Full Judgment Text
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 1 of 12
PETITIONER:
STATE OF MADHYA PRADESH
Vs.
RESPONDENT:
M/S. SAITH & SKELTON (P) LTD.
DATE OF JUDGMENT28/01/1972
BENCH:
VAIDYIALINGAM, C.A.
BENCH:
VAIDYIALINGAM, C.A.
DUA, I.D.
MITTER, G.K.
CITATION:
1972 AIR 1507 1972 SCR (3) 233
1972 SCC (1) 702
CITATOR INFO :
R 1981 SC2075 (23)
RF 1988 SC 734 (15,18)
D 1988 SC1520 (18)
RF 1990 SC1340 (13)
E 1992 SC 732 (10,30,33)
ACT:
Arbitration Act (10 of 1940), ss. 2(c) and 14(2)--Power of
arbitrator to file award suo motu--Court in which award
should be filed--Power of arbitrator to award interest prior
to date of reference or award.
HEADNOTE:
Disputes having arisen between the appellant and the
respondent with reference to the performance of a contract
which provided for arbitration, steps were taken to appoint
arbitrators and an umpire. The appellant filed a petition
in the District Judge’s Court, having jurisdiction over the
matter, for setting aside the nominations. When the matter
came up to this Court in appeal, this Court appointed a sole
arbitrator with consent of the parties.Thereafter in the
presence’ of counsel for both parties this Court gave
directions in the appeal that the arbitration records be
sent to the sole arbitrator, and later extended the time
for making the award, and gave directions regarding the
venue. The arbitrator gave his award, directing the payment
of a certain sum by the appellant to the respondent with
simple interest at 9% from a date anterior to the reference,
and filed the award ip. this Court ’the next day. The
respondent filed a petition for passing a decree in terms of
the award but the appellant opposed the petition.
On the questions : (1) Whether the arbitrator had no power
suo motu to file his award; Whether the award should not
have been filed in this Court as it is not the Court
contemplated by ss. Z((4) and 14(2) of the Arbitration Act,
1940; and (3) Whether the arbitrator had no jurisdiction to.
award the interest from a date anterior to the date of award
or reference,
HELD : (1) There is nothing in s. 14(2) of the Act which
precludes the arbitrator from filing the award suo motu and
it is not correct to say that the award should be filed only
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 2 of 12
if the parties make a request to the arbitrator to file it,
or make an application to the Court for that purpose. The
arbitrator having filed the award the next day after making
it, no question of limitation arises. [239 G-B]
Narayan Bhawu v. Dewajibhawu, A.I.R. 1945 Nag. 117,
approved.
(2) The expresion ’Court’ occurring in s. 14(2) of the Act
will have to be understood in the context in which it
occurs, because, the definition of the word in s. 2(c)
applies only when there is nothing repugnant in the subject
or context. The word ’Court’ would include ’an appellate
court’ and the word ’suit’ would include ’appellate
proceedings’. Merely because the order of this Court
appointing the sole arbitrator stated ’the ,appeal is
allowed’ it is not as if this Court had lost all
jurisdiction regarding the arbitration proceedings. The
various directions given by this Court indicate that this
Court retained full control over the arbitration
proceedings. Therefore this Court is the Court under s.
14(2) where the arbitration award should be validly filed.
[240 E.-H; 241 B-D]
234
Ct. A. Ct. Nachiappa. Chettiar & Ors. V. Ct. A. Ct.
Subramaniam Chettiar, [1960] 2 S.C.R. 209, referred to.
(3) In the present case, all the disputes including the
claim for the payment of interest had been referred to the
arbitrator. The contract does not provide that no interest
was payable on the amount that may be found due. Therefore
the respondent was entitled, under s. 61 (2) of the Sale of
Goods Act, 1930, to claim interest from the date on which
the price became due and payable. The arbitrator had found
that the price had become payable from a date anterior to
the date of the award. There fore, the award of interest
from the anterior date was justified. The award of interest
at 9% ’is also not exorbitant because the parties themselves
claimed interest at 12%, [245 A-G]
Union of India v. A. L. Rallia Ram, [1964] 3 S.C.R. 164 and
Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd.
