State of
Orissa Vs. B.N. Agarwalla [1997] INSC 95 (29 January 1997)
A.M.
AHMADI, S.P. BHARUCHA, B.N. KIRPAL KIRPAL,
J.
ACT:
HEAD NOTE:
WITH CIVIL
APPEAL NO. 472 OF 1997 (Arising out of SLP (C) No. 3630/87) WITH CIVIL APPEAL
NOS. 9234, 9233 OF 1994
The main
question which arises for consideration in these cases relates to the power of
the Arbitrator to award interest.
The
contention on behalf of the appellants against whom interest has been awarded
by the arbitrators, is that this Court held in EXECUTIVE ENGINEER (IRRIGATION)
VS. ABHADUTA JENA (1988) 1 SCC 418 that the arbitrator has no power to award
interest in respect of pre reference period in the absence of the claimant
having a right under the contract or a provision of substantive law, to get
interest. On the other hand, it is the submission on behalf of the
claimants/respondents that the aforesaid decision in the case of Abhaduta Jena
(supra) has been overruled by a Constitution Bench of this Court in the case of
SECRETARY, IRRIGATION DEPARTMENT GOVERNMENT OF ORISSA AND OTHERS VS.
G.C.ROY.
(1992) 1 SCC 508 and it has been held that the arbitrator could award pre
reference, pendente lite and future interest.
Before
dealing with the facts of each case it will be appropriate to examine the
relevant decisions of this Court in order to determine the correct legal
position with regard to the jurisdiction of the arbitrator to award interest in
respect of the periods for which interest can be awarded namely- (i) for the
period commencing from the date of dispute till the date Arbitrator entered
upon the reference, or the pre-reference period; (ii) for the period commencing
from the date the Arbitrator entered upon reference till the date of making the
award (pendente lite interest) and; (iii) for the period commencing from the
date of making of the award till the date the award is made the rule of the
court or till the date of realisation, or the post award interest.
The
question with regard to power of the Arbitrator to award interest was
considered at great length by this Court in ABHADUTA JENA'S CASE (SUPRA). Two
questions which arose for consideration of the Court in Abhaduta Jena's case
(supra) were (i) the power of the Arbitrator to award interest for the period
prior to his entering upon reference and; (ii) the power of the Arbitrator to
award interest for the period the dispute remained pending before him.
Chinnappa
Reddy.J.. speaking for the Court, considered all the earlier decisions of this
Court including that of SETH THAWARDAS PHERUMAL VS. UNION OF INDIA, (1955) 2
SCR 48 and, with regard to pendente lite interest, concluded that as the
arbitrator was not a court within the meaning of Section 34 of Code of Civil
Procedure, therefore, he could not award pendente lite interest, with regard to
claim of interest for the period before the reference, it was held that the
arbitrator could not award interest for pre- reference period in cases which
arose prior to the commencement of the Interest Act. 1978 unless the claimant
had a substantive right to get interest under the terms of a contract or under
a provision of any law.
In
coming to this conclusion with regard to interest for pre-reference period, it
was observed as follows:
"It
is important to notice at this stage that both the Interest Act of 1839 and the
Interest Act of 1978 provide for the award of interest up to the date of the
institution of the proceedings. Neither the Interest Act of 1839 nor the
Interest Act of 1978 provides for the award of pendente lite interest. We must
look elsewhere for the law relating to the award of interest pendente lite.
This, we find, provided for in Section 34 of the Civil Procedure Code in the
case of courts. Section 34, however, applied to arbitrations in suit for the
simple reason that where a matter is referred to arbitration in a suit, the
arbitrator will have all the powers of the court in deciding the dispute.
Section 34 does not otherwise apply to arbitrations as arbitrators are not
courts within the meaning of Section 34 Civil Procedure Code. Again, we must
look elsewhere to discover the right of the arbitrator to award interest before
the institution of the proceedings. in cases where the proceedings had
concluded before the commencement of the Interest Act of 1978. While under the
Interest Act of 1978 the expression `court' was defined to include an
arbitrator, under the Interest Act of 1839 it was not so defined. The result is
that while in cases arising after the commencement of Interest Act of 1978 an
arbitrator has the same power as the court to award interest up to the date of
institution of the proceedings, in cases which arose prior to the commencement
of the 1978 Act the arbitrator has no such power under the Interest Act of
1839. It is, therefore, necessary, as we said, to look elsewhere for the power
of the arbitrator to award interest up to the date of institution of the
proceedings. Since the arbitrator is required to conduct himself and make the
award in accordance with law we must look to the substantive law for the power
of the arbitrator to award interest before the commencement of the proceedings.
