Secretary
to The Govt. of Orissa & Anr Vs. Sarbeswar Rout [1989] INSC 299 (4 October 1989)
Sharma,
L.M. (J) Sharma, L.M. (J) Venkatachalliah, M.N. (J) Kuldip Singh (J)
CITATION:
1989 AIR 2259 1989 SCR Supl. (1) 366 1989 SCC (4) 578 JT 1989 (4) 86 1989 SCALE
(2)756
ACT:
Arbitration
Act, 1940---Sections 30, 33 & 39--Arbitrator--Power to grant interest prior
to the proceeding--Proceedings held to commence when arbitrator indicates
willingness to act.
HEAD NOTE:
The
Respondent executed certain works under a written agreement with the appellant
and a dispute arose there under which was referred to arbitration. The
arbitrator made an award which was filed in Court. The appellant raised several
objections which were all overruled by the Trial Court, and the award was made
a rule of the Court. The appellant thereupon appealed to the High Court under
section 39 of the Arbitration Act which was rejected. Hence this appeal by the
appellant.
The
Court did not find any substance in the objections raised by the appellant
except the one taken by him regarding the power of the arbitrator to grant
interest. Therefore the question that arose for determination by the Court was
whether the arbitrator was competent to award interest and if so in respect of
which period, and further in the circumstances of the case, from which date the
proceedings before the Arbitrator should be deemed to have commenced.
Partly
allowing the appeal on that question, this Court,
HELD:
Since the reference in this case was made in March 198L no objection can be
taken to that part of the award whereby the respondent has been allowed the
claim of interest for the earlier period. [368F] See: Executive Engineer
(Irrigation) Balimela and Ors. v. Abliaduta Jena and Others, [1988] 1 SCC 418
and Seth Thawardas Pherumal v. The Union
of India, [1955] 2 SCR 48.
The
arbitrator in the present case was appointed on i6.3.1982. He after being
informed about his appointment, directed the parties to submit their statements
of claim by the 20th
April, 1982. The actual
367 date when this order was made is not known. [369E] So for as an action in a
Court of law is concerned, it must be held that it commences on the filing of a
proper claim in accordance with the prescribed procedure before the authority
empowered to receive the same. No reason is seen to apply a different approach
in the case of arbitration proceedings. As soon as the arbitrator indicates his
willingness to act as such, the proceeding must be held to commence. [370A-C]
The arbitrator in the present case, by directing on 20.4.82 the parties to file
their statements of claim, clearly indicated that he accepted the' offer to
arbitrate.
The
proceeding must, therefore, be deemed to have been instituted not later than
this date. [370D] The award so far as it allowed interest for the period after
20.4.82 is without jurisdiction and must be excluded.
The
appeal is accordingly allowed in part. [370E] Gujarat Water Supply and Sewerage
Board v. Unique Erectors (Gujarat) (P) Ltd. & Anr., [1989] 1 SCC 532; lossifoglu
v. Coumantaros, [1941] 1 KB 396 and Hari Shankar Lal v. Shambhunath Prasad
& Ors., [1962] 2 SCR 720, referred to.
CIVIL
APPELLATE JURISDICTION: Civil Appeal No. 2472 of 1989.
From
the Judgment and Order dated 23.4.1987 of the Orissa High Court in M.A. No. 332
of 1984.
A.K.
Panda for the Appellant.
R.K. Sahoo
for the Respondent.
The
Judgment of the Court was delivered by SHARMA, J. This appeal by special leave
by the State of Orissa is directed against the judgment of
the Orissa High Court rejecting its appeal under s. 39 of the Arbitration Act.
The respondent executed certain work under a written agreement with the
appellant and a dispute arose there under which was referred to arbitration.
The Arbitration made an award which was filed in Court. On service of notice
the appellant raised several objections which the trial court overruled. The
award was made a rule of the court. After unsuccessfully moving the 368 High
Court in appeal, the appellant has approached this Court.
Except
for the objection taken by the appellant on the question of the power of the
Arbitrator to grant interest, we do not find any merit in the other points
decided by the impugned judgment. The decision of the High Court is therefore
affirmed on all the other points.
3. So
far the question relating to interest is concerned, it has been contended by
the learned counsel for the appellant that the arbitrator exceeded his
jurisdiction in allowing the respondent's claim in view of the decision in
Executive Engineer (irrigation), Balimela and others v. Abhaduta Jena and
Others, [1988] 1 SCC 418. It was pointed out therein that this Court had in
Seth Thawardas Pherumal v. The Union of India, [1955] 2 SCR 48, held that in
case of direct reference to arbitration without the intervention of a court,
provisions of neither the Interest Act, 1839 nor the Civil Procedure Code
applied to an arbitrator as he was not a court, and interest could, therefore,
be awarded only if there was an agreement to pay interest or a usage of trade
having the force of law or some other provision of the substantive law which
entitled the plaintiff to receive interest. On the coming in force of the
Interest Act, 1978, although the position in regard to the arbitrator's power
to award pendente lite interest continued to be the same, he was vested with
the jurisdiction to allow interest pior to the proceeding in view of the
definition of "court" in the Act which includes the arbitrator.