Indore, [1967] 1 S.C.R. 105, followed,
JUDGMENT:
CIVIL APPELLATE JURISDICTION: C. A,. No. 136 of 1971.
Appeal by special leave from the judgment and order dated
August 6, 1970 of the Madhya Pradesh High Court, Indore
Bench in Civil Revision No. 415 of 1969-
I. N. Shroff, for the appellant.
S. V.Gupte, S. K. Mehta and K. L. Mehta,for respondent No.1.
The Judgment of the Court was delivered by.
Vaidialingam, J.-Civil Miscellaneous Petition No. 5801 of
1971, is by the first respondent, is an application under
ss. 17 and 29 of the Arbitration Act, 1940 (hereinafter to
be referred as the Act) to pass a judgment and decree
according to the Award of the arbitrator dated August 24,
1971 and to grant interest from the date of the decree, on
the amount found payable by the appellant.
Civil Miscellaneous Petition No. 5802 of 1971, by the State
of Madhya Pradesh, the appellant in the Civil Appeal, is an
application requesting this Court to decline to take the
Award dated August 24, 1971 on its file. Without prejudice
to the above prayer, there is a further request made to this
Court to set aside or modify the Award in certain respects.
The relevant facts leading up to the filing of the two
applications may be adverted to The erstwhile State of
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 3 of 12
Madhya Bharat and entered into a contract with M/s. Saith &
Skelton (-P.) Ltd., the first respondent, for the supply and
erection of Pen, stocks for Gandhi Sagar Power Station,
Chambal Hydel works. The acceptance of the contract was by
tender No. Project/SE/
235
2522-F/II/25 dated June 5, 1956. Under the said contract,
the first respondent firm was required to supply material
for the five penstocks of P.O.R. Jhalwar Road, Railway
Station at Rs. 1,570 per M. Ton within the time stipulated,
the total quantity being 463.939 M. Tons. The material was
to be transported from Jhalwar Road Railway Station to the
works site by the consignee, ,,he Madhya Bharat Government,
and the work of erection was to commence on the receipt at
the work site of running length of 96 ft. for any of the
penstocks. Clause 21 of the contract provided for any
question or dispute, arising under the conditions of the
contract or in connection therewith, to be referred to the
arbitrators, one to be nominated by the State and the other
by the firm The said clause also provided for the matter
being referred to an Umpire to be appointed by the
arbitrators in case of disagreement between them. That
clause also referred to certain other matters relating to
arbitration proceedings.
Disputes arose between the appellant and the respondent firm
with reference to the performance of the contract. The firm
intimated the appellant on December 31, 1959 nominating one
Shri T. R. Sharma, as an arbitrator under Cl. 21 of the
contract and also called upon the appellant to nominate an
arbitrator. The Directorate General of Supplies and
Disposals, who were acting as the agent of the Madhya Bharat
Government, nominated one Shri G. S. Gaitonde, as an
arbitrator on behalf of the appellant. But the said
arbitrator resigned his appointment and in consequence on
April 26, 1960 one Shri R. R. Desai, was nominated as an
arbitrator on behalf of the appellant. This nomination was
also by the Directorate General of Supplies and Disposals.
On September 6, 1960, the two arbitrators appointed one Sri
R. C. Soni, as an Umpire. The two arbitrators disagreed in
their views resulting in the matter being referred to the
Umpire on October 20, 1961. According to the appellant, the
appointment of Shri Gaitonde, in the first instance and of
Shri R. R. Desai, later, as an arbitrator, by the
Directorate General of Supplies and Disposals was without
any authority from the appellant. Later on, the Directorate
General of Supplies and Disposals again reappointed Shri R.
R. Desai as an arbitrator on behalf of the appellant on
January 4, 1961.
According to the appellant the appointment of Shri R. C.
Sone, as Umpire on September 6, 1960 was not valid.
