N. Meenakshisundaram vs South India Corporation (P) Ltd. and Another

Janarthanam, J.—The South India Corporation Private Ltd., (for short ''Corporation'') is a company registered under the Companies Act,

1956 having its registered office at Anna Salai, Madras-2 and carrying on business of Engineering Contractors it Cochin, Madras and other places.

The Corporation and the Tamil Nadu Electricity Board (for short ''Board'') represented by its Chairman entered into an agreement on 27.10.1967

for supply and erection of Power House Structural Steel between columns 0 to 10 (both inclusive) excluding Coal Bunker for the Ennore Thermal

Scheme, Ennore, Madras-57, according to Specification No. C. 990 with a clause for arbitration in case of any dispute arising between the

parties. After completion of the work, the Corporation had been claiming from the Board payments for execution of the work. Disputes between

them arose, in the sense of the Board denying certain of the claims made by the Corporation, which resulted in the Corporation filing Civil Suit No.

144 of 1979 for filing the arbitration agreement into Court; for appointment of an Arbitrator and for referring the disputes to arbitration.

This Court by order dated 21.7.1983 appointed Thiru N. Meenakshisundaram, Retired District and Sessions Judge and formerly Additional

Registrar of this Court, as Arbitrator. The arbitration proceedings went upto 203.1987. The Arbitrator passed an award in a sum of Rs.

5,70,747.10 on various claims and he would however decline to grant interest as prayed for on the ground that he is not empowered to do so.

Thereafter, the Arbitrator filed the award, which was ordered to be received on 29.4.1987 in O.P. No. 206 of 1987.

The Court, after receipt, of the award, ordered issue of notice to the parties u/s 14(2) of the Arbitration Act. The Corporation, aggrieved by

that portion of the award declining to grant interest, had come forward with O.P. No. 562 of 1987 to set aside the same reserving its right to file a

separate application for passing a decree in terms of the award allowing the claim of the Corporation to the extent of Rs. 5,70,747.10. Despite

reservation of such a right, the Corporation did not appear to have filed such an application and learned Counsel appearing for the Corporation

would also submit that he has no objection for a decree being passed in terms of the award in so far as it relates to the claim of the Corporation

made on various heads to the extent of Rs. 5,70,747.10, obviously because of the fact that it is not legally permissible for such an application to be

filed beyond thirty days from the date of service of notice intimating the receipt of the award by the Court. In such State of affairs, the area of

controversy between the parties revolves on the question of declining'' to award interest by the Arbitrator from the date of the claim.

Learned Counsel appearing for both sides do not at all dispute the legal position that if the award of the Arbitrator consists of different parts and

all such parts are distinct and separate in not having any sort of a connection with the other, in the sense of each part is severable from other, it is

legally permissible for the Court to pass a decree in terms of the award in respect of a part, which is severable and is also valid and remit that part

of the award, which is severable and not valid to the Arbitrator for consideration and in such circumstances, there is no need for the Court to set

aside the Award in its entirety and remit the same for consideration to the Arbitrator. In this view of the matter, there is practically no difficulty at all

to pass a decree in terms of the award of the Arbitrator allowing the claim of the Corporation to the extent of Rs. 5,70,747.10, which is admittedly

distinct, separate and severable from the other portion of the award relating to interest. Worthy it is to note here that the power of the Arbitrator to

award interest from the date of the passing of the decree till its realisation does not at all vest with him and this position is made clear by the

sanguine and salutary provisions of Section 29 of the Arbitration Act, which prescribes that where and in so far as an award is for the payment of

money, the Court may in the decree order interest, from the date of the decree at such rate as the Court deems reasonable, to be paid on the

principal sum as adjudged by the award and confirmed by the decree. On the face of such a provision, the question that is posed for consideration

is as to the rate of interest to be ordered on the amount awarded by the Arbitrator.

This Court can take judicial notice of the fact that the lending rates of nationalised banks is at 18 per cent per annum, which if awarded, cannot

be stated to be unreasonable, in the circumstances of the case and therefore it is that the award of interest at the said rate from the date of this

order till payment of the amount awarded by the Arbitrator would squarely meet the ends of justice.

As respects the question regarding the power of the Arbitrator to award interest from the date of the claim to the date of passing of the award,

learned Counsel, for the Board would seriously contend that the Arbitrator had not committed any error apparent on the face of the record

amounting to a legal misconduct in not awarding any interest for the said period on the face of no other provision excepting Section 29 of the

Arbitration Act, which gives power to the court to award interest only from the date of passing of the decree in terms of the award till date of

realisation. In amplification of this argument, he would further contend that there is no clause at all in the agreement with regard to the payment of

interest. There was only a general reference to the Arbitrator for resolving the disputes between the parties.

