Full Judgment Text
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PETITIONER:
STATE OF ORISSA
Vs.
RESPONDENT:
NIRANJAN SWAIN
DATE OF JUDGMENT10/08/1989
BENCH:
VERMA, JAGDISH SARAN (J)
BENCH:
VERMA, JAGDISH SARAN (J)
SHARMA, L.M. (J)
CITATION:
1990 AIR 685 1989 SCR (3) 821
1989 SCC (4) 269 JT 1989 (3) 366
1989 SCALE (2)345
CITATOR INFO :
D 1990 SC1128 (5,6)
ACT:
Arbitration Act, 1940: Award--Absence of reasons--Wheth-
er affects validity--Valid and invalid part--Severability
and effect of-Arbitrator--A competent witness--Court to
exercise power of calling him as witness cautiously.
Interest Act, 1978: Arbitration--Reference before the
commencement of Act--Arbitrator--Whether empowered to grant
interest upto the date of submission or pendente lite upto
the date of award.
HEADNOTE:
The respondent was awarded a contract for construction
of Earth Dam by the appellant-State of Orissa. His dispute
relating to the remaining Claim for payment was referred to
an arbitrator for adjudication. Before the arbitrator the
respondent claimed (i) the balance amount due to him; (ii)
his security deposit with the appellant; and (iii) interest,
on the balance amount due and security deposit, upto the
date of award. On 2.12.1980 the arbitrator gave a lump-sum
award in favour of the respondent inclusive of interest upto
the date of award.
The Trial Court made the award a rule of the Court and
accordingly passed a decree in favour of the respondent for
the amount awarded together with interest at the rate of six
per cent from the date of decree. The appeal filed by the
State was dismissed by the High Court.
In this appeal it was contended on behalf of the State
that the award was invalid because; (i) the arbitrator gave
no reasons; (ii) no interest could be awarded by the arbi-
trator upto the date of award, and the award being inclusive
of interest was not severable. it was also contended that
the High Court was wrong in assuming that the Trial Court
was correct in refusing to call the arbitrator for being
examined.
Allowing the appeal partly,
HELD: 1. The absence of reasons in the award does not by
itself result in its invalidity except where the giving of
reasons by the
822
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arbitrator for the award is the requirement of the arbitra-
tion agreement or the deed of submission or an order made by
the Court or statute governing the arbitration. [823G-H]
Raipur Development Authority & Ors. v. M/s Chokhamal
Contractors and Ors., [1989] 2 S.C.C. 721, applied.
2. Even though an arbitrator is a competent witness, the
Court must exercise the power of calling him as a witness
cautiously and sparingly and not in a routine manner. When
the Court is requested to call the arbitrator for examina-
tion as a witness it must be shown that there is some cogent
ground for his examination within the permissible limits.
[826D]
In the instant case, nothing has been shown to indicate
that it was at all necessary to call the arbitrator as a
witness to depose on any matter which could legitimately be
examined by the Court in the proceedings. The High Court
was, therefore, justified in refusing to call the arbitrator
for examination. [826E]
State of Orissa v. D.C. Routray, A.I.R. 1983 Orissa 163,
approved.
3. In cases wherein the reference to arbitrator was made
prior to the commencement of the Interest Act, 1978, on
August 19, 1981 the arbitrator is not empowered to grant
interest for the period either before the commencement of
the proceedings or during the pendency of the arbitration.
In the instant case, the reference to arbitrator was
made and even the award was given prior to the commencement
of the Interest Act, 1978. Therefore, the arbitrator had no
jurisdiction to grant any amount as interest for any period
either upto the date of submission of the claim before him
or pendente lite upto the date of the award. [827F-G]
Executive Engineer (Irrigation), Balimela & Ors. v.
Abhaduta Jena & Ors., [1988] 1 SCC 418, applied.
Gujarat Water Supply and Sewerage Board v. Unique Erec-
tors (Gujarat) (P) Ltd. & Anr., [1989] 1 SCC 532, held
inapplicable.
4. In the instant case, the inclusion of the amount of
interest in the lumpsam award by the arbitrator does not
render the whole award
823
invalid since it is possible to sever the invalid part
relating to interest. The balance amount of award remaining
after deduction of interest would not be tainted with any
invalidity, and it would be just and proper to sustain the
award to this extent only. The decree is, therefore, modi-
fied to this extent. [828E-F; 829C]
JUDGMENT:
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3297 of
1981.
From the Judgment and Order dated 17.8.1981 of the
Orissa High Court in Misc. Appeal No. 145 of 1981.
R.K. Mehta for the Appellant.