Accordingly, the appellant filed in the Court of the
Additional District Judge, Mandsaur, Civil Miscellaneous
Case No. 16 of 1962 under s. 5 of the Act, for setting aside
the nominations, as arbitrators of Shri T. R. Sharma and
Shri R. R. Desai, as well as the appointment by them of Shri
R. C. Soni, as the Umpire. By order dated October 19, 1963,
the Addl. District Judge, Mandsaur held that the
appointments of Shri R. R. Desai, as an arbitrator and Shri
236
R. C. Soni, as Umpire, were both invalid and not binding on
the appellant. The firm filed all appeal before the High
Court of Madhya Pradesh against the order of the Addl.
District Judge. This appeal was later oil treated as a
Revision and numbered as Civil Revision No. 415 of 1969.
The High Court, by its order dated August 6, 1970 appointed
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 4 of 12
Shri R. C. Soni as the Sole Arbitrator under s. 12(2) of the
Act and accordingly modified the order of the Addl.
District Judge, Mandsaur.
The appellant filed Special Leave Petition No. 2370 of 1970
in this Court for grant of Special Leave to Appeal against
the order of the High Court dated August 6, 1970. The firm
entered caveat. On January 29, 1971, this Court ranted
Special Leave land, by consent of parties, appointed an
arbitrator, whose Award is sought to be made a decree of the
Court by the respondent in its application C.M.P. No. 5801
of 1971 and is sought to be set aside by the appellant by
C.M.P. No. 5802 of 1971. As the terms of the order passed
by this Court are material, it is reproduced below :
Special Leave is granted. The appeal is
allowed The appointment of Shri R. C. Soni as
the sole arbitrator is set aside by consent of
the parties.
Mr. V. S. Desai, Senior Advocate, is appointed
Arbitrator by consent of the parties to go
into all the questions in this matter and make
his awar. The remuneration for the arbitrator
would be Rs. 5,000, which will be shared by
both the parties equally.
The arbitrator will make his award within
three months from today. The parties will be
at liberty 1 to mention for extension of time,
for making the award.
Sd. G. K.
Mitter J,
January 29, 1971. Sd. A.
N. Ray J."
On February 1, 1971 this Court gave directions in the
appeal,, in the presence of the counsel for both parties,
that the records of the arbitration be called for forthwith
and sent to the sole arbitrator Mr. V. S. Desai, appointed
as per order dated January 29, 1971. Again on April 30,
1971, this Court,, in the presence of the counsel for both
the parties, extended the time for making the Award by four
months and also permitted the arbitrator to hold the arbi-
tration proceedings at Bombay. The arbitrator gave his
Award on August 24, 1971 and filed the same in this Court,
the next day. He also crave notice to the parties of the
Making and signing of
237
the Award. A signed copy of the Award was also sent to both
the parties.The operative part of the Award is as follows :
(1) The opponents, the State of Madhya Pradesh
will pay to the claimants a sum of Rs.
1,79,653.18 p. for the balance payable to them
in respect of the price of supply and erection
of the 5 penstocks.
(2) The State will also pay interest on the
said amount at 9% per annum simple interest
from 7th June, 1958 to the date of decree.
The State will also refund to t,he claimants a
sum of Rs. 15,414,19 p. which they have
recovered from the claimants as excess railway
freight.
Sd. V. S. Desai,
Sole Arbitrator."
In C.M.P. No. 5801 of 1971, the firm prays for passing a
judgment and decree, according to the Award and also prays
for grant of interest from the date of decree at the rate of
9% per annum. On the other hand, the appellant State, in
its application C.M.P. No. 5802 of 1971 prays for an order
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 5 of 12
declining to take the Award on its file or in any event to
set aside or modify the award in respect of interest granted
prior to August 24, 1971 as well as the direction regarding
the refund by the appellant of the sum of Rs. 15,414.19 P.
The Award is also sought to be modified on the ground that
the award of interest at 9% is very excessive.
The question of pronouncing judgment according to the Award,
as provided under s. 17 of the Act and which is the prayer
in C.M.P. No. 5801 of 1971 will arise only if the prayer to
set aside the Award made in C.M.P. No. 5802 of 1971, by the
State, is rejected. Therefore, we will proceed to consider
the contentions raised by Mr. 1. N. Shroff, learned counsel
for the appellant, in support of the application C.M.P. No.
