Full Judgment Text
REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 8990 OF 2017
EXECUTIVE ENGINEER (R AND B)
AND OTHERS ...APPELLANT(S)
VERSUS
GOKUL CHANDRA KANUNGO (DEAD)
THR. HIS LRS. ...RESPONDENT(S)
J U D G M E N T
B.R. GAVAI, J.
1. The appellants have challenged the judgment dated
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18 April 2012 passed by the learned Single Judge of the
High Court of Orissa in Arbitration Appeal No. 25 of 2007,
thereby dismissing the appeal filed by the appellants.
2. The facts in brief giving rise to the present appeal are
as under:
The respondent was awarded the contract for
construction of 3 kilometers missing link on NH6 from
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Kanjipani to Kuntala on 16 December 1971. The work was
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to be completed within one year that is before 15 December
1972. The contract amount was Rs.4,59,330/. However,
the work could not be completed by the stipulated date and it
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was completed only on 30 August 1977, by which date, the
respondent was already paid an amount of Rs.3,36,465/.
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3. The respondent, on 25 July 1989, issued a notice
to the appellant regarding his claim. The said notice was
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replied to by the appellant on 10 August 1989 stating
therein that, as against the claim of Rs.3,34,744/, the
respondent had been paid an amount of Rs.3,36,465/. The
respondent thereafter filed a suit being O.S. No. 206 of 1989
before the Court of Civil Judge (Senior Division),
Bhubaneswar (hereinafter referred to as the “trial court”)
under Section 20 of the Arbitration Act, 1940 (for short, “the
1940 Act”) seeking reference of the dispute to arbitration. By
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order of the trial court dated 14 February 1990, the suit
was decreed in favour of the respondent and he was directed
to file the original F2 agreement in the court for referring the
dispute to arbitration. However, the respondent did not file
the original F2 agreement as directed. In the meantime, the
1940 Act was repealed and the Arbitration and Conciliation
Act, 1996 (for short, “the 1996 Act”) came into force.
4. The respondent thereafter filed an application in the
disposed of suit before the trial court, praying for
appointment of an arbitrator under the provisions of the
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1996 Act. The same was rejected by the trial court vide order
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dated 4 February 2000 for lack of jurisdiction. The
respondent thereafter moved an application being MJC No.
36 of 2000 under Section 11 of the 1996 Act before the High
Court for appointment of an arbitrator. The learned Single
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Judge of the High Court, vide order dated 15 October 2001,
allowed the said application and appointed Shri S.K.
Mohanty, former Judge of the same High Court as the
Arbitrator.
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5. On 15 March 2002, the respondent filed his claim
of Rs.1,45,28,198/ under 15 heads of claim and demanded
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19.5% interest from 1 April 1976 to 15 March 2002. The
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learned Arbitrator, vide award dated 24 August 2004,
awarded a sum of Rs.9,20,650/ in respect of head Nos. 1 to
14. The learned Arbitrator also awarded interest pendente
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lite with effect from 1 April 1976 to the date of the award at
the rate of 18% per annum which came to Rs. 46,90,000/.
The learned Arbitrator further directed the future interest to
be paid at the rate of 18% per annum on the total of the
aforesaid two amounts till actual payment. Being aggrieved
thereby, the appellants filed a petition being Arbitration
Petition No. 153 of 2004 before the Court of District Judge,
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Cuttack under Section 34 of the 1996 Act for setting aside
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the award. The same was rejected by an order dated 25
July 2007. Being aggrieved thereby, the appellants filed an
appeal under Section 37 of the 1996 Act before the High
Court. The same was also dismissed vide the impugned
judgment. Being aggrieved thereby, the present appeal.
6. We have heard Shri Sibo Sankar Mishra, learned
counsel appearing on behalf of the appellants and Shri
Ashok Panigrahi, learned counsel appearing on behalf of the
respondents.