If the agreement between the parties entitles the arbitrator to award interest
no further question arises and the arbitrator may award interest. Similarly if
there is a usage of trade having the force of law the arbitrator may aware
interest. Again if there are any other provisions for the substantive law
enabling the award of interest the arbitrator may award interest. By way of an
illustration, we may mention Section 80 of the Negotiable Instruments Act as a
provision of the substantive law under which the court may award interest even
in a case where no rate of interest is specified in the promissory note or bill
or exchange. We may also refer Section 61(2) of the Sale of Goods Act which
provides for the award of interest to the seller or the buyer as the case may
be under certain circumstances in suits filed by them. We may further cite the
instance of the non-performance of a contract of which equity could give
specific performance and to award interest. We may also cite a case where one
of the parties is forced to pay interest to a third party, say on an overdraft,
consequent on the failure of the other party to the contract not fulfilling the
obligation of paying the amount due to them. In such a case also equity may
compel the payment of interest. Loss of interest in the place of the right to
remain in possession may be rightfully claimed in equity by the owner of a
property who has been dispossessed from it." The decision in Jena's case (supra) came up for consideration before this
Court in the case of GUJARAT W.S.
&
S.B. VS. UNIQUE ERECTORS (GUJARAT) (P)
LTD., AIR 1989 SC 973. In that case, the interest had been awarded in respect
of all the three periods namely; (i) from 6.8.1981, when the Interest Act, 1978
came into force, to 21.8.1984, the date when reference was made to the
arbitration; (ii) from 22.8.1984 to 19.7.1985 pendente lite; and (iii)
19.7.1985 to 17.6.1986 (date of award to date of decree). Following Jena's case
(supra), it was held that the interest pendants lite could not be awarded but
with regard to pre-reference interest, it was held that "since in this
case the reference to arbitration was made after the commencement of the
Interest Act, 1978, the arbitrator under Section 3(1)(a) of the said Act was
entitled to award interest from 6.8.1981 till 12.8.1984 in view of this Court's
decision in Abhaduta Jena's case". This Court also held that even though
in Abhaduta Jena's case (supra), granting of interest for the period from the
date of award had not been considered nevertheless interest should be allowed
for that period on the principle that this Court could, once proceedings under
Sections 15 to 17 of the Arbitration Act are initiated, grant interest pending
the litigation before it i.e. from the date of award to the date of decree.
We may
now consider the decision of the Constitution Bench in SECRETARY, IRRIGATION
DEPARTMENT, GOVERNMENT OF ORISSA AND OTHERS VS. G.C. ROY, (1992) 1 SCC 508. The contention of the counsels
appearing on behalf of the respondents is that the decision in Abhaduta Jena's
case (supra) was overruled in its entirety and it was held in G.C. Roy's case
(supra) that the arbitrator could award interest for all the above-mentioned
three periods, namely;
pre-reference,
pendente lite and post-award. On the other hand, it has been submitted by the
learned counsels on behalf of the appellants that G.C. Roy's case was not
concerned with the interest for the period prior to the making of the reference
and it overruled the decision in Jena's
case (supra) only insofar as award of pendente lite interest was concerned. It
was submitted that the decision of Abhaduta Jena's case (supra), of the
arbitrator not having the jurisdiction to award pre-reference interest,
continues to hold the field and G.C. Roy's case (supra) has not ruled to the
contrary in this regard.