5802 of 1971.
Mr. Shroff has raised the following four contentions: (1)
The arbitrator had no power to suo motu file his Award, as
he has done in this case, and as such no action can be taken
on such an Award; (2) This Court is not the Court as
contemplated by s. 14(2) read with S. 2(c) of the Act.
Hence the filing of the Award in’ this Court is illegal and
ineffective in law; (3) The arbitrator had no jurisdiction
to award interest from a period anterior to the date of the
award or reference; and (4) The Arbitrator has committed a
manifest error in directing the refund of Rs. 15,414.19 P.
when this amount has already been taken into account in
arriving at the figure of Rs. 1,79,653.18 P.
238
We will now proceed to deal with these contentions scriatim.
With regard to the first contention, which relates to the
validity of the filing of the Award in this Court suo motu,
reliance is placed by Mr. Shroff on s. 14(2) of the Act. It
is the contention of the counsel that under this section an
arbitrator can cause an award to be filed in court only
under two circumstances : (a) when a request to do so is
made by any party to the’ arbitration agreement or any
person claiming under such party; and (b) when the
arbitrator is directed by the Court to file the award. In
this case, it is pointed out,, that no such request was made
by any of the parties to the arbitration agreement or any
person claiming under such party to the arbitrator to file
the Award. It is pointed out that there was no direction by
this Court to the arbitrator to file the Award. Hence it is
urged that the filing of the Award suo motu is illegal, as
being contrary to the terms of s. 14(2) of the Act.
Mr. S. V. Gupte, learned counsel for the respondent firm,
referred us to s. 38 of the Act and pointed out that the
scheme of the Act clearly shows that the Award has to be
filed in the Court by the arbitrator either suo motu or on
request made by the parties to the arbitration agreement or
any person claiming under such party or on being directed by
the Court. The counsel pointed out, there is no prohibition
in s. 14(2) of the Act, against the arbitrator filing the
Award in Court suo motu.
The question specifically arose before the Nagpur High Court
in Narayan Bhawu v. Dewajibhawu(1). The High Court held
that there is nothing in S. 14(2) of the Act, which
precludes the arbitrator from filing the Award suo motu and
it is not correct to say that the Award should be filed only
if the parties make a request to the arbitrator to file the
award or make an application to the Court for that purpose.
We are in agreement with this view of the law, especially
when there is no prohibition in the Act, particularly in s.
14(2) against the arbitrator filing suo motu his Award in
Court.
Mr. Shroff referred us to the decision in Parasramka Com-
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 6 of 12
mercial Company v. Union of India(2). From the facts stated
in the said decision, it is seen that the arbitrator made
his Award and signed the same on April, 26, 1950. The
arbitrator without sending any notice of the making and
signing of the Award, sent a copy of the signed Award to the
parties. The appellant therein acknowledged receipt of the
said signed copy of the Award by his letters dated 5th and
16th May, 1950; but he filed an application on March 30,
1951 in the Subordinate Judge’s Court for passing a decree
in terms of the Award. An objection was raised by the
(1) A I R 1945 Nag 117
(2) [1970] 2 SC R 136
239
opponent that the application was out of time under Art. 178
of the Indian Limitation Act, 1908, as not having been filed
within 90 days of the date of service of the notice of the
making of the Award. It is also seen that the arbitrator on
July 3, 1951 filed the original Award before the Court suo
motu. The Subordinate Judge rejected the application filed
on March 30, 1951 as barred by time. That order was
confirmed by the High Court. This Court, after a
consideration of s. 14(1) of the Act held that the serving,
by the arbitrator on the appellant before this Court of a
signed copy of the Award amounted to giving him notice in
writing of the making of the Award. This Court further
upheld, as correct, the view of the Subordinate Judge and
the High Court that the application filed by the appellant,
beyond the period prescribed under Art. 178 of the Indian
Limitation Act, 1908, was barred. This Court did not
express any view regarding the action taken by the
arbitrator in filing suo motu the Award and left open the
question as follows :
"....... But we make it clear that the other
part of the case, namely what is to happen to
the award sent by the Arbitrator himself to
the court has yet to be determined and what we
say here will not affect the determination. of
that question. Obviously enough that matter
arises under the second sub-section of S. 14
and will have to be considered quite apart
from the application made by the company to
have the award made into rule of Court."