7. Shri Mishra submitted that the learned Arbitrator
has grossly erred in awarding interest for the period from
1977 to 1989 inasmuch as the respondent was in deep
slumber for a period of twelve years and did not take any
step for raising his claim. It is further submitted that the
learned Arbitrator has also erred in awarding interest for the
period from the year 1990 to 2000 inasmuch as, though vide
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decree dated 14 February 1990, the respondent was
directed to file the original F2 agreement for referring the
dispute to arbitration, the respondent did nothing in that
regard. It is further submitted that the interest awarded at
the rate of 18% per annum is totally unreasonable. It is
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submitted that the interest amount of Rs.46,90,000/ is
almost five times that of the main award amount of
Rs.9,20,650/. He relies on the judgment of this Court in the
cases of
Rajendra Construction Co. v. Maharashtra
1
Housing & Area Development Authority and Others ,
Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra
2
Reddy and Another and Mcdermott International Inc. v.
3
in support of the
Burn Standard Co. Ltd. and Others
proposition that the exorbitant amount of interest awarded
by the Arbitrator and upheld by the learned Single Judge of
the High Court would be contrary to the interest of justice.
8. Shri Panigrahi, on the contrary, submitted that there
is no reason to interfere with the rate of interest awarded by
the learned Arbitrator, which has been concurrently upheld
by the District Judge as well as the High Court. He
submitted that in view of the provisions of subsection (7) of
Section 31 of the 1996 Act, which has been construed by a
threeJudges Bench of this Court in the case of Hyder
Consulting (UK) Limited v. Governor, State of Orissa
1 (2005) 6 SCC 678
2
(2007) 2 SCC 720
3 (2006) 11 SCC 181
5
4
Through Chief Engineer , no interference would be
warranted in the present case.
Section 31(7)(a) of the 1996 Act reads as under:
9.
“ 31. Form and contents of arbitral award.
…………………
(7)(a) Unless otherwise agreed by the parties,
where and in so far as an arbitral award is for
the payment of money, the arbitral tribunal
may include in the sum for which the award is
made interest, at such rate as it deems
reasonable, on the whole or any part of the
money, for the whole or any part of the period
between the date on which the cause of action
arose and the date on which the award is
made.”
10. The provisions of Section 31(7)(a) of the 1996 Act fell
for consideration before this Court in many cases including
in the cases of (supra) and
Hyder Consulting (UK) Limited
Delhi Airport Metro Express Private Limited v. Delhi
5
. A perusal of clause (a) of sub
Metro Rail Corporation
section (7) of Section 31 of the 1996 Act would reveal that, no
doubt, a discretion is vested in the arbitral tribunal to
include in the sum for which the award is made interest, on
the whole or any part of the money, for the whole or any part
of the period between the date on which the cause of action
arose and the date on which the award is made. However, it
4
(2015) 2 SCC 189
5 2022 SCC OnLine SC 549
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would reveal that the section itself requires interest to be at
such rate as the arbitral tribunal deems reasonable. When a
discretion is vested to an arbitral tribunal to award interest
at a rate which it deems reasonable, then a duty would be
cast upon the arbitral tribunal to give reasons as to how it
deems the rate of interest to be reasonable. It could further
be seen that the arbitral tribunal has also a discretion to
award interest on the whole or any part of the money or for
the whole or any part of the period between the date of cause
of action and the date on which the award is made. When
the arbitral tribunal is empowered with such a discretion, the
arbitral tribunal would be required to apply its mind to the
facts of the case and decide as to whether the interest is
payable on whole or any part of the money and also as to
whether it is to be awarded to the whole or any part of the
period between the date on which the cause of action arose
and the date on which the award is made.
A perusal of the award as also the judgment and
11.
order of the District Judge as well as the High Court would
reveal that no such exercise has been done. The learned
Arbitrator, without assigning any reasons, has awarded the
interest at the rate of 18% per annum for the period during
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which the proceedings were pending and also at the same
rate after the award was made till the actual payment.
12. The undisputed position is that though final
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measurement was done on 30 August 1977, for a period of
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twelve years, i.e., till 25 July 1989, the respondent did not
take any step to raise his claim. It is only on that date, i.e.,
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25 July 1989, the respondent issued a notice to the
appellants regarding his claim. As such, the very conduct of
the respondent for remaining silent for such a long period
would disentitle him for the interest during the said period.