A
careful reading of G.C. Roy's case (supra) clearly shows that, insofar as award
of interest is concerned, this Court was only required to consider whether the
arbitrator had jurisdiction to award pendente lite interest. This is so stated
in the judgment at more places than one. Apart from noting that the appellants
had challenged the validity of the award on two grounds, one of which was that
"arbitrator had no jurisdiction to award pendente lite interest", it
was noted that the case had been referred by order dated 15.3.1991 by the
Division Bench to the Constitution Bench as "the learned Judges were of
the view that the correctness of the view taken by this Court in Abhaduta
Jena's case (supra), insofar as it held that arbitrator has no power to award pendente
lite interest, required consideration by a larger Bench". This Court,
accordingly, considered the various decisions which had been referred to by Chinnappa
Reddy, J. in Abhaduta Jena's case (supra) and also considered other decisions
and at page 532 summarised it's decision as follows:
"The
question still remains whether arbitrator has the power to award interest pendente
lite, and if so on what principle. We must reiterate that we are dealing with
the situation where the agreement does not provide for grant of such interest
nor does it prohibit such grant. In other words, we are dealing with a case
where the agreement is silent as to award of interest. On a conspectus of
aforementioned decisions, the following principles emerge:
(i) A
person deprived of the use of money to which he is legitimately entitled has a
right to be compensated for the deprivation, call it by any name. It may be
called interest, compensation or damages. This basic consideration is as valid
for the period the disputes is pending before the arbitrator as it is for the
period prior to the arbitrator entering upon the reference. This is the
principle of Section 34, Civil Procedure Code and there is no reason or
principle to hold otherwise in the case of arbitrator.
(ii)
An arbitrator is an alternative from (sic forum) for resolution of disputes
arising between the parties. If so, he must have the power to decide all the
disputes or differences arising between the parties. If the arbitrator has no
power to award interest pendente lite, the party claiming it could have to
approach the court for that purpose, even though he may have obtained
satisfaction in respect of other claims from the arbitrator. This would lead to
multiplicity of proceedings.
(iii)
An arbitrator is the creature of an agreement. It is open to the parties to
confer upon him such powers and prescribe such procedure for him to follow, as
they think fit, so long as they are not opposed to law. (The proviso to Section
41 and Section 3 of Arbitration Act illustrate this point). All the same, the
agreement must be in conformity with law. The arbitrator must also act and make
his award in accordance with the general law of the land and the agreement.
(iv)
Over the years, the English and the Indian Courts have acted on the assumption
that where the agreement does not prohibit and a party to the reference makes a
claim for interest, the arbitrator must have the power to award interest pendente
lite. Thawardas has not been followed in the later decisions of this Court. It
has been explained and distinguished on the basis that in that case there was
no claim for interest but only a claim for unliquidated damages.
It has
been said repeatedly that observations in the said judgment were not intended
to lay down any such absolute or universal rule as they appear to, on first
impression. Until Jena case almost all the courts in the
country had upheld the power of the arbitrator to award interest pendente lite.
Continuity
and certainty is a highly desirable feature of law.
(v)
Interest pendente lite is not a matter of substantite law, like interest for
the period anterior to reference (pre-reference period).
For
doing complete justice between the parties, such power has always been
inferred." Applying the aforesaid principles the conclusion arrived at was
as follows:
"Where
the agreement between the parties does not prohibit grant of interest and where
a party claims interest and that dispute (along with the claim of principal
amount or independently) is referred to the arbitrator, he shall have the power
to award interest pendente lite. This is for the reason that in such a case it
must be presumed that interest was an implied term of the agreement between the
parties and therefore when the parties refer all their disputes - or refer the
dispute as to interest as such - to the arbitrator, he shall have the power to
award interest. This does not mean that in every case the arbitrator should
necessarily award interest pendente lite. It is a matter within his discretion
to be exercised in the light of all the facts and circumstances of the case,
keeping the ends of justice in view." Finally it was observed that
"for the reasons aforesaid we must hold that the decision in Jena's case (supra), insofar as it runs counter to the
above proposition, did not lay down the correct law".
The
perusal of the aforesaid passages clearly shows that Abhaduta Jena's case
(supra) was not overruled in its entirety by the decision in G.C. Roy's case
(supra). It is only with regard to the award of pendente lite interest that the
Constitution Bench came to a conclusion which was contrary to the one arrived
at in Abhaduta Jena's case (supra). The decision in Abhaduta Jena's case
(supra) with regard to award of interest for pre reference period was not
overruled in G.C. Roy's case (supra).