Again the question whether a plea of limitation can be
raised with respect to the suo matu filing of the award by
the arbitrator was left open as. follows :
"...... As to whether, similar objections can
be raised in answer to the award filed at the
instance of the arbitrator is a question which
we cannot go into the present appeal and no
expression of opinion must be attributed to us
on that point."
Therefore, it is clear from what is stated above that in the
said decision this Court had no occasion to consider whether
an award can be filed suo motu by an arbitrator nor the
further question whether such filing should be within the
period of limitation provided under the relevant provisions
of the Limitation Act. In the case before us the period of
limitation is dealt with under Entry 119 of the Schedule to
the Limitation Act, 1963. As the arbitrator in this case
made his Award on August 24, 1971 and filed the same the
next day, the question of limitation, if any, does not at
all arise. We do not express any opinion whether the period
of limitation will apply when the arbitrator files his award
Suo 887Sup.CI/72
240
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 7 of 12
motu. As the filing of the Award by the Arbitrator suo motu
is legal, the first contention of Mr. Shroff has to be
rejected.
The second contention of Mr. Shroff is that this Court is
not "Court" as &fined under s. 2(c) of the Act, where the
Award could be filed. Section 2 (c) of the Act is as
follows :
"2. In this Act, unless there is anything
repugnant in the subject or context,-
(c) "Court" means a Civil Court having
jurisdiction to decide the questions forming
the subject matter of the reference if the
same had been the subject matter of a
suit, but
does not, except for the purpose of
arbitration proceedings under section 21,
include a Small Cause Court."
According to Mr. Shroff the Award should have been filed,
not in this Court, but in the Court of the Addl. District
Judge, Mandsaur, as that is the Court which will have
jurisdiction to entertain the suit regarding the subject
matter of the reference. We are not inclined to accept this
contention of Mr. Shroff. It should be noted that the
opening words of s. 2 are "In this Act, unless there is
anything repugnant in the subject or context. Therefore the
expression "Court’ will have to be understood as defined in
s. 2(c) of the Act, only if there is nothing repugnant in
the subject or context. It is in that light that the
expression "Court" occurrmg in s., 14(2) of the Act will
have to be understood and interpreted. It was this Court
that appointed Shri V. S. Desai on January 29, 1971, by
consent of parties, on an arbitrator and to make his Award.
It will be seen that no further directions were given in the
said order which will indicate that this Court had not
divested itself of its jurisdiction to deal with the Award
or matters arising out of the Award. In fact the
indications are to the contrary. The direction in the order
dated January 29, 1971 is that the arbitrator is "to make
his Award". Surely the law contemplates further steps to be
taken after the Award has been made, and quite naturally the
forum for taking the further action is only this Court.
There was also direction to the effect that the parties are
at liberty to apply for extension of time for making the
Award., In the absence of anv other court having been
invested with such jurisdiction by the order, the only
concluonsion that is possible is that such a request must be
made only to the court which passed that order, namely, this
Court.
That this Court retained complete control over the
arbitration proceedings is made clear by its orders dated
February 1, 1971 and April 30, 1971. On the former date,
after hearing counsel for both the parties, this Court gave
direction that the record of
241
the arbitration proceedings be called for and delivered to
the Sole Arbitrator Mr. V. S. Desai. On the latter date,
again, after hearing the counsel, this Court extended the
time for making the Award by four months and further
permitted the arbitrator to hold the arbitration proceedings
at Bombay. The nature of the order passed on January 29,
1971 and the subsequent proceedings, referred to above,
clearly show that this Court retained full control over the
arbitration proceedings.
