M/s. Azad Builders, Ranchi vs Union of India and another

B.P. Singh, J.—The appellant herein is a partnership firm registered under the Partnership Act. It entered into an agreement to execute construction work for the Signal Battalion of the Central Reserve Police Force at Ranchi relating to construction of building, water supply and sanitary instalments. The agreement provided for settlement of disputes by an arbitrator to be appointed by the Chief Engineer (EZ) C.P.W.D. Calcutta. Certain disputes and differences having arisen, the appellant asked for reference of the disputes and differences to an arbitrator. The Chief Engineer (EZ) C.P.W.D. Calcutta appointed Sri J.P. Singhal of the Ministry of Urban Development, New Delhi as arbitrator and referred the dispute to him for adjudication. The arbitrator after bearing the parties made an award on 11th of November, 1687. He awarded a sum of Rs. 188239.00 ps. plus 10% interest thereon from 4.10.1983 to 9.10.1983 and 5% interest thereon from 10.10.1985 to the date of payment or decree of court whichever was earlier. The respondent no. 2 informed the appellant by letter dated 10.6.88 that the respondents had accepted the award of the arbitrator and that payment will be made in accordance therewith after the same was made a rule of the court and a decree passed in terms of the award. Accordingly, the award was submitted to the court by the arbitrator u/s. 14 of the Arbitration Act for passing a decree in terms of the award. The matter was registered as Title Suit no. 287/87 in the court of the Special Subordinate Judge, Ranchi. Notice thereof was given to the parties. The appellant as well as the respondent made applications to the court for making the award a rule of the court. The learned Government Pleader appearing on behalf of the Union of India submitted before the learned Special Subordinate Judge that he had no objection if the award was made a rule of the court the appellant also prayed that the award be made a rule of the court. The learned Special Subordinate Judge, however, passed the impugned order dated 1.8.1988 holding that the arbitrator had awarded 5% interest from 10.10.1985 to the date of payment or decree of the court, whichever is earlier. According to the learned Special Subordinate Judge the arbitrator had no power to award future interest and, therefore, he made the award a rule of the court except that portion which awarded interest@ 5% per annum for the period from 10.10.1985 to the date of payment Or decree of the court whichever was earlier. It appears from the award that reference was made to the arbitrator by letter dated 9.10.1985 and he entered upon the reference on 14.9.1987. He passed the award on the 11th of November, 1987. Thus the learned Special Subordinate Judge disallowed the pendentlite interest as also interest awarded from the date of the award till the date of payment of decree whichever was earlier.

It was not disputed before me that after the award was filed in court u/s 14 of the Arbitration Act, the parties to the dispute made written applications to the court submitting that the award be made a rule of the court. The parties in their oral submissions also requested the court to make the award a rule of the court Since the parties were not aggrieved by any part of the award and no objections were filed on behalf of any of the parties, the court ought to have made the award a rule of the court. Assuming that there was some error in the award, if the parties to the disputes did not challenge the correctness of the award and prayed before the court that it ought to be made a rule of the court, the court was not required of its own to modify the award or to make only a part of the award a rule of the court. Only in exceptional circumstances can the court exercise such a jurisdiction not to make the award a rule of the court despite the fact that the parties have not objected to the award being made a rule of the court. Such an exceptional circumstance may arise in a case where the award or any part of it is so apposed to public policy that the court feels compelled not to put its seal of approval to such an award. In money claims, a party may give up a part of his claim even if entitled to it, or may agree to pay an amount which may be time barred or which may not be strictly payable in accordance with law. Such cases are not cases where it can be said that the illegality in the award touches upon any matter opposed to public policy. In the instant case, even if it be assumed that the arbitrator was in error in awarding interest from the date of the reference till the date of the award, since the parties did not object to it, the court was not required to go into that question.

In the instant case, however, even on merit the order of the learned Special Subordinate Judge cannot be upheld. The learned Special Subordinate Judge has proceeded to refuse to make a part of the award a rule of the court on the fading that an arbitrator cannot award future interest. The proposition has been too widely stated by the learned Special Subordinate Judge. However, learned counsel for the respondent supported the conclusion reached by the learned Special Subordinate Judge by reference to the judgment of the Supreme Court reported in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, . The principles laid down in the aforesaid judgment do not apply in the facts and Circumstance of this case. In the instant case the petitioner firm raised several claims. Chief Engineer referred those claims to the arbitrator for adjudication. Claim no. 8 which was referred to the arbitrator for arbitration is as follows,:--

Claimant claims interest of 5% per annum from the date of appointment of arbitrator till the date of payment of awarded amount.

There is, therefore, no doubt that one of the claims made by the contractor was related to the award of interest @ 5% per annum from the date of appointment of arbitrator till the date of payment of the awarded amount. In other words, the claim for interest was one of the matters referred to arbitration. This is not a case where the arbitrator awarded interest in his discretion and, therefore, it is not necessary in this case to investigate whether the arbitrator had power either under the Interest Act of 1839 or the Interest Act of 1978 or section 34 of the Code of Civil Procedure, 1908 to award interest. Since the arbitrator was to consider claim no. 8 on its merit which had been referred to him for adjudication, he had jurisdiction to make award in respect of that claim. The question of payment of interest being the subject matter of reference to the arbitrator, the arbitrator had jurisdiction to give his award on such claim. It was, therefore, not necessary to discover the right of the arbitrator to award interest either under the Interest Act of 1839 or 1978 or u/s. 34 of the Code of Civil Procedure. The judgment of Supreme Court abovenamed dealt with a case where the claim for interest was not one of the matters referred to arbitration and therefore it was necessary to find out the legal provision which justified the award of interest by arbitrator in such a case. The facts of the instant case are clearly distinguishable. In fact, the observation of the Supreme Court in the aforesaid judgment leave no room for doubt that the principle laid down in that judgment would not apply to a case where the question of payment of interest was the subject matter of reference to the arbitrator inasmuch as such, a claim for interest was specifically referred to arbitration. Moreover, even if the judgment of the Supreme Court applied to the facts of this case, that would only have justified exclusion of interest awarded for the period commencing from the date of reference to arbitration and ending with the date on which the award was made. The interest awarded from the date of the award till the date of payment or decree could not be excluded. However, I have come to the conclusion that the principles laid down in the judgment of the Supreme Court referred to above will not apply to the facts of this case.

In this view of the matter, this appeal is allowed, the order of the learned Special Subordinate Judge dated 1.8.1988 in Arbitration Title Suit no. 287/87 to the extent it severed the award and did not make that part of the award a rule of the court which awarded 5% interest from 10.10.1945 to the date of payment of decree of the court, is set aside. The learned Special Subordinate Judge shall pass an appropriate order making the award a rule of the court and shall proceed to draw up a decree accordingly. There shall be no order as to costs.