More
recent decisions of this Court also indicate that G.C. Roy's case (supra) has
been understood and followed as having overruled Abhaduta Jena's case (supra)
only with regard to pendente lite interest and not with regard to pre reference
interest. We may now refer to these decisions.
In
HINDUSTAN CONSTRUCTION CO. LTD. VS. STATE OF J & K, (1992) 4 SCC 217, the
question which arose for consideration was whether the arbitrator was competent
to award interest for the period from the date of the award to the date of
payment. It was in that connection that reference was made to G.C. Roy's case
(supra) and it was observed as follows:
"The
question of interest can be easily disposed of as it is covered by recent
decisions of this Court.
It is
sufficient to refer to the latest decision of a five Judge Bench of this Court
in Secretary.
Irrigation
Department, Govt. of Orissa V. G.C. Roy. Though the said decision deals with
the power of the arbitrator to award interest pendente lite, the principle of
the decision makes it clear that the arbitrator is competent to award interest
for the period commencing with the date of award to the date of decree or date
of realisation, whichever is earlier. This is also quite logical for, while
award of interest for the period prior to an arbitrator entering upon the
reference is a matter of substantive law, the grant of interest for the
post-award period is a matter of procedure." Claim for interest for
pre-reference period again came up for consideration before this Court in JUGAL
KISHORE PRABHATILAL SHARMA AND OTHERS VS. VIJAYENDRA PRABHATILAL SHARMA AND
ANOTHER, (1993) 1 SCC 114. It was contended in that case that the arbitrator could
not award interest for pre-reference period. While Ranganathan, J. with whom V.
Ramaswamy,
J. concurred, only observed that "there is some force in this
contention" but B.P. Jeevan Reddy, J. who was one of the Members of the
Bench which decided G.C. Roy's case (supra), in his concurring judgment dealt
with this question at some length. After referring to some of the observations
in the judgment of the Constitution Bench in G.C. Roy's case (supra), it was
observed by B.P. Jeevan Reddy, J. at page 139 as follows;
"In
the circumstances. It would not be correct to read the first of the five
principles set out in para 43 as overruling Jena insofar as it dealt with the
arbitrator's power to award interest for the pre- reference period. Principle
No. (i) should be read along with principle No. (v) wherein it is clearly
stated that the interest for the period anterior to the reference
(pre-reference period) is a matter of substantive law unlike interest pendente lite.
The conclusion in para 44 again deals only with the power of the arbitrator to
award interest pendente lite. It is, therefore, not right to read the said
decision as overruling Jena insofar as it dealt with the power
of the arbitrator to award interest for the pre-reference period." Again
in STATE OF ORISSA VS. LAL CHAND KAPANI, 1994 SUPP.
(1) SCC 68 after referring to the decision in Jena's and G.C. Roy's cases
(supra), it was observed at page 69 as under:
"It
is thus clear that before the 1978 Interest Act came into force there was no
provision under which the interest for the pre-reference period could be
granted. In this case, the Supreme Court also held that the interest pendente lite
i.e. from the date for reference to the date of the award, the claimants would
not be entitled to the same for the reason that arbitrator is not a court
within the meaning of Section 34 CPC since the reference was not by a court in
a pending suit. This view regarding the interest pendente lite however has been
reversed in Secretary, Irrigation Department, Government of Orissa V. G.C. Roy,
Regarding the interest during the pre- reference period, the view taken in Abhaduta
Jena case is not disturbed. Therefore, the interest during the pre-reference
period can be awarded provided on the date of the award, 1978 Interest Act was
in force." In SUDHIR BROTHERS VS. DELHI DEVELOPMENT AUTHORITY AND ANOTHER,
(1996) 1 SCC 32, the question with regard to awarding interest for
pre-reference period, but in a case arising after the commencement of Interest
Act. 1978, came up for consideration and the legal position, emanating from
earlier decisions of this Court including G.C.Roy's case (supra) and Jena's
case (supra), was stated to be as follows:
"The
Constitution Bench in G.C. Roy case was dealing with the question relating to
the award of interest pendente lite and not with the question of the award of
interest for the pre-reference period and it was in that context that the
Constitution Bench held that the view expressed in Jena case with regard to
award of pendente lite interest could not be said to have laid down good law
The Constitution Bench did not deal with the question of pre-reference interest