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13. Similarly, though a decree was passed on 14
February 1990 and the respondent was directed to file the
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original agreement, he took no step till 4 February 2000. In
the meantime, the 1996 Act came into force. Thereafter, the
respondent filed an application in the disposed of suit which
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came to be dismissed on 4 February 2000. Thereafter, he
moved an application being MJC No. 36 of 2000 before the
High Court for appointment of arbitrator under Section 11 of
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the 1996 Act which came to be allowed on 15 October 2001.
It could thus be seen that for a period of almost ten years,
the respondent was again in silent mode. Had he filed the
original agreement immediately after the decree was passed
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on 14 February 1990, the arbitration proceedings would
have commenced and concluded immediately thereafter. As
such, the learned Arbitrator was not justified in awarding
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interest for the period from 14 February 1990 to 4
February 2000. A party cannot be permitted to derive
benefits from its own lapses.
14. It is further to be noted that, though after the
commencement of the 1996 Act, the respondent could not
have moved an application in the disposed suit, he chose to
do so and only after dismissal of the said application on the
ground of lack of jurisdiction, did he move an application for
appointment of an arbitrator under Section 11 of the 1996
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Act before the High Court, which was allowed on 15 October
2001. We therefore find that the respondent would not be
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entitled for interest for the period from 14 February 1990 to
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15 October 2001.
15. That leaves us with the rate of interest awarded by
the learned Arbitrator which has been upheld by the District
Judge and the High Court. It will be apposite to refer to the
following observations of this Court in the case of
Rajendra
Construction Co. (supra):
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“ 30. The question then remains as to interest.
The appellant had claimed interest in the
suits. The arbitrator awarded interest at the
rate of 18 per cent per annum on the principal
amount from the date of the suits to the date
of awards and also from the date of the awards
to the date of payment or up to the date of
decrees, “whichever is earlier”. This Court has
dealt with the power of the arbitrator to award
interest for ( i ) prereference period ( Executive
Engineer, Dhenkanal Minor Irrigation
Division v. N.C. Budharaj [(2001) 2 SCC 721] );
( ii ) pendente lite ( Secy., Irrigation Deptt., Govt.
of Orissa v. G.C. Roy [(1992) 1 SCC 508] ); and
( iii ) postaward period ( Hindustan Construction
Co. Ltd. v. State of J&K [(1992) 4 SCC 217] ).
In Bhagawati Oxygen Ltd. v. Hindustan Copper
Ltd. [(2005) 6 SCC 462 : AIR 2005 SC 2071 :
JT (2005) 4 SC 73] , one of us (C.K. Thakker,
J.) had an occasion to consider the relevant
decisions on the power of the arbitrator to
award interest at all the three stages. It was
held that the arbitrator had power to award
interest. Keeping in view the facts and
circumstances of the present case that the
contract was entered into in 1987, the work
was completed in 1990 after extension granted
by MHADA and the arbitrator passed awards
in 1995, it would be proper, equitable and in
the interest of justice if we reduce the rate of
interest to 10 per cent per annum.”
16. This Court, after referring to the earlier decisions on
the power of the Arbitrator to award interest at all the three
stages that is prereference period, pendente lite and post
award period, found that, in the facts and circumstances of
the said case, it would be proper, equitable and in the
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interest of justice to reduce the rate of interest to 10% from
18% per annum.
17. This Court, in the case of Mcdermott International
, has observed thus:
Inc.
“ 154. The power of the arbitrator to award
interest for preaward period, interest
pendente lite and interest postaward period is
not in dispute. Section 31(7)( a ) provides that
the Arbitral Tribunal may award interest, at
such rate as it deems reasonable, on the whole
or any part of the money, for the whole or any
part of the period between the date on which
the cause of action arose and the date on
which award is made i.e. preaward period.
This, however, is subject to the agreement as
regards the rate of interest on unpaid sums
between the parties. The question as to
whether interest would be paid on the whole or
part of the amount or whether it should be
awarded in the preaward period would depend
upon the facts and circumstances of each
case. The Arbitral Tribunal in this behalf will
have to exercise its discretion as regards ( i ) at
what rate interest should be awarded; ( ii )
whether interest should be awarded on the
whole or part of the award money; and ( iii )
whether interest should be awarded for the
whole or any part of the preaward period.
