J.C. Jhina vs H.P. Housing Board

R.L. Khurana, J.—On a dispute having arisen between the parties qua agreement No. 5 of 1987-88 regarding construction of Central Jail Building at Kanda, Shimla (SH: Construction of Main Outer Boundary Wall from R.D. 870 to 1088), the matter was referred to arbitration.

The Arbitrator entered upon the reference on 1.1.1992. He gave his Award dated 29.3.1994. Such award was filed in the Court for being made the rule of the Court and the same came to be registered as Civil Suit No. 102 of 1994. Both the parties preferred objections to the award under Sections 30/33, Arbitration Act, 1940. A learned Single Judge of this Court on 9.9.1996 allowed the objections and after setting aside the award dated 29.3.1994 remitted it back to the Arbitrator for decision afresh after examining the points raised by the parties befor e the Court.

The Arbitrator on the matter having been remitted back to him for decision afresh, reheard the parties and on consideration of the material placed befor e him made his award on 18.11.1997 whereby he allowed the following claims of the petitioner-decree holder.

Claim Particulars Amount Amount

No. of the claim claimed awarded

Price escalation due

under Clause 10(c) Rs. 79,770.46P Rs. 24,809.66P

Payment under clause

(12-A) Rs. 4,59,236 Rs. 2,87,442.24P

Payment of brick work

in super structure Rs. 10,718.72P Rs. 10,718.72P

Cost of material lying

at site Rs. 50,283 Rs. 47,254.39P

Interest on the amounts withheld at the rate

of 18% per annum 4,64,262

The award dated 18.11.1997 was filed in Court for being made the rule of the Court. It came to be registered as Civil Suit No. 20 of 1998. Notices of the award having been filed in Court were issued to the parties. Consequent upon such notices, the Respondent-judgment debtor, Housing Board, preferred objections under Sections 30/33, Arbitration Act, 1940 to the award being made the rule of the court. Such objections were dismissed on 4.1.1999. The award dated 18.11.1997 was made the rule of the court and a decree in terms thereof came to be passed in favour of the petitioner-decree holder and against the Respondent-judgment debtor. The operative part of the judgment dated 4.1.1999 passed in Civil Suit No. 20 of 1998 reads :

Consequent upon the dismissal of the objections preferred by the Defendant Housing Board under Sections 30/33 of the Arbitration Act, 1940, the award dated 18.11.1997 of the Arbitrator is made the rule of the court and a decree in terms thereof is passed in favour of the Plaintiff and against the Defendant Housing Board. The Plaintiff shall also the entitled to interest on the decretal amount at the rate awarded by the Arbitrator from the date of the award till realisation. No orders as to costs.

(Emphasis supplied)

No appeal was preferred by the Respondent-judgment debtor against the judgment and decree dated 4.1.1999. The same thus became final.

The Petitioner-decree holder sought the enfor cement of the decree dated 4.1.1999 vide execution petition No. 12 of 1999. Admittedly, a sum of Rs. 9,25,410.21P was received by the Petitioner-decree holder from the Respondent-judgment debtor in such proceedings as under:

(i) Amount of award Rs. 8,34,487.01P (ii) Interest on Rs. 3,70,225.01P at the rate of 18% per annum with effect from 19.11.1997 (the date of award) to 31.3.1999 (the date of payment) Rs. 90,923.20P ___________________________________________________________________________________ Total Rs. 9,25,410.21P ___________________________________________________________________________________ 7. The petitioner-decree holder has filed the present execution petition seeking to recover another sum of Rs. 1,14,360.60P alleged to be due under the decree dated 4.1.1999 after adjusting the amount of Rs. 9,25,410,21P received from the Respondent judgment-debtor. The outstanding amount claimed has been calculated as under:

(i) Principal amount due under the decree Rs. 8,34,487.01P (ii) Interest at the rate of 18% per annum on the decretal amount from 18.11.1997 (date of award) to 31.3.1999 (date of receipt of the amount) Rs. 2,05,283.80p (iii)Total amount due on 31.3.1999 Rs. 10,39,770.81P (iv) Less amount received Rs. 9,25,410.21P (v) Balance outstanding amount under the decree Rs. 1,14,360.60P ____________________________________________________________________________

The Respondent-judgment debtor has resisted the petition. It has been averred vide reply dated 11.7.2001 that the entire amount due under the decree stands paid. The decree stands satisfied and nothing is due thereunder. It was further averred that the decretal amount was onlyRs. 3,70,225.01P and only on this amount interest at the rate of 18% per annum from the date of the award till the date of realisation of the amount was payable. No interest is payable on the amount of Rs. 4,64,262 awarded as interest under claim No. 7 by the Arbitrator.

Be it stated that though the award of the Arbitrator dated 18.11.1997 was dealt with and made the rule of the court under, the provisions of the Arbitration Act, 1940, it is not disputed by the parties that the matter has now to be dealt with in accordance with the provisions of the Arbitration and Conciliation Act, 1996 (for short ''the Act of 1996'') in view of the ratio laid down by the Hon''ble Apex Court in Thyssen Stahlunion Gmbh Vs. Steel Authority of India Ltd., .

Shri Deepak Gupta, Advocate, appearing for the Respondent-judgment debtor has contended that a sum of Rs. 4,64,262 was awarded by the learned Arbitrator as interest at the rate of 18% per annum on a sum of Rs. 3,70,225.01P awarded under various heads of claim-for the period 1.12.1990 to the date of the award, that is, 18.11.1997. He, therefore e, has submitted that no interest is payable on the amount of interest.