in cases coming after the enforcement of the Interest Act, 1978, which came in
force from 19.8.1981. In G.C. Roy case itself, it is stated that the reference
to the Constitution Bench had been necessitated only for deciding the question
whether the decision in Jena case was correct insofar as it held
that arbitrator had no power to award interest pendent lite. On a doubt being
raised whether the Constitution Bench in G.C. Roy case had overruled the law
laid down in Jena Case relating to the power of the arbitrator to award
interest for the pre-reference period in the post-Interest Act, 1978 era, the
position was clarified by a three- Judge Bench in Jugal Kishore Prabhatilal
Sharma V. Vijayendra Prabhatilal Sharma, wherein it was specifically held that
the decision in G.C. Roy case was concerned only with the power of arbitrator
to award pendente lite and that it was not concerned with his power to award
interest for the pre- reference period." In view of the aforesaid
decisions there can bow be no doubt with regard to the jurisdiction of the
arbitrator to grant interest. The principles which can now be said to be
well-settled are that the arbitrator has the jurisdiction to aware
pre-reference interest in cases which arose after the interest Act, 1978 has
become applicable. with regard to those cases pertaining to period prior to the
applicability of the interest Act. 1978, in the absence of any substantive law,
contract or usage, the arbitrator has no jurisdiction to award interest. For
the period during which the arbitration proceedings were pending in view of the
decision in G.C. Roy's case (supra) and Hindustan Constructions Limited Case (supra),
the arbitrator has the power to award interest. The power of the arbitrator to
award interest for the post award period also exists and this aspect has been
considered in the discussion relating to Civil Appeal No. 9234 of 1994 in the
later part of this judgment.
Keeping
the aforesaid principles in mind, we may now refer to the facts in each case.
CIVIL
APPEAL NO. 9233 OF 1994 In Civil Appeal No. 9233 of 1994, the appellant had
invited tenders for construction of certain quarters. The respondent Durga Parshad
had submitted his tender which was accepted. The work was completed by him on
31.5.1977. As certain differences had arisen between the parties. Durga Parshad,
the respondent herein, requested the appellant to make a reference of the
disputes to an arbitrator as provided by the agreement. AS no reference was
made, Durga Parshad filed an application under Section 20 of the Arbitration
Act whereupon the Court appointed an arbitrator as per the terms of the
agreement and disputes between the parties were referred to the said
arbitrator.
The
arbitrator after hearing the parties and considering the evidence adduced
before him made his award whereby the appellant was held to be liable to pay a
sum or RS. 2.73.130.82/- to the respondent Durga Parshad. This arbitrator
further held that the appellant was liable to pay simple interest @ 15% per
annum from 31.8.1977 till the gate of payment on the aforesaid amount or the
date of decree, whichever is later.
On the
award being filed in the court, the appellant filed objections. One of the
objection was that the arbitrator had awarded interest but there was a clear
stipulation in the agreement that no interest was payable on the amount
withheld under the agreement. The objections were not accepted and with regard
to the claim of interest, the trial court held that this was not a case where
interest was awarded on any amount having been witheld. It was, however, found
that the claim for interest was referred to the arbitrator and, therefore, the
award of interest was held to be valid.
In the
appeal before the High Court, with reference to the award of interest, the
contention which was raised on behalf of the appellant was that the arbitrator
had no jurisdiction to award interest for the pre-reference period and that the
rate or interest granted was excessive. In support of this contention, reliance
was place on the decision of this Court in the case of Abhaduta Jena's case
(supra). The High Court, by its judgment under appeal, relied upon the decision
of this Court in the case of Unique Erectors case (supra) and came to the
conclusion that interest for the period prior to initiation of the proceedings
could be granted in cases in which reference to arbitration was made after the
commencement of the Interest Act, 1978. The High Court, therefore, restricted
the grant or interest for the pre-reference period only w.e.f. 19.8.1981, on
which date the Interest Act, 1978 had come into force. The Judgment and decree
of trial court was, accordingly, modified with the result that the respondent Durga
Prashad instead of being awarded interest for pre- reference period w.e.f.
31.8.77. was as a result of judgment under appeal, awarded interest w.e.f.
19.8.1981 till the date of payment.