155. The 1996 Act provides for award of 18%
interest. The arbitrator in his wisdom has
granted 10% interest both for the principal
amount as also for the interim. By reason of
the award, interest was awarded on the
principal amount. An interest thereon was up
to the date of award as also the future interest
at the rate of 18% per annum.
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156. However, in some cases, this Court has
resorted to exercise of its jurisdiction under
Article 142 in order to do complete justice
between the parties.
157. In Pure Helium India (P) Ltd. [(2003) 8
SCC 593] this Court upheld the arbitration
award for payment of money with interest at
the rate of 18% p.a. by the respondent to the
appellant. However, having regard to the long
lapse of time, if award is satisfied in entirety,
the respondent would have to pay a huge
amount by way of interest. With a view to do
complete justice to the parties, in exercise of
jurisdiction under Article 142 of the
Constitution of India, it was directed that the
award shall carry interest at the rate of 6%
p.a. instead and in place of 18% p.a.
158. Similarly in Mukand Ltd. v. Hindustan
Petroleum Corpn. Ltd. [(2006) 9 SCC 383 :
(2006) 4 Scale 453], while this Court confirmed
the decision of the Division Bench upholding
the modified award made by the learned Single
Judge, the Court reduced the interest awarded
by the learned Single Judge subsequent to the
decree from 11% per annum to 7½ % per
annum observing that 7½ % per annum would
be the reasonable rate of interest that could be
directed to be paid by the appellant to the
respondent for the period subsequent to the
decree.
In this case, given the long lapse of time,
159.
it will be in furtherance of justice to reduce the
rate of interest to 7½ %.”
18. It could thus be seen that while exercising the
jurisdiction under Article 142 of the Constitution of India,
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this Court has reduced the rate of interest to 7.5% per
annum.
19.
Again, in the case of Krishna Bhagya Jala Nigam
(supra), this Court, while reducing the rate of interest,
Ltd.
observed thus:
“ 11. On the merits of the claims made by the
contractor we find from the impugned award
dated 2562000 that it contains several
heads. The arbitrator has meticulously
examined the claims of the contractor under
each separate head. We do not see any reason
to interfere except on the rates of interest and
on the quantum awarded for letting machines
of the contractor remaining idle for the periods
mentioned in the award. Here also we may add
that we do not wish to interfere with the award
except to say that after economic reforms in
our country the interest regime has changed
and the rates have substantially reduced and,
therefore, we are of the view that the interest
awarded by the arbitrator at 18% for the pre
arbitration period, for the pendente lite period
and future interest be reduced to 9%.”
Noticing the similarity between the aforesaid cases
20.
and the present case, we find that the present case is also a
fit case wherein this Court needs to exercise its powers under
Article 142 of the Constitution of India to reduce the rate of
interest. As already discussed hereinabove, taking into
consideration the conduct of the respondent in delaying the
proceedings at every stage which led to a long pendency of
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the dispute, we are of the view that, though it will not be in
the interest of justice to interfere with the principal award,
this is a fit case wherein the interest at all the three stages,
that is prereference period, and postaward
pendente lite
period, requires to be reduced.
21. In the result, we partly allow the appeal and pass the
following order:
(i) The respondent would not be entitled to any interest
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for the period between 30 August 1977 and 25
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July 1989 and for the period between 14 February
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1990 and 15 October 2000;
(ii) In respect of the remaining period at all the three
stages, that is prereference period, pendente lite and
postaward period, the respondent would be entitled
to interest at the rate of 9% per annum.
22. We are informed that the execution proceedings are
still pending. The parties shall submit their calculation
before the Executing Court in accordance with what has
been held by us hereinabove within a period of one month
from the date of this judgment. The Executing Court would
quantify the amount in accordance with the aforesaid
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directions within a period of one month thereafter. The
appellants shall make the payment of the amount as
determined by the Executing Court within a period of one
month thereafter.
23.
Pending application(s), if any, shall stand disposed of
in the above terms. No order as to costs.
.…..….......................J.
[B.R. GAVAI]
……….......................J.
[B.V. NAGARATHNA]
NEW DELHI;
SEPTEMBER 30, 2022.
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