Learned Counsel appearing for the Corporation would with all force and vehemence contend that the award of interest is implied in the

agreement, in the absence of a provision prohibiting payment of interest and in the case on hand, there is no such prohibition provision and in this

view of the matter, there is a legitimate duty cast upon the Arbitrator to consider the claim of interest, according to the law of the land and such a

non-consideration is an error apparent on the face of the record, tantamounting to legal misconduct on the part of the Arbitrator, which enables the

award to be set aside for such misconduct. In support of such a submission, he would place reliance on certain passages of Russel on the Law of

Arbitration, XX Edition appearing in pages 64 and 421 and they respectively read as follows:

Implied terms : Certain terms are implied in any arbitration agreement, unless the contrary intention is expressed in it. In addition, an arbitrator has

certain powers to deal with costs which in part override any express terms of an arbitration agreement.

In addition to these statutory terms, the Court will normally imply a term that the arbitrator is to decide the case in accordance with the ordinary

law.

Failure to award interest : It is ''misconduct'' for an arbitrator to fail to award interest when it would be appropriate and no reason has been given

why he should not; but in any event a failure to award interest would result in a remission so that the arbitrator could make an appropriate award.

He would also draw the attention of this Court to Halsbury''s Laws of England, IV Edition, Volume 2, on Arbitration, wherein it is stated at

page 273 - Para 534:

Express and implied clauses : In general, the parties to an arbitration agreement may include in it such clauses as they think fit. By statute, however,

certain terms are implied in an arbitration agreement unless a contrary t intention is expressed or implied therein. Moreover, it is normally an implied

term of an arbitration agreement that the arbitrator must decide the dispute in accordance with the ordinary law. This includes the basic rules as to

procedure, although parties can expressly or impliedly consent to depart from those rules. The normal principles on which terms are implied in an

agreement have to be considered in the context that the agreement relates to an arbitration.

Page 303 - Para 580:

Interest : An arbitrator or umpire has power to award interest on the amount of any debt or damages for the whole or any part of the period

between the date when the cause of action arose and the date of the award.

He then relied on the decision in The Executive Engineer, Rural Engineering Division, Cuttack West, Cuttack Vs. Surendranath Kanungo, ,

wherein, while considering the power of the Arbitrator to award interest, it was held as follows:

Unless there is specific clause in the agreement prohibiting award of interest the Arbitrator has jurisdiction to grant interest on the principal amount

awarded by him on the different items of claim referred to him for arbitration. The natural conception of the word ''interest'' is the ordinary or

normal profit which the person entitled to the principal money might have made if he had the use of the said money, or his expected loss under

usual or ordinary circumstances due to the non-payment of the same at the proper time. Apart from the express provisions for payment of interest

in different statutes or in the contracts between the parties, interest can be directed to be paid in an arbitration proceeding on ex-gratia basis by

way of compensation for the deprivation of the use of the principal amount. If interest can be awarded by the Arbitrator on that basis in order to

compensate the loss suffered by the man entitled to the principal amount due to deprivation of the use of the, said amount, there is no reason why

the Arbitrator cannot on the same principle grant future interest from the due date till its realisation. True it is that provision of Section 34, C.P.C.,

is not applicable to the proceedings before the Arbitrator but there is nothing wrong for the Arbitrator to call into aid the principles of that section

for awarding interest, especially when one of the disputes referred to him for adjudication relates to payment of interest.

He then relied on the decision in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , wherein their Lordships of the

Supreme Court in paragraph 4 at page 1032 observed as follows:

The last objection to the award is that the arbitrator had no power to award interest during the pendency of the suit. In support of this objection,

counsel for the appellant relied upon the following observations of Bose, J., in Seth Thawardas Pherumal Vs. The Union of India (UOI), .

It was suggested that at least interest from the date of ''s78t'' could be awarded on the analogy of Section 34 of the Civil Procedure Code, 1908.

But, Section 34 does not apply because an arbitrator is not a ''Court'' within the meaning of the Code nor does the Code apply to arbitrators, and,

but for Section 34, even a Court would not have the power to give interest after the suit. This was, therefore, also rightly struck out from the

award.

These observations divorced from their context, lend colour to the argument that the arbitrator has no power to award pendente lite interest. But,

in later cases, this Court has pointed out that the observations in Seth Thawardas Pherumal Vs. The Union of India (UOI), , were not intended to

lay down such a broad and unqualified proposition, see Nachiappa Chettiar v. Subramaniam Chettiar (1960) 1 M.L.J. 101 : (1960) 1 An. W.R

(S.C.) 101 : 1960 S.C.J. 416 Satinder Singh and Others Vs. Amrao Singh and Others, . The relevant facts regarding the claim for interest in Seth

Thawardas Pherumal Vs. The Union of India (UOI), , will be found at pp. 64 to 66 of the Report (S.C.R.) : at pp. 477 to 478 of AIR and in paras

2, 17 and 24 of the Judgment of the Patna High Court reported in The Union of India (UOI) Vs. Premchand Satram Das and Another, at pp.