Accordingly, it was held that in cases in which the reference to arbitration
was made after the commencement of the new Act, that is, August 19, 1981, the arbitrator may award prior
interest, but in those cases also he cannot grant pendente lite interest. Since
the reference in the case before us was made in March 1982, no objection can be
taken to that part of the award whereby the respondent has been allowed the
claim of interest for the earlier period.
4. The
learned counsel for the appellant argued that the arbitrator allowed the past
interest twice over. The award is a nonspeaking one and in paragraph 1 it says
that the appellant shall pay the claimant Rs. 1,29,000 in full satisfaction of
the claims. In paragraph 2 of the award it is held that the claimant is
entitled to interest at the rate of 12 per cent per annum on the above principal
sum of Rs. 1,29,000 from 1.10.1978 till the payment of the decree.
According
to the learned counsel for the appellant the sum of Rs. 1,29,000 included the
claim of interest also. In view of the clear language of paragraph 2 of the
award, we reject the argument.
369
5. The
appellant, however, is entitled to relief with respect to the pendente lite
interest included in the award.
The
question is as to when this period commences. According to the appellant the
period began on the
20th April, 1982 when
the arbitrator must be deemed to have entered on reference. The respondent
contends that this period must be held not to have commenced earlier than the 9th of July, 1982 when the parties filed their claim
and counter-claim. The argument is that until the arbitrator applies his mind,
he cannot be assumed to have entered on arbitration. Reliance has been placed
on Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujarat) (P)
Ltd. and another, [1989] 1 SCC 532.
6.
Before proceeding further it will be helpful to examine the language of s. 3 of
the Interest Act, 1978 which states that in cases where the conditions
mentioned in clauses (a) and (b) of sub-section (1) are satisfied the Court may
allow interest for the past period terminating on "the date of institution
of the proceedings". By reason of.the inclusive definition of
"court" in s. 2(a) the Act is applicable to arbitration. The
question, therefore, is as to when the proceeding before an arbitrator is
deemed to commence. It has not been suggested before us that the necessary
conditions for the application of s. 3 .are not satisfied in the present case
and so the respondent is not entitled to the benefit under 1978 Act; and we,
therefore, proceed on the assumption that the provisions of the Act govern the
case.
7. The
arbitrator in the present case was appointed on 16.3. 1982. He after being
informed about his appointment, directed the parties to submit their statements
of claim by the 20th
April, 1982. The
actual date when this order was made is not known. The contractor-respondent
filed his statement on 5.5. 1982 and the appellant on 9.7.1982. Relying on the
observation in lossifoglu v. Coumantaros, [1941] 1 K.B. 396, and those of Raghubar
Dayal, J. in Hari Shankar Lal v. Shambhunath Prasad and others, [1962] 2 SCR
720 at page 732, Mr. Panda, learned counsel for the appellant, contended that
the arbitrator cannot be said to have entered on the reference earlier than
April 20, 1982. According to the learned counsel for the respondent it could not
be before 9.7. 1982 when the arbitrator applied his mind to the cases of the
parties. Reference was made to the decisions of several High Courts. In our
view none of these cases is helpful to resolve the present controversy. They
all deal with the point as to when an arbitrator is said to enter on reference.
They were not concerned with the question as to when a proceeding before an
arbitrator is deemed to commence.
370
8. So
far an action in a court of law is concerned, it must be held that it commences
on the filing of a proper claim in accordance with the prescribed procedure
before the authority empowered to receive the same. If a plaint, drawn up in
accordance with the prescribed law, is filed before a civil court, the suit
must be deemed to have been instituted on the date, and not on a later date
when the court takes up the plaint and applies its mind. Ordinarily the plaint
is examined by the stamp reporter of the court who scrutinises whether proper
court fee has been paid or not, and then makes a report. The court generally
takes up the plaint only later. Similar is the position with respect to other
applications and memoranda of appeals. It must, therefore, be held that the
proceeding is instituted when the claimant files his claim. We do not see any
reason to apply a different approach in the case of an arbitration proceeding.
As soon as the arbitrator indicates his willingness to act as such, the
proceeding must be held to have commenced. This aspect did not arise for
decision in the cases Executive Engineer (Irrigation) v. Abhaduta Jena, [1988]
1 SCC 418 or Gujarat Water Supply and Sewerage Board v. Unique Erectors
(Gujarat) (P) Ltd., [1989] 1 SCC 532 and no assistance from them can be taken
in the present appeal. The learned counsel for the appellant is, therefore,
right in saying that the arbitrator in the present case, by directing on 20.4. 1982
the parties to file 'their statements of claim, clearly indicated that he
accepted the offer to arbitrate. The proceeding must, therefore, be deemed to
have instituted not later than this date. We accordingly hold that the award so
far it allowed interest for the period after 20.4. 1982 is without jurisdiction
and must be excluded. The appeal is accordingly allowed in part. The parties
shall bear their own costs.
Y. Lal
Appeal partly allowed.
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