A.K. Sen, Arun Madan, R.K. Sahoo and J.D.B. Raju for the
Respondent.
The Judgment of the Court was delivered by
VERMA, J. This appeal by special leave under Article 136
of the Constitution challenges the judgment dated 17.8.1981
of the High Court of Orissa dismissing Misc. Appeal No. 145
of 1981 against the judgment dated February 28, 1981 passed
by the Subordinate Judge, Baripada, District Mayurbhanj in
Title Suit No. 106 of 1980 by which the arbitrator’s award
for a sum of Rs.21,11,835.00 in favour of the plaintiff-
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respondent, Niranjan Swain, was made a rule of the court and
a decree was passed for that amount together with interest
at the rate of six per cent per annum from the date of the
decree.
The main ground taken in this appeal was that the arbi-
trator’s award was per se invalid since it gave no reasons.
Some other points were raised to which we shall advert
later. The question of invalidity of an arbitrator’s award
merely on the ground that it gave no reasons was involved
for decision in a large number of matters pending in this
Court and in view of the importance of this common question
the bunch of cases was heard and decided by the Constitution
Bench in Raipur Development Authority and others v. M/s
Chokhamal Contractors and others, [1989] 2 SCC 72 1. The
Constitution Bench has held that the absence of reasons in
the award does not by itself result in its invalidity except
where the giving of reasons by the arbitrator for the award
is the requirement of the arbitration agreement or the deed
of submission or an order made by the Court or statute
governing the arbitration. Accordingly, this contention
raised in the present appeal
824
and all other similar matters was rejected by the Constitu-
tion Bench with a direction that all such cases should go
back to the Division Bench for disposal in accordance with
law on the remaining points surviving therein for decision.
This is how the present appeal has come before us.
The conclusion reached by the Constitution Bench in the
above case and the direction given therein is as under:
"Having given our careful and anxious consid-
eration to the contentions urged by the par-
ties we feel that law should be allowed to
remain as it is until the competent legisla-
ture amends the law. In the result we hold
that an award passed under the Arbitration Act
is not liable to be remitted or set aside
merely on the ground that no reasons have been
given in its support except where the arbitra-
tion agreement or the deed of submission or an
order made by the court such as the one under
Section 20 or Section 21 or Section 34 of the
Act or the statute governing the arbitration
requires that the arbitrator or the umpire
should give reasons for the award. These cases
will now go back to the Division Bench for
disposal in accordance with law and the view
expressed by us in this decision."
The only points now urged by Shri G.L. Sanghi, learned
counsel for the appellant, are two, namely, (1) no interest
could be awarded by the arbitrator in the present case upto
the date of the award but the same is obviously included in
the lumpsum award of Rs.21, 11,835.00; and the invalid part
of the award not being severable from the rest, the entire
award must be set aside; and (2) the High Court in its
cryptic order has wrongly assumed as correct the trial
court’s refusal to call the arbitrator for being examined in
the court. The learned counsel contended that any one of
these defects was sufficient to set aside the entire award.
In reply Shri Arun Madan, learned counsel for the re-
spondent, primarily contended that the arbitrator was empow-
ered to award interest upto the date of award. In the alter-
native, learned counsel for the respondent contended that
the invalid part of the award relating to grant of interest
upto the date of the award was severable and, therefore,
only that part should be set aside instead of setting aside
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the whole award. He also contended that the High Court did
not make any wrong assumption and refusal to call the arbi-
trator for examination
825
was justified. It was also urged that in the present case
there was nothing to indicate that calling the arbitrator
for examination in the court was at all necessary.
Before proceeding to consider the surviving points now
urged on behalf of the appellant we may refer briefly to the
few facts which alone are relevant at this stage. The con-
tract for the work "Construction of Earth Dam (balance work)
of Sansiali Nai M.I. Project" in Division Mayurbhanj, Bari-
pada, was given by the appellant, State of Orissa, to re-
spondent, Niranjan Swain and the agreement between the
parties contained an arbitration clause for adjudication of
disputes arising out of the contract. Consequently, the
dispute relating to the remaining claim for payment made by
the respondent was referred for adjudication to the arbitra-
tor in terms of the arbitration clause contained in the
agreement. The respondent’s claim before the arbitrator was
for the amount of Rs. 19,04,689.00 as the balance amount due
to him and for return of the security deposit of
Rs.28,000.00 or in all the total of Rs. 19,32,689.00 as the
principal amount. The respondent also claimed interest on
the sum of Rs. 19,04,689.00 at the rate of 18 per cent per
annum from 15.4.1977 to 15.5.1978, namely, the date of
submission of the statement of claim before the arbitrator
amounting to Rs. 3,71,4 14.00 and interest on the security
deposit of Rs. 28,000.00 at the same rate from 15.9.1977 to
15.5.1978 amounting to Rs.3,360.00. The respondent further
claimed interest at the rate of 18% per annum from 16.5.
