Full Judgment Text
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REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 3559 OF 2010
M/S SHAHI AND ASSOCIATES … APPELLANT(S)
VERSUS
STATE OF U.P. & ORS. … RESPONDENTS
J U D G M E N T
S.ABDUL NAZEER, J.
1 . M/s. Shahi and Associates has filed this appeal impugning
the common final judgment and order dated 05.12.2007 passed
by the High Court of Judicature at Allahabad in F.A.F.O Nos.
3728 of 2007 and 947 of 2007, whereby the High Court has
Signature Not Verified
upheld the award of the Arbitrator. However, relying on para 7
Digitally signed by
NARENDRA PRASAD
Date: 2019.08.08
17:05:19 IST
Reason:
A of Section 24 of the Uttar Pradesh Civil Laws (Reforms and
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Amendment) Act, 1976 (for short 'U.P. Amendment Act'), it has
reduced the statutory interest to 6% p.a. from 18% p.a. as
awarded by the Arbitrator. The appellant has questioned the
reduction of the interest in this appeal.
2 . The appellant is a registered partnership firm engaged in
civil construction projects for the government of Uttar Pradesh.
The appellant entered into an agreement dated 08.07.1993 with
the Superintendent Engineer, Drainage Division, District
Gonda, U.P. for work related to the Gola Pump House. Owing
to certain disputes that arose between the parties with respect
to the rate of payment for additional work under the agreement,
the appellant served a notice invoking arbitration on the
respondents and filed the claim petition on 11.09.1999. Shri
B.M. Arora was appointed as the sole Arbitrator on 12.10.1999
and the proceedings commenced on 27.10.1999 under the
Arbitration and Conciliation Act, 1996 (for short 'the Act of
1996').
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3 . The sole Arbitrator passed an award on 24.12.2001,
whereby the appellant was awarded a sum of Rs. 17, 86, 339/
(seventeen lakhs eighty six thousand three hundred thirty
nine). The Arbitrator further held that the interest on the sum
awarded would be payable in accordance with Section 31(7)(b)
of the Act of 1996, i.e. 18% p.a. from the date of the award till
the date of actual payment. The operative portion of the award
is:
"According to the above, the petitioner
becomes entitled for receiving a total
amount of Rs. 17,86,339.00 (Rs. Seventeen
lac eighty six thousand three hundred thirty
nine only) and the petitioner is hereby
awarded the same.
From the date of award to the actual date of
payment an interest at the rate which is
given in the provisions of section 31(7)(b) of
the Arbitration and Conciliation Act, 1996
shall also be payable on Rs. 17,86,339.00
which is the amount of declared award.
Both the parties would bear their own cost
related with the arbitration."
4 . The respondents 1 and 2 being aggrieved by the aforesaid
award filed civil miscellaneous case No. 5 of 2002 before the
District Judge, Gorakpur, under Section 34 of the Act of 1996.
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The District Judge while upholding the sum awarded by the
Arbitrator, reduced the rate of interest on the sum awarded
from 18% p.a. to 6% p.a. by relying on para 7A of Section 24 of
the U.P. Amendment Act.
5 . Being aggrieved by the aforesaid judgment dated
28.10.2006, both the parties filed F.A. F.O. Nos. 3728 of 2007
and 947 of 2007 before the High Court. The High Court by way
of impugned common final judgment and order has dismissed
both the appeals. In the course of the order, the High Court
has observed that the District Judge has correctly reduced the
rate of interest from 18% p.a. to 6% p.a. in view of para 7A of
Section 24 of the U.P Amendment Act.
6 . Learned counsel for the appellant submits that the
arbitration proceedings were commenced on 27.10.1999 under
the Act of 1996 and the provisions of Arbitration Act, 1940 will
have no application to the proceedings between the parties. The
U.P. Amendment Act was a State amendment which introduced
para 7A to the First Schedule of the Arbitration Act, 1940.