Mr. Shroff referred us to the fact that in the order dated
January 29, 1971, it is clearly stated "The appeal is
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 8 of 12
allowed". According to him, when the appeal has come to an
end finally, this Court had lost all jurisdiction regarding
the arbitration proceedings and therefore the filing of the
Award should be only in the Court as defined in s. 2(c) of
the Act. Here again, we are not inclined to accept the
contention of Mr. Shroff. That the appeal was allowed, is
no doubt correct. But the appeal was allowed by setting
aside the order of the High Court and this Court in turn
appointed Mr. V. S. Desai as the Sole Arbitrator. All other
directions contained in the order dated January 29, 1971 and
the further proceedings, as pointed out earlier, indicate
the retention of full control by this Court over the
arbitration proceedings.
In Ct. A. Ct. Nachiappa Chettiar and others v. Cf. A. Cf.
Subramaniam Chettiar(1), the question arose whether the
trial eourt had jurisdiction to refer the subject-matter of
a suit to an arbitrator when the decree passed in the suit
was pending appeal before the High Court. Based upon s. 21,
it was urged before this Court that the reference made by
the trial court, when the appeal was pending, and the award
made in consequence of such reference, were both invalid as
the trial court was mot competent to make the order of
reference. This Court rejected the said contention and after
a reference to ss. 2(c) and 21 of the Act held that
the expression "Court" occurring in s. 21 includes also the
Appellate Court, proceedings before which are a continuance
of the suit. It was further held that the word "suit" in s.
21 includes also appellate proceedings. In our opinion,
applying the analogy of the above decision, the expression
"Court" occurring in s. 14 (2) of the Act will have to be
understood,in the context in which it occurs. So
understood, it follows that this Court is the Court under s.
14(2) where the arbitration Award could be validly field.
The decision in Union of India v. Surjeet Singh Atwal(2)
relied on by Mr. Shroff, dealt with a different aspect and
therefore, it is not necessary for us to refer to the same.
The above reasoning leads us to the conclusion that the
filing of the Award in this Court by the arbitrator was
valid and legal. The second contention of Mr. Shroff will
stand rejected.
(1) [1960] 2 S.C.R. 209.
(2) [1969] 2 S.C.R. 211.
242
The third contention of Mr. Shroff is that the arbitrator
had no jurisdiction to award interest from a period anterior
to the date of award or reference. Before we deal with this
contention, it is necessary to refer to the findings of the arbit
rator in his Award. Issues Nos. 6, 7 and 19 frame by
the arbitrator and which are relevant on this aspect are as
follows:
"6 (a) Was the claimant entitled to the
payment for supply as well as for erection on
the total weight of 463.939 M. tons inclusive
of electrodes ?
6 (b) If not, what are the weights on which
the price of supply and the erection charges
are to be calculated.
7. What is due to the claimant from the
respondent in respect of the supply and
erection of the penstocks ?
19. Are any of the parties entitled to
interest and/ or any other relief."
On issue No. 6(a) the arbitrator found that the firm was
entitled to the same weight both for the calculation of
price as well as for the price for erection and the said
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 9 of 12
weight was 463.939 M. Tons inclusive of electrodes. In view
of the above finding on issue No. 6(a), the arbitrator held
that issue No. 6(b) does not survive. On issue No. 7 he
found that for the price of supply and erection of 463.939
M. Tons at the rate specified in contract, the total price
due to the firm comes to Rs. 12,15,520.18P. It was admitted
before the arbitrator that the firm had been paid by the
State of sum of Rs. 10,35,867/. In view of this admission
the arbitrator found that the balance payable to the firm
towards the price for supply and erection is, Rs.
1,79,653.18 P.
On issue No. 19, the arbitrator found that the firm is
entitled to interest at 9% per annum on the balance of
Rs. 1,79,653.18 P. from June 7, 1958, the date on which the
final inspection of the, penstock took place. The interest
was to be paid till the date of the decree. It is on the
basis of the above findings that the arbitrator made the
Award, the operative part of which has already been
extracted in the earlier part of the judgment. The
direction regarding the payment of Rs. 1,79,653.18 P. is not
challenged by the State. It is only the direction regarding
the period from which interest is payable, that is under
challenge. The arbitrator has made the interest payable
from June 7,
243
1958, on the ground that it was the date on which final
inspection took place and when the amount become payable to
the. respondent.
