B.S.
Patnaik
Arb itrator 2/1 2/1980" (emphasis supplied) It is on the basis of the
contents of this award that the above contentions have to be considered and
decided.
We may
dispose of the second point urged by learned counsel for the appellant
straightaway since it does not merit any elaborate consideration. The argument
of the learned counsel for the appellant relating to calling the arbitrator for
examination as a witness in the court was based on the decision of the Orissa
High Court in State of Orissa v. D.C. Routray, AIR 1983 Orissa 163. That
decision itself says that even though an arbitrator is a competent witness, the
court must exercise the power of calling him as a witness cautiously and
sparingly and not in a routine manner. It is obvious that when the court is
requested to call the arbitrator for examination as a witness it must be shown
that there is some cogent ground for his examination within the permissible
limits. Nothing has been shown in the present case to indicate that it was at
all necessary to call the arbitrator as a witness to depose on any matter which
could legitimately be examined by the court in the proceedings. This alone is
sufficient to justify the view taken by the High Court. This contention of
learned counsel for the appellant is, therefore, rejected.
The
only point surviving for consideration now relates to the grant of interest by
the arbitrator and its effect on the validity of the award. It is obvious from
the contents of the award and the details of the respondent's claim before the
arbitrator that a lumpsum amount of Rs.21,11,835.00 awarded in the respondent's
favour by the arbitrator was in full and final satisfaction of all the
respondent's claims before the arbitrator till the date of the award. As
mentioned earlier, the respondent's claim before the arbitrator mentioned the
sum of Rs.19,04,689.00 plus the security deposit of Rs.28,000.00 or in all Rs.
19,32,689.00 only as the total principal amount of the claim and the sum
claimed in excess thereof was on account of interest. The grant of a lumpsum
amount of Rs.21,11,835.00 in the award in full and final 827 satisfaction of
all the claims till the date of the award must, therefore, obviously include
interest also. It is equally plain that the claim for the entire principal
amount was not accepted by the arbitrator. The effect on the question of
validity of the award has to be decided on this basis.
It is
settled by the decision of this Court in Executive Engineer (Irrigation), Balimela
and others v. Abhaduta Jena and others, [1988] 1 SCC 4 18 that in cases wherein
the reference to arbitration was made prior to the commencement of the Interest
Act, 1978, on August 19, 1981, the arbitrator is not empowered to grant
interest for the period either before the commencement of the proceedings or
during the pendency of the arbitration. This is clear from the position
summarized in Abhaduta Jena's case (supra), as under:
"In
the remaining cases which arose before the commencement of the Interest Act,
1978, the respondents are not entitled to claim interest either before the
commencement of the proceedings or during the pendency of the arbitration. They
are not entitled to claim interest for the period prior to the commencement of
the arbitration proceedings for the reason that the Interest Act, 1939, does
not apply to their cases and there is no agreement to pay interest or any usage
or trade having the force of law or any other provision of law under which the
claimants were entitled to recover interest. They are not entitled to claim pendente
lite interest as the arbitrator is not a court nor were the reference to
arbitration made in suits." The learned counsel for the respondent placed
reliance on the decision of this Court in Gujarat Water Supply and Severage
Board v. Unique Erectors (Gujarat) (P) Ltd. and another, [1989] 1 SCC 532 in
support of his primary contention that the arbitrator was empowered to grant
interest upto the date of award. We are unable to construe this judgment in the
manner suggested by learned counsel for the respondent. The decision clearly
refers to Abhaduta Jena's case (supra) and also follows it. The primary
contention of the learned counsel for the respondent that the award does not
suffer from any infirmity by grant of interest therein upto the date of award
is, therefore, rejected.
It
cannot, therefore, be disputed that in the present case wherein the reference
to arbitration was made and even the award was given prior to the commencement
of the Interest Act, 1978, on August 19, 1981, the arbitrator had no
jurisdiction to grant any amount as interest 828 for any period either upto the
date of submission of the claim before him or pendente lite upto the date of
the award.