1978 till payment of the amount to the respondent by the
appellant. In the statement of claim the total amount
claimed was mentioned at Rs.23,07,463.00 together with
interest @ 18% per annum on Rs. 19,32,689.00 from 16.5.1978
to the date of the award. The appellant denied the respond-
ent’s claim including the claim for payment of interest.
The arbitrator gave the award dated 2.12.1980
as under:
"AWARD
After perusal of the claim statements and
counter statements, the counter claim of the
respondent, the rejoinder of the claimant, the
documentary and oral evidence and on a careful
consideration of the submissions and arguments
of the parties and the IR advocate, I have
come to the conclusion that the claimant is
entitled to get a sum of Rs.21,11,835.00
(Rupees twenty-one lakhs eleven thousand eight
hundred thirty-five only) in full and final
satisfac-
826
tion of his claims till the date of the award
from the respondent. The respondent is not
entitled to get any amount towards his counter
claim from the claimant.
sd/-
B.S.
Patnaik
Arb
itrator
2/1
2/1980"
(emphasis
supplied)
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It is on the basis of the contents of this award that
the above contentions have to be considered and decided.
We may dispose of the second point urged by learned
counsel for the appellant straightaway since it does not
merit any elaborate consideration. The argument of the
learned counsel for the appellant relating to calling the
arbitrator for examination as a witness in the court was
based on the decision of the Orissa High Court in State of
Orissa v. D.C. Routray, AIR 1983 Orissa 163. That decision
itself says that even though an arbitrator is a competent
witness, the court must exercise the power of calling him as
a witness cautiously and sparingly and not in a routine
manner. It is obvious that when the court is requested to
call the arbitrator for examination as a witness it must be
shown that there is some cogent ground for his examination
within the permissible limits. Nothing has been shown in the
present case to indicate that it was at all necessary to
call the arbitrator as a witness to depose on any matter
which could legitimately be examined by the court in the
proceedings. This alone is sufficient to justify the view
taken by the High Court. This contention of learned counsel
for the appellant is, therefore, rejected.
The only point surviving for consideration now relates
to the grant of interest by the arbitrator and its effect on
the validity of the award. It is obvious from the contents
of the award and the details of the respondent’s claim
before the arbitrator that a lumpsum amount of
Rs.21,11,835.00 awarded in the respondent’s favour by the
arbitrator was in full and final satisfaction of all the
respondent’s claims before the arbitrator till the date of
the award. As mentioned earlier, the respondent’s claim
before the arbitrator mentioned the sum of Rs.19,04,689.00
plus the security deposit of Rs.28,000.00 or in all Rs.
19,32,689.00 only as the total principal amount of the claim
and the sum claimed in excess thereof was on account of
interest. The grant of a lumpsum amount of Rs.21,11,835.00
in the award in full and final
827
satisfaction of all the claims till the date of the award
must, therefore, obviously include interest also. It is
equally plain that the claim for the entire principal amount
was not accepted by the arbitrator. The effect on the ques-
tion of validity of the award has to be decided on this
basis.
It is settled by the decision of this Court in Executive
Engineer (Irrigation), Balimela and others v. Abhaduta Jena
and others, [1988] 1 SCC 4 18 that in cases wherein the
reference to arbitration was made prior to the commencement
of the Interest Act, 1978, on August 19, 1981, the arbitra-
tor is not empowered to grant interest for the period either
before the commencement of the proceedings or during the
pendency of the arbitration. This is clear from the position
summarized in Abhaduta Jena’s case (supra), as under:
"In the remaining cases which arose before the
commencement of the Interest Act, 1978, the
respondents are not entitled to claim interest
either before the commencement of the proceed-
ings or during the pendency of the arbitra-
tion. They are not entitled to claim interest
for the period prior to the commencement of
the arbitration proceedings for the reason
that the Interest Act, 1939, does not apply to
their cases and there is no agreement to pay
interest or any usage or trade having the
force of law or any other provision of law
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under which the claimants were entitled to
recover interest. They are not entitled to
claim pendente lite interest as the arbitrator
is not a court nor were the reference to
arbitration made in suits."
