Rishi Dev Batra vs Union of India (UOI)

P.C. Naik, J.—The award of interest for the pre-reference period having been set aside by the Subordinate Judge, Bhubaneswar in O. S.

No. 227 of 1990, the plaintiff-contractor has filed this appeal u/s 39(1)(iii) of the Arbitration Act, 1940.

The facts giving rise to this appeal are that the appellant, a building contractor, entered into an agreement No. 77/EE/BCD/ 77-78 with the

Union of India through the Executive Engineer, C. P. W. D., Central Division, Bhubaneswar for construction of operational wall of Civil

Aerodrome Bhubaneswar. Dispute having arisen between the parties, the matter was referred to the Arbitrator for arbitration in terms of Clause 25

of the agreement. According to the terms of the agreement, the Chief Engineer (Eastern Zone), C. P. W. D. had initially appointed Shri N. Krishna

Murthy as the sole Arbitrator on 4-11-1981 to resolve the dispute between the parties. Due to various reasons, Arbitrators were changed from

time to time and ultimately Shri C. Vaswani was appointed as the Arbitrator on 19-2-1990 who entered upon the reference on 28-2-1990.

The Arbitrator considered 12 claims raised by the appellant and 4 counter-claims raised by the respondent. On 26-6-1990, an award was passed,

the operative part whereof reads as under :

......... Now, therefore, on consideration of the claims of the claimant and the counter-claims of the respondents. I do hereby make this award that

the respondents do pay to the claimant a sum of Rs. 1,15,210 (One lakh fifteen thousand two hundred and ten only) plus simple interest '' 12% per

annum from 1-7-81 to 19-2-90 on Rs. 49,750 (Rs. Fortynine thousand seven hundred fifty only) and further interest '' 12% on entire amount from

26-6-90 till the date of actual payment or the date of decree whichever is earlier.

After passing of the award, an application u/s 14 of the Arbitration Act for making the award the rule of the court was filed which was registered

as O. S. No. 227 of 1990. On the other hand, an application under Sections 30 and 33 of the Arbitration Act was filed by the respondent-Union

of India to get aside the award and the same was registered as Misc. Case No. 332 of 1990. By the order dated 9-9-1992, the Subordinate

Judge, Bhubaneswar held that the award of interest at the rate of 12 per cent per annum on Rs. 49,750/-from 1-7-81 to 19-2-90 cannot be

sustained and as such, is to be deleted from the award. With this modification/deletion, the award was made the rule of the court. Aggrieved by the

order of deleting the grant of interest for the pre-reference period, i.e. from 1-7-81 to 19-2-90, the claimant/appellant has filed this appeal.

The learned counsel for the appellant contends that the finding that the appellant is not entitled to interest for the pre-reference period for want of

notice, is not proper and needs to be set aside. It is submitted that having accepted the fact that interest was claimed in the letters addressed to the

Department, the learned Subordinate Judge erred in not treating them as notice and accordingly deleting the award of interest for the pre-reference

period from the award. It is also submitted that Section 3(b) of the Interest Act, 1978 does not provide for any specific format of notice or the

manner in which it is to be served. Hence, the letters laying a claim for interest ought to have been treated as notice in terms of Section 3(b) of the

Interest Act, 1978. It is further submitted that as no specific ground challenging the grant of interest was taken by the respondent/Union of India,

the said ground could not be considered by the court. 4. The learned Senior Standing Counsel (Central), on the other hand, supports the impugned

order. His contention is that the dispute was in relation to a contract which was entered into between the parties on 12-9- 1979 on which day the

Interest Act, 1978 was not in force. Under the circumstances, the contention of the learned Standing Counsel is that the interest for the pre-

reference period in terms of Section 3(b) of the Act could not have been awarded. It is also submitted that when the arbitration is with consent of

the parties and not through the court, the question of granting interest will depend upon the agreement between the parties. In the instant case, as

there was no agreement for grant of interest the Arbitrator committed an error of law in awarding interest.

In view of the contention of the parties, the questions which arise for consideration are, whether or not the interest for pre-reference period

could be awarded by the Arbitrator? and, whether, on the facts and circumstances of the case, the order of the court below modifying the award

by deleting the grant of interest for the pre-reference period can be sustained?

The contention of the learned Senior Standing Counsel that in the absence of