From
the above, it follows that inclusion of the amount of interest in the lumpsum
award of Rs.21,11,835.00 by the arbitrator does render that part of the award
invalid.
The
question now is of the consequence of this invalidity on the entire award. The
learned counsel for the appellant contended that the invalid part of the award
not being severable from the rest the entire award must be set aside.
On the
other hand, the learned counsel for the respondent urged that there is no
difficulty in separating the invalid part from the rest and this could easily
be done by deducting from the total sum of Rs.21,11,835.00 granted in the
award, the maximum interest calculated at the rate of 18% per annum which was
claimed by the respondent before the arbitrator upto the date of the award
(2.12.1980). He urged that such a view cannot, in any manner, prejudice the
appellant and if at all it can work only to the detriment of the respondent who
make this suggestion.
In our
opinion it is possible in the present case to sever the invalid part relating
to interest in order to sustain the valid part of award. Accordingly, we
requested both sides to calculate the total amount of interest and give to us
the agreed figure. The agreed figure of Rs. 12,65,87 1.97 has been given by
them as the maximum amount of interest which could be included in the award of
Rs.21, 11,835.00, in accordance with the respondent's claim before the
arbitrator. It is common ground that the invalid part of the award on the basis
of grant of interest by the arbitrator cannot exceed the amount of Rs. 12,65,87
1.97 out of the total Sum of Rs.21, 11,835.00. It is also not disputed that the
balance amount remaining after deduction of Rs. 12,65,871.97 cannot be tainted
with any invalidity. The learned counsel for the respondent has confined the
respondent's claim in the alternative to upholding of the award only in respect
of this balance amount and no more.
We do
not see any reason why the award should not be modified and sustained to this
extent only. We are conscious of the fact that the interest amount of Rs.
12,65,871.97 so calculated for deduction from the total amount of Rs.21,
11,835.00 granted in the award is in excess of the interest calculated on the
remaining balance treated as principal amount at this stage on the above
suggestion. However, in the peculiar circumstances of this case and in view of
the alternative contention on 829 behalf of the respondent, we see no reason
for rejecting, in the present case, this alternative contention also. Viewed in
this manner, the balance amount of the award would not be tainted with any
invalidity and, therefore, it would also be just and proper to sustain the
award to this extent only.
We,
therefore, reject the contention of learned counsel for the appellant that the
entire award should be set aside and instead accept the alternative contention
of learned counsel for the respondent.
In
view of the above, the agreed amount of interest upto the date of the award
(2.12.1980), that is, Rs. 12,65,871.97 is deducted from the amount of
Rs.21,11,835.00 leaving the balance amount of Rs.8,45,963.03 say
Rs.8,45,963.00.
This
amount of Rs.8,45,963.00 survives as the valid part of the award and,
therefore, the decree of the courts below is modified to this extent so that
the decree in favour of the respondent now remains for the sum of
Rs.8,45,963.00 only together with interest thereon at the rate of 6% per annum
from the date of the decree passed by the trial court until payment. In view of
the partial success of both sides, the parties shall bear their own costs throughout.
The appeal is partly allowed in this manner.
We are
informed that the respondent has withdrawn a certain amount against the decree
during the pendency of this appeal. We direct that the amount due to the
respondent shall be calculated on the basis of this modified decree. In case,
the amount obtained by the respondent is less than the amount to which the
respondent is found entitled as a result of this modified decree, the remaining
amount shall be paid to the respondent with interest @ 12% per annum from 8.12.
1981 in terms of the interim order of that date passed in this appeal; and in
case, the amount obtained by the respondent is in excess of that to which he is
found entitled, the excess amount shall be refunded by the respondent to the
appellant similarly with interest at the same rate of 12% per annum from 8.12. 1981
upto the date of its refund.
T.N.A.
Appeal allowed partly.
Back