Mr. Shroff referred us to a decision of the Judicial Com-
mittee and to certain decisions of this Court to the effect
that s. 34 of the Code of Civil Procedure will not apply to
the proceedings before an arbitrator, as he is not a Court
and that interest cannot be awarded by way of damages. He
further referred to those decisions in support of his
contention that in the absence of any usage or contract,
express or implied, or of any provision of law to justify
the award of interest on an amount for a period before the
institution of the suit, interest anterior to the date of
the suit cannot be allowed. The decisions referred to by
Mr. Shroff are Bengal Nagpur Raliway Company Limited v.
Ruttanji Ramji and others(1),, Seth Thawardas Pherumal v.
The Union of India(2), Mahabir Prashad Rungta v. Durga
Datt(3), Union of India v. A. L. Rallia Ram(4), Vithal Das
v. Rupchand and others(5) and Union of India v. Bungo Steel’
Furniture Pvt. Ltd. (6). It is no doubt true that for
awarding interest under the Interest Act, 1939, or under s.
34 of the. Code of Civil Procedure, certain circumstances
must exist. But one of the principles laid down is that
interest prior to the institution of a suit can be awarded
if there is any provision of a suit can be awarded if there
is any provision of law to justify the award of such
interest. In the cases, referred to above, it is seen that
there was neither any agreement pleaded for payment of
interest; nor was any provision of law entitling the party
to recover interest prior to the period of the suit or
arbitration proceedings, referred to or relied upon. Under
such circumstances it was held that the arbitrator or a
court had no power to award interest prior to the date of
the Award.
In Union of India v. Bungo Steel Furniture Pvt. Ltd.
17)this Court recognised the power of an arbitrator to award
interest on the amount of the award from the date of the
award till the date of the decree. According to Mr. Shroff,
the power of the arbitrator to award interest is only from
the date of the award and not for any period anterior to
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 10 of 12
that date.
In Firm Madanlal Roshanlal Mahajan v. Hukamchand Mills Ltd.
Indore(7), the power of the arbitrator, to whom the subject
matter of a suit had been referred for arbitration, to award
pendente life interest was considered by this Court. It was
held in
(1) L.R. 65 I.A. 66. (2) [1955] 2 S.C.R. 48.
(3) [1961] 3 S.C.R. 639. (4) [1964] 3 S.C.R. 164.
(5) [1966] Supp. S.C.R. 164. (6) [1967] 1 S.C.R. 324.
(7) [1967] 1 S.C.R. 105.
244
the said decision that all the disputes in the suit were
referred to the arbitrator for his decision. One of the
disputes, so referred, was whether the respondent therein
was entitled to pendente lite interest. h was held that
though in terms, s. 34 C.P.C. does not apply to the
arbitration, it was an implied term of the reference in the
suit that the arbitrator was to decide the dispute,
according to law, to grant such relief with regard to
pendente lite interest as the Court itself could give, if it
decided the dispute. It was further held that such a power
of the arbitrator was not fettered either by arbitration
agreement or by the Act. The decision in Seth Thawardas
Pherumal v. The Union of India(1) distinguished on the
ground that the said decision is silent on the question
whether an arbitrator can award interest during the pendency
of the arbitration proceedings if all the disputes in the
suit including the claim for interest were referred for
arbition.
From the decision in Firm Madanlal Roshanlal Mahajan v.
Hukamchand Mills Ltd. Indore(2), it is clear that if all
the disputes are referred for arbitration, the arbitrator
has power to award interest pendente lite, i.e. during the,
pendency of the arbitration proceedings.
In the case before there is no controvery that all the
disputes including a claim for payment of the amount with
interest was referred to the arbitrator. The arbitrator, as
pointed out earlier, found that the firm was entitled to the
Payment as price in the sum of Rs. 1,79,653.18 P. The
arbitrator has further found that this amount became payable
as balance price for the goods supplied by the firm on June
7, 1958, on which date the final inspection took place. If
that is so, section 61 of the Sat-, of Goods Act, 1930
squarely applies and it saves the right of the seller (in
this case the firm) to recover interest, where by law
interest is recoverable. Sub-section (2) of s. 61, which is
material is as follows :
"61 (2) In the absence of a contract to the
contrary the Court may award interest at such
rate as it thinks fit on the amount of the
’Price-,
(a) to the seller in a suit by him for the
amount of the price-from the date of the
tender of the or from the date on which the
price was payable.