It was
contended by Mr. Salve, learned Senior Counsel appearing for the appellant,
that clause (4) of the Special Terms and Conditions or the contract did not
allow the award of interest. He submitted that neither pre-reference interest
nor pendente lite interest could be awarded because of the special stipulation
in the agreement to the effect that no interest would be payable. Clause (4),
on which reliance was placed, reads as under:
RATES,
MATERIALS AND WORKMANSHIP The rates quoted shall be fore finished work
inclusive or ail materials, labour, taxes, royalties, transportation etc.
The
Engineer in charge will have full and final authority to reject any material or
work done due to defect therein and the contractor/contractors shall forthwith
remedy the defects at his/their own expense and no further work shall be done
in connection with particular work or portion of the work till such time as the
defect is removed to the entire satisfaction of the Engineer in charge.
All
materials, tools and plants brought to site by the contractor/contractors shall
be deemed to be held in lien by the BCCL and the contractor/contractors shall
not have the right to remove the same from the site without the written
permission of the Engineer in charge. However, the BCCL shall not be liable for
any loss, theft or damage due to fire or other causes sustained during this
period of lien.
No
interest is payable on amounts with held under the item of the agreement.
The
BCCL shall be at liberty to deduct from the security deposit or from any other
sum due or to become due under this contract or under any other contract all
sums that become due to the BCCL. All bills shall be per-audited before amounts
and will be made by cheque only." From the facts enumerated hereinabove it
is clear that the reference in this case was made to the arbitrator by the
court on an application having been failed under Section 20 of the Arbitration
Act. As interest was one of the claims made by the respondent, the said dispute
was referred to arbitrator. The arbitrator, therefore, had the jurisdiction to
decide this issue. Inasmuch as reference to the arbitration was made after the
Interest Act, 1978 had come into force w.e.f. 19.8.1981, the High Court rightly
came to the conclusion that at least with effect from that date, interest could
be awarded for the pre-reference period under Section 3 or the Interest Act,
1978. This conclusion of the High Court is in conformity with the decision of
this Court in the cases of Unique Erectors & Sudhir Bros, (supra). The only
question, therefore, is whether the aforesaid clause 4 of the Agreement negates
any claim for interest being made.
There
can be no doubt that if the terms of the Contract expressly stipulate that no
interest would be payable then, notwithstanding the provisions of the Interest
Act, 1978, an arbitrator would not get the jurisdiction or right to award
interest. In the present case, however, no such contention based on clause 4
was raised before the High Court. The judgment does not show that any argument
was raised before the High Court to the effect that the contract prohibited the
award of interest. It is no doubt true that reference to this clause was made
before the trial court but, in appeal, the only contention which was raised
before the High Court was that the arbitrator had no jurisdiction to award
interest for pre-reference period. This contention was accepted and the
judgment and decree was modified to the effect that interest was awarded not
from 31.5.1977. as had been granted by the award and the decree of the trial
court, but with effect from 19.8.1981 from which date the Interest Act, 1978
came into force. The contention based on clause 4 having been given up before
the High Court the appellant would normally not have been allowed to be
agitated in this appeal but we find that there is no merit in this contention
and the same had been rightly rejected by the trial court.
According
to clause 4, interest was not payable on the amount which was withheld. The
learned counsel for the respondent has rightly contended that the said clause
refers to the amount withheld by the appellant towards retention money for the
defect liability period. It was submitted that the appellant had received a sum
of Rs. 30,000/- as security for the fulfillment of the contract to the
satisfaction of the company and the respondent Durga Parsad has not claimed any
interest on this amount as under aforesaid clause 4, no interest was payable on
the amount so withheld. The claim which was made by Durga Parsad before the
arbitrator was for the non-payment of the full amount as per final bill
submitted by him. The claim on this account before the arbitrator was for a sum
of Rs. 5.86.381.50/- being the balance amount payable out of the final bill and
interest thereon was claimed with effect from the date of completion of work
(31.5.1977) till the date of payment. The claim of the respondent for a sum of Rs.
5.80.381.50/- was upheld by the arbitrator only to the extent of Rs. 2,73,136.82/-
and the respondent was awarded interest on this amount. The interest so awarded
is clearly not covered by the aforesaid clause 4 of the contract.