The learned Counsel for the decree holder petitioner, on the other hand, relying upon the words "a sum directed to be paid by an arbitral award" appearing in clause (b) of sub-section (7) of Section 31 of the Act, has contended that Rs. 4,64,262 awarded by the learned Arbitrator as interest for the period 1.12.1990 to 18.11.1997, was a sum directed to be paid by an arbitral award within the meaning of Section 31(7)(b) of the Act and as such the Respondent-judgment debtor is liable to pay interest thereon at the rate of 18% per annum from the date of award till the date of payment.

Section 31 of the Act of 1996 in so far as it is material for the purpose of the present case reads:

(1)�.

(2)�.

(3)�.

(4)�.

(5)....

(6)�.

(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 moneyfor 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.

(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. (8)�.

The sole question thus depends on the meaning of the expression "a sum directed to be paid by an arbitral award" appearing in clause (b) of Sub-section (7) of Section 31 of the Act.

In Oil and Natural Gas Commission Vs. M.C. Clelland Engineers S.A., the arbitrators by their award had directed the Appellants therein to pay the following sums to the Respondents:

(i) US $ 1004.50 being interest on US $ 40,102.97 at 12% p.a. from 10.12.1985 to 16.4.1986; and

(ii) US $ 59,583 being interest on US $ 3,12,011.00 at 12% p.a. from 3.5.1983 to 5.11.1984.

On the above two sums'', the arbitrators, also awarded interest at 12% per annum from the date of the award till realisation. The award so made by the arbitrators was filed in Court for being made the rule of the Court. Objections filed thereto were dismissed and a decree was passed in terms of the award. Against that order of the learned Single Judge of the Bombay High Court, an appeal was filed befor e a Division Bench which was dismissed. On further appeal being carried befor e the Hon''ble Apex Court, it was contended that what was awarded by the arbitrators in respect of the two claims, was itself interest for different periods and that the arbitrators could not have further awarded interest on the same at the rate of 12% per annum from the date of the award till realisation. In other words, the contention was, as has been raised on behalf of the Respondent-judgment debtor, that there cannot be interest upon interest when the claim itself is one of interest. Reliance was sought to be placed upon Section 3 of the Interest Act, 1978.

Repelling the contention raised on behalf of the Appellant, the Hon''ble Apex Court held :

There cannot be any doubt that the arbitrators have powers to grant interest akin to Section 34 of the CPC which is the power of the Court in view of Section 29 of the Arbitration Act, 1940. It is clear that interest is not granted upon interest awarded but upon the claim made. The claim made in the proceedings is under two heads one is the balance of amount claimed under invoices and letter dated 10.2.1981 and the amount certified and paid by the Appellant and the second is the interest on delayed payment. That is how the claim for interest on delayed payment stood crystallized by the time the claim was filed befor e the arbitrators. therefore e, the power of the arbitrators to grant interest on the amount of interest which mayin other words, be termed as interest on damages or compensation for delayed payment which would also become part of the principal. If that is the correct position in law, we do not think that Section 3 of the Interest Act has any relevance in the context of the matter which we are dealing with in the present case. therefore e, the first contention raised by Shri Datta, though interesting, deserves to be and is rejected.

A perusal of the award in the present case shows that claim of the petitioner-decree holder, befor e the arbitrator was under seven heads as under:

Sr. Head of Amount Amount No. claim claimed awarded _________________________________________________________________________ 1. Price escalation Rs. 79,770.46 Rs. 24,809.66 2. Payment under clause 12A Rs. 4,59,236.00 Rs. 2,87,442.24 3. Payment of brick work in superstructure Rs. 10,718.72 Rs. 10,718.72 4. Cost of material lying at site Rs. 50,283.00 Rs. 47,254.39 5. Loss of profit on unexecuted work Rs. 38,566.00 Nil, 6. watch and ward charges'' Rs. 46,000.00 Nil 7. Interest on the outstanding amount at the rateof 21% per annum Account not mentioned Rs. 4,64,262.00 _________________________________________________________________________ Total : Rs. 8,34,487.01P

The claim for interest on delayed payment of the amount found outstanding under heads 1 to 6, therefore e, stood crystallized by the time the claim was filed befor e the arbitrator. The award of Rs. 4,64,262 by the arbitrator as interest can be termed as damages or compensation for delayed payments which would not only become part of the principal but would also be "a sum directed to be paid by an arbitral award" within the meaning of Section 31(7)(b) of the Act and interest at the rate of 18% per annum would be payable thereon from the date of the award to the date of payment.

There is yet another significant aspect of the case. As stated above, the award dated 18.11.1997 was made the rule of the Court on 4.1.1999 in Civil Suit No. 20 of 1998 and a decree in terms thereof was passed. While passing the deaee, it was directed that "the Plaintiff shall also be entitled to interest on the decretal amount at the rate awarded by the arbitrator from the date of award till realisation."

The amount awarded under the award was Rs. 8,34,487.01P. This would be the decretal amount. therefore e, the petitioner-decree holder is entitled to interest at the rate of 18% per annum on this whole of decretal amount of Rs. 8,34,4br.01P from the date of award till the date of realisation.

Admittedly, no interest has been paid by the Respondent-judgment debtor on the sum of Rs. 4,64,262 for the period from date of award till 31.3.1999 when a sum of Rs. 9,25,410.21P was paid. Such interest was paid only on a sum of Rs. 3,70,225.01P. The award/decree has, therefore e, not been satisfied in full. The Respondent-judgment debtor is liable to pay the remaining amount of Rs. 1,14,360.60P as claimed by the petitioner-decree holder. The Respondent-judgment debtor is granted four weeks time to make the payment.