Full Judgment Text
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PETITIONER:
SECRETARY TO THE GOVT. OF ORISSA & ANR.
Vs.
RESPONDENT:
SARBESWAR ROUT
DATE OF JUDGMENT04/10/1989
BENCH:
SHARMA, L.M. (J)
BENCH:
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--Arbitra-
tor--Power to grant interest prior to the proceeding--Pro-
ceedings held to commence when arbitrator indicates willing-
ness to act.
HEADNOTE:
The Respondent executed certain works under a written
agreement with the appellant and a dispute arose thereunder
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 there-
upon 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 regard-
ing 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 circum-
stances 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 inter-
est 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
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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 will-
ingness 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 Erec-
tors (Gujarat) (P) Ltd. & Anr., [1989] 1 SCC 532; lossi-
foglu v. Coumantaros, [1941] 1 KB 396 and Hari Shankar Lal
v. Shambhunath Prasad & Ors., [1962] 2 SCR 720, referred to.
JUDGMENT:
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 thereunder
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 there-
fore affirmed on all the other points.
3. So far the question relating to interest is con-
cerned, 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
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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 satis-
faction 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 refer-
ence. 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 com-
mence. It has not been suggested before us that the neces-
sary conditions for the application of s. 3 .are not satis-
fied in the present case and so the respondent is not enti-
tled 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. Rely-
ing 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
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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 com-
mence.
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 appli-
cations 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 differ-
ent 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.
?
371