The
decision of the High Court awarding pre-reference interest with effect from the
date when the Interest Act, 1978 had come into force i.e. 19.8.1981 and the
award or pendente lite interest, therefore, calls for no interference. In the
result, the appeals of M/s. Bharat Coking Coal Ltd, are liable to be dismissed,
but with no order as to costs.
CIVIL
APPEAL NO. ......./96 (ARISING OUT OF S.L.P. (C) NO. 3630 OF 1987 & CIVIL
APPEAL...../96 (ARISING OUT OF S.L.P. (C) NO. 15995/1987.
Leave
granted.
The
parties in both these cases are the same and the material facts are not very
dissimilar. In appeal arising out of S.L.P. (C) No. 3630/87, the respondent was
entrusted with some civil work by the agreement made in the year 1974-
75.
Some disputes had arisen and an arbitrator was appointed on 4.7.1979. The
arbitrator on 11.3.1981 gave an award for Rs. 1.82,860/- including interest. As
is evident from the judgment of the High Court the arbitrator had awarded a sum
of Rs. 99009/- as principal and interest of Rs. 68635/- for the period 1.6.1975
to 10.3.1981 was also awarded.
This
award of interest has been upheld by the trial court and the High Court.
The
present appeal is confined only to the award of interest by the arbitrator. As
far as pre-reference interest is concerned, in view of the settled legal
position, pre- reference interest could not be awarded for the period prior to
coming into force of the Interest Act, 1973 specially when the agreement
between the parties did not provide for payment or interest. In other words,
neither by contract nor under law was the respondent entitled to receive pre-
reference interest for the period 1.6.1975 to 10.3.1981 which had been awarded
to him. As far as future interest is concerned, it was within the jurisdiction
of arbitrator to award the same. The appeal is allowed to the extent that the
award of pre-reference interest to the sum of Rs. 68635/- is set-aside and the
decree will stand modified accordingly. In appeal arising out of S.L.P. (C) No.
15995 of 1987, an agreement between the parties was entered sometime in the
year 1966-67. Work was completed on 31.12.1970 and thereafter the respondent
gave notice t the Chief Engineer raising some claims. On 19.10.1976, the Chief
Engineer appointed a sole arbitrator. The arbitrator entered upon the reference
and thereafter on 12.5.1981 gave an award of Rs.
1.56.073.74/-
plus interest @ 7% from 1.4.1971 till the date of payment or decree. The award
was made the rule of the Court and the High Court dismissed the appeal filed by
the appellant. It is clear from the principle enunciated hereinabove that
pre-reference interest could not have been awarded in favour of the respondent
in the present case because the Interest Act, 1978 was not applicable and there
was no term in the contract and nor was it established that under any law or
usage any interest was payable. Applying the ration of decisions of this Court
in Abhaduta Jena's case (supra) and other cases, the appeal is allowed to the
extent that the award of the arbitrator, insofar as it awards interest for the
pre-reference period is set aside.
The
decree would stand modified accordingly. Parties to bear their own costs.
CIVIL
APPEAL NO. 9234 OF 1994 On 27.5.1979, an agreement was entered into between the
State Government, the appellant herein, and the respondent for improvement of Salai-Manoharpur Road. This was followed by a
supplementary agreement dated 30.4.1982 for carting earth. The respondent made
claims against the appellant in respect of above work allegedly done under the
said agreements. On 19.5.1987, the respondent filed an application in the trial
court for appointment of an arbitrator under Section 8 of the said Act. This
application was allowed by the Court on 19.5.1987 and an arbitrator was
appointed who entered upon the reference on 10.6.1987. The arbitrator gave an
award on 28.2.1988 and directed the payment of Rs. 30.21.047/- towards the
principal claim and interest @ 6% from 2.1.1984 to 25.2.1988 amounting to Rs. 8,26,811/-
ad future interest @ 13% from the date of the award till the date of realisation.
In this way, the arbitrator awarded interest in respect of all the three
periods, namely; pre-reference, pendente lite and future interest.
When
the award was filed in the court, the appellant herein, filed objections to the
same. With regard to interest in the objection which was filed, the appellant
only challenged the decision of the arbitrator in allowing pendente interest.