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Since the Arbitration Act, 1940, has been repealed under
Section 85 of the Act of 1996, the Schedule to Arbitration Act,
1940 also stands repealed and para 7A has become obsolete.
Therefore, the Arbitrator has rightly awarded interest @ 18%
p.a. under Section 31(7)(b) of the Act of 1996. The District
Judge as also the High Court have wrongly relied upon the
repealed provision and reduced a statutorily permissible
interest rate.
7 . On the other hand, learned Additional Advocate General
appearing for the respondentState has sought to justify the
impugned judgment.
8 . We have carefully considered the submissions of the
learned counsel made at the Bar.
9 . The Act of 1996 has come into force with effect from
22.08.1996. Section 85 of the Act of 1996 expressly repeals the
provisions of the Arbitration Act, 1940. Thus, the Act of 1996
would be applicable to all arbitral proceedings which have
commenced on or after the said Act came into force. Para 7A
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of Section 24 of the U.P. Amendment Act was an amendment to
the First Schedule of Arbitration Act, 1940. This amendment
was introduced by the U.P. Act No. 57 of 1976. The provisions
of the Arbitration Act, 1940 including the State amendment will
have no application to the proceedings commenced after coming
into force of the Act of 1996.
10 . Section 31(7)(b) of the Act of 1996, before its amendment
by Act 3 of 2016, which has come into force with effect from
23.10.2015, is relevant for the purpose of this case, empowers
the Arbitrator to award preaward and postaward interest. This
Section clearly states that unless otherwise specified, the
awarded sum would carry an interest @ 18% p.a, as extracted
below:
"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
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which the cause of action arose and the
date on which the award is made.
(b) A sum directed to be paid by an arbitral
award shall, unless the award otherwise
directs, carry interest at the rate of eighteen
per centum per annum from the date of the
award to the date of payment".
(Emphasis supplied)
11 . Section 31(7)(b) of the Act of 1996 clearly mandates that,
in the event the Arbitrator does not give any specific directions
as regards the rate of interest on the amount awarded, such
amount 'shall' carry interest @ 18% p.a. from the date of award
till the date of payment. Since the Arbitration Act, 1940 has
been repealed by way of Section 85 of the Act of 1996, the
Schedule to the Arbitration Act, including the State
amendment, also stands repealed. The only exception is
provided in subsection (2)(a) of Section 85 where a proceeding
which had commenced when the Arbitration Act of 1940 was in
force and continued even after coming into force of the Act of
1996, and all parties thereto agreed for application of the old
Act of 1940. Therefore, the provisions of Arbitration Act, 1940
including the State amendment namely para 7A of Section 24
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of U.P. Amendment Act will have no application to the
proceedings commenced after coming into force of the Act of
1996.
12 . In the instant case, though the agreement was earlier to
the date of coming into force of the Act of 1996, the proceedings
admittedly commenced on 27.10.1999 and were conducted in
accordance with the Act of 1996. If that be so, para 7A of
Section 24 of the U.P. Amendment Act has no application to the
case at hand. Since the rate of interest granted by the
Arbitrator is in accordance with Section 31(7)(b) of the Act of
1996, the High Court and the District Judge were not justified
in reducing the rate of interest by following the U.P.
Amendment Act.
13 . The appeal, therefore, succeeds and it is accordingly
allowed. The judgments of the High Court of Judicature at
Allahabad dated 05.12.2007 in F.A.F.O Nos.3728 and 947 all of
2007 and the order of the District Judge, Gorakhpur in Misc.
Case No.5 of 2002 dated 28.10.2006 are set aside only insofar
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as reduction of rate of interest is concerned. The interest
awarded by the Arbitrator in accordance with Section 31(7)(b) of
the Act of 1996 is restored.
14 . There will be no order as to costs.
…………………………………………J.
(ARUN MISHRA)
…………………………………………J.
(S. ABDUL NAZEER)
…………………………………………J.
(M.R. SHAH)
New Delhi;
August 8, 2019.