204-205. The arbitrator awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period

subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to

arbitration and the arbitrator had no jurisdiction to entertain the claim. In this Court, counsel for the claimant contended that the arbitrator had

statutory power under the Interest Act of 1839 to award the interest and, in any event, he had power to award interest during the pendency of the

arbitration proceedings u/s 34 of the Code of Civil Procedure, 1908. Bose, J., rejected this contention. It will be noticed that the judgment of this

Court in Seth Thawardas Pherumal Vs. The Union of India (UOI), , is silent on the question whether the arbitrator can award interest during the

pendency of arbitration proceedings, if the claim regarding interest is referred to arbitration. In the present case, all the disputes in the suit were

referred to the arbitrator for his decision. One of the disputes in the suit was whether the respondent was entitled to pendente lite interest. The

arbitrator could decide the dispute and he could award pendente lite interest just as a Court could do so u/s 34 of the Code of Civil Procedure.

Though, in terms, Section 34 of the CPC does not apply to arbitrations, it was an implied term of the reference in the suit that the arbitrator would

decide the dispute according to law and would give such relief with regard to pendente lite interest as the Court could give if it decided the dispute.

This power of the arbitrator was not fettered either by the arbitration agreement or by the Arbitration Act, 1940. The contention that in an

arbitration in a suit the arbitrator had no power to award pendente lite interest must be rejected.

A reference had also been made to the decision of the Supreme Court in Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., , wherein

Their Lordships again had the occasion to consider the question of grant of interest from the date, of award till the date of decree and observed in

paragraph 6 at page 1036 reiterating the view taken in the decision in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , as

follows:

The legal position is the same in India. In Bhowanidas Ramgobind Vs. Harasukhdas Balkishendas, , the Division Bench of the Calcutta High Court

consisting of Rankin and Mookerjee, JJ., held that the arbitrators had authority to make a decree for interest after the date of the award and

expressly approved the decision of the English cases - (1851) 11 C.B. 588 sherry v. Owke (1835) 3 Dowl. 349 : 1 H. & W. 119 and Beahan v.

Wolfe (1832) 1 Al and Na. 233. The same view has been expressed this Court in a recent judgment in Firm Madanlal Roshanlal Mahajan Vs.

Hukumchand Mills Ltd., Indore, . We are accordingly of the, opinion that the arbitrator had authority to grant interest from the date of the award

to the date of the decree of Mallick, J. and Mr. Bindra is unable to make good his argument on this aspect of the case.

This view has been followed by the Supreme Court in the subsequent decisions in Allen Berry and Co. Pvt. Ltd. Vs. The Union of India

(UOI), New Delhi, and The Upper Ganges Valley Electricity Supply Company Ltd. Vs. The U.P. Electricity Board, .

From the aforesaid decisions, it is rather abundantly clear that what was committed by the Arbitrator is not an error occasioned as a result of

misappreciation of the facts on records, but it is definitely an error of law on non-consideration and application of the legal proposition regarding

payment of interest according to the law of the land. On the face of such an error having been committed by the Arbitrator, amounting to legal

misconduct on his part, learned Counsel for the Board was unable to support the award regarding the rejection of the claim of interest and hence

this portion of the award has to be set aside.

The resultant position is that the award of the Arbitrator in favour of the Corporation recognising its claim for Rs. 5,70,747.10 has to be

confirmed with interest at 18 per cent per annum from the date of this order till payment and the award of the Arbitrator relating to the rejection of

the claim of the Corporation regarding payment of interest deserves to be set aside and the matter has to be remitted to the Arbitrator for fresh

consideration, uninfluenced by any of the observations made in this order.

In this view of the matter, no orders are necessary in O.P. No. 206 of 1987 since the award has already been received and notice was

ordered to the parties as prayed for therein even on 29.4.1987.

In the result, there will be a decree for Rs. 5,70,747.10, in terms of that portion of the Award, with interest at 18 per cent per annum from the

date of this order till payment and the Award of the Arbitrator rejecting the claim of the Corporation regarding payment of interest is set aside and

matter is remitted to the Arbitrator for fresh consideration of the claim with a direction that the Arbitrator should submit his decision to this Court

within six months from the date of receipt of this order. O.P. No. 562 of 1987 is allowed accordingly. In the circumstances of the case, I make no

order as to costs.