(b) to the buyer in a suit by him for the
refund of the price in a case of a breach of
the contract on the part of the seller-from
the date on which the payment was made."
(1) [1959] 2 S.C.R. 48.
(2) [1967] 1 S.C. R. 105.
245
in the case before us, admittedly the contract does not pro-
vide that no interest is payable on the amount that may be
found due to any one of them. if so, it follows that the
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 11 of 12
seller, namely, the firm is entitled to claim interest from
the date on which the price became due and payable. The
finding of the arbitrator in this case is that the price
became payable on June 7, 1958. As held by this Court in
Union of India v. A. L. Rallia Ram(1), which related to an
arbitration proceeding, under sub-section (2) of s. 61, in
the absence of a contract to the contrary, the seller is
eligible to be awarded interest on the amount of the price
for the goods sold. On this principle it follows that the
award of interest from June 7, 1958 is justified.
If the contention of Mr. Shroff that under no circumstances
anarbitrator can award interest prior to the date of the
Award, or prior to the date of reference, is accepted, then
the position will be very anomalous. As an illustration, we
may point out that there may be cases where the only
question that is referred to the arbitrator is whether any
of the parties is entitled to claim interest on the amount
due to him from a date which may be long anterior to the
date of reference. When such a question is referred to the
arbitrator, naturally he has to decide whether the claim for
award of interest from the date referred to by the parties
is acceptable or not. If the arbitrator accepts that claim,
he will be awarding interest from the date which will be
long prior even to the date of reference. Therefore, the
question ultimately will be whether the dispute referred to
the arbitrator included the claim for interest from any
particular period or whether the party is entitled by
contract or usage or by a provision of law for interest from
a particular date.
Mr. Shroff further contended that the award of interest at
9% per annum is exorbitant. The short answer for negativing
this contention is that it is seen from the claim statement
filed by both the appellant and the respondent-firm that
each of them claimed for payment of the amount, due to them
with interest at 12% per annum under s. 61 of the Sale of
Goods Act. Therefore, it follows that the rate of interest
awarded is not excessive. As we have already held that the
arbitrator has got power in this case to award interest from
June 7, 1958 at the rate specified by him, the third
contention of Mr. Shroff will have to be rejected.
The last contention of Mr. Shroff relates to the direction
regarding the refund of Rs. 15,414.19 P. The contention is
that this amount has already been taken into account by the
arbitrator when he directed the payment of Rs. 1,79,653.18
P. Mr. Shroff
(1) [1964] 3 S.C.R. 164.
246
was not able to satisfy us that the amount, directed to be
paid as refund, has been already taken into account in the
amount fixed as the balance price payable by the State.
Therefore, this contention also will have to be rejected-.
Now that we have rejected all the contentions of Mr. Shroff
raised in C.M.P. No. 5802 of 1971, it follows that the
prayer asked for,therein cannot be granted.
Now coming to C.M.P. No. 5801 of 1971, filed by the firm,
that application is accepted and a judgment and decree are
passed on the basis of the Award as against the State is
favour of the respondent-firm. The appellant State will pay
to the respondent-firm a sum of Rs. 1,79,653.18 P. with 9%
per annum simple interest from June 7, 1958, till the date
of the decree and thereafter at 6% till the date of payment.
The appellant State will also refund to the respondent-firm
a sum of Rs. 15,414.19 P. which they have recovered from
them as excess railway freight.
In the result, C.M.P. No. 5802 of 1971 will stand dismissed
http://JUDIS.NIC.IN SUPREME COURT OF INDIA Page 12 of 12
with costs. C.M.P. No. 5801 of 1971 is allowed with costs.
A. decree as stated above will issue.
V.P.S.
247