The learned counsel for the respondent placed reliance
on the decision of this Court in Gujarat Water Supply and
Severage Board v. Unique Erectors (Gujarat) (P) Ltd. and
another, [1989] 1 SCC 532 in support of his primary conten-
tion that the arbitrator was empowered to grant interest
upto the date of award. We are unable to construe this
judgment in the manner suggested by learned counsel for the
respondent. The decision clearly refers to Abhaduta Jena’s
case (supra) and also follows it. The primary contention of
the learned counsel for the respondent that the award does
not suffer from any infirmity by grant of interest therein
upto the date of award is, therefore, rejected.
It cannot, therefore, be disputed that in the present
case wherein the reference to arbitration was made and even
the award was given prior to the commencement of the Inter-
est Act, 1978, on August 19, 1981, the arbitrator had no
jurisdiction to grant any amount as interest
828
for any period either upto the date of submission of the
claim before him or pendente lite upto the date of the
award.
From the above, it follows that inclusion of the amount
of interest in the lumpsum award of Rs.21,11,835.00 by the
arbitrator does render that part of the award invalid.
The question now is of the consequence of this invalidi-
ty on the entire award. The learned counsel for the appel-
lant contended that the invalid part of the award not being
severable from the rest the entire award must be set aside.
On the other hand, the learned counsel for the respondent
urged that there is no difficulty in separating the invalid
part from the rest and this could easily be done by deduct-
ing from the total sum of Rs.21,11,835.00 granted in the
award, the maximum interest calculated at the rate of 18%
per annum which was claimed by the respondent before the
arbitrator upto the date of the award (2.12.1980). He urged
that such a view cannot, in any manner, prejudice the appel-
lant and if at all it can work only to the detriment of the
respondent who make this suggestion.
In our opinion it is possible in the present case to
sever the invalid part relating to interest in order to
sustain the valid part of award. Accordingly, we requested
both sides to calculate the total amount of interest and
give to us the agreed figure. The agreed figure of Rs.
12,65,87 1.97 has been given by them as the maximum amount
of interest which could be included in the award of Rs.21,
11,835.00, in accordance with the respondent’s claim before
the arbitrator. It is common ground that the invalid part of
the award on the basis of grant of interest by the arbi-
trator cannot exceed the amount of Rs. 12,65,87 1.97 out of
the total Sum of Rs.21, 11,835.00. It is also not disputed
that the balance amount remaining after deduction of Rs.
12,65,871.97 cannot be tainted with any invalidity. The
learned counsel for the respondent has confined the respond-
ent’s claim in the alternative to upholding of the award
only in respect of this balance amount and no more.
We do not see any reason why the award should not be
modified and sustained to this extent only. We are conscious
of the fact that the interest amount of Rs. 12,65,871.97 so
calculated for deduction from the total amount of Rs.21,
11,835.00 granted in the award is in excess of the interest
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calculated on the remaining balance treated as principal
amount at this stage on the above suggestion. However, in
the peculiar circumstances of this case and in view of the
alternative contention on
829
behalf of the respondent, we see no reason for rejecting, in
the present case, this alternative contention also. Viewed
in this manner, the balance amount of the award would not be
tainted with any invalidity and, therefore, it would also be
just and proper to sustain the award to this extent only.
We, therefore, reject the contention of learned counsel for
the appellant that the entire award should be set aside and
instead accept the alternative contention of learned counsel
for the respondent.
In view of the above, the agreed amount of interest upto
the date of the award (2.12.1980), that is, Rs. 12,65,871.97
is deducted from the amount of Rs.21,11,835.00 leaving
the balance amount of Rs.8,45,963.03 say Rs.8,45,963.00.
This amount of Rs.8,45,963.00 survives as the valid part of
the award and, therefore, the decree of the courts below is
modified to this extent so that the decree in favour of the
respondent now remains for the sum of Rs.8,45,963.00 only
together with interest thereon at the rate of 6% per annum
from the date of the decree passed by the trial court until
payment. In view of the partial success of both sides, the
parties shall bear their own costs throughout. The appeal is
partly allowed in this manner.
We are informed that the respondent has withdrawn a
certain amount against the decree during the pendency of
this appeal. We direct that the amount due to the respondent
shall be calculated on the basis of this modified decree. In
case, the amount obtained by the respondent is less than the
amount to which the respondent is found entitled as a result
of this modified decree, the remaining amount shall be paid
to the respondent with interest @ 12% per annum from 8.12.
1981 in terms of the interim order of that date passed in
this appeal; and in case, the amount obtained by the re-
spondent is in excess of that to which he is found entitled,
the excess amount shall be refunded by the respondent to the
appellant similarly with interest at the same rate of 12%
per annum from 8.12. 1981 upto the date of its refund.
T.N.A. Appeal allowed partly.
830