The trial court came to the conclusion that reference to the arbitration had
been made in the course of a suit and the arbitrator was justified in allowing pendente
lite interest.
In
appeal filed before the High Court it was contented that the claim of the
respondent in respect of escalation of price had not been referred to
arbitrator and, therefore, he could not have given the award in respect of the
said claim.
The
second contention which was raised, with which we are concerned in the present
case, was that the arbitrator had no power to grant pendente lite interest.
While upholding the decision of the trial court, in making the award the rule
of the Court and passing the decree in term thereof, with regard to pendente
life interest the High Court referred to the decisions of this Court in the
cases or SANTOSH SINGH ARORA VS. UNION
OF INDIA AND OTHERS. (1992) 1 SCC 492 and
LALCHAND KAPANI'S CASE (SUPRA) and came to the conclusion that pendente lite
interest could be granted by the arbitrator under the Interest Act, 1978.
Mr. Sanval,
the learned counsel for the appellant, contended that pre-reference interest
could not be granted.
He
further submitted that the arbitrator had Interest also from the date or award
till the date of payment. It was submitted that this had the effect of awarding
interest even for the period after the court passes a decree, making the award
the rule of the court. Referring to Section 29 of the Arbitration Act the
learned counsel submitted that the arbitrator had no jurisdiction to award
interest for the period after the passing of the decree till the date of
payment and, therefore, the award to that extent, at lest, was liable to be
set-aside.
From
the Facts enumerated hereinabove. It is clear that though the arbitrator had
awarded interest in respect of all the three periods, the objections which were
filed, and the contentions raised before the trial court as well as the High
Court, related only to the award of pendente lite interest. In fact, the
decision of the High Court upholding the award of pendente lite interest was
not seriously challenged by Mr. Sanyal. obviously in view of the decision of
the Constitution Bench of this Court in G.C. Roy's case (supra). Ordinarily, we
would not be inclined to allow the appellant to raise a new point relating to
the grant of post award interest for the first time in this Court, but as this
is a pure question of law and in order to finally decide this issue we allowed
the learned counsel to raise the same.
We,
however, do not find any merit in this submission.
According
to Section 29 of the Arbitration Act, where the award is for payment of money
the Court may in the decree order interest from the date or the decree to the
date of payment. This Section by it's plain language expressly gives the Court
the power to award interest from the date of the decree till the date of
payment but would this empty that the arbitrator when making the award, has no
jurisdiction to award interest from the date of the award till the date of
payment.
When
the arbitrator makes an award, it is not necessary that in every case the award
has to be filed in a court and a decree, in terms thereof, is based. It does
happen that when a award is made, the party against whom it is made, may accept
the award and comply with the same. It is rightly not disputed that from the
date of passing of the award, future interest can be awarded by the arbitrator
as held by this Court in the cases of Unique Erectors Gujarat (P) Ltd.
(supra)
and Hindustan Construction Co. Ltd. (supra). The correct procedure which should
be adopted by the arbitrator is to award future interest till the date of the
decree or the date of payment, whichever is earlier. The effect of this would
be that if the award is voluntarily accepted, which may not result in a decree
being passed, then payment of interest would be made from the date of award
till the date of payment. Where, however, as in the present case, the award is
filed in the court and a decree is passed in terms there or, then Mr. Sanyal
has rightly contended that it is for the Court to determine under Section 29 of
the Arbitration Act as to whether interest should be ordered to be paid and if
so at what rate.
Under
Section 29 of the Arbitration Act. The Court can, even where the arbitrator has
awarded interest from the date of the award till the date of payment, disallow
interest from the date of the decree or determine a different rate at which the
interest is to be paid or confirm the grant of interest as awarded in the
award. When the Court does not modify the award with regard to grant of
interest from the date of the award upto the date of payment, the effect would
be as if the court itself has granted interest from the date of the decree till
the date of payment at the rate which was determined by the arbitrator. The
future interest would be regarded as having been ordered to be paid under
Section 29 of the Arbitration Act when the Court does not modify the award in
this respect.
In the
instant case, the claim for interest even for the pre-reference period had
arisen after the Interest Act.
1978
had came into force and, therefore the arbitrator could award interest for all
the three periods. C.A. No. 9234 of 1994 is accordingly
dismissed, but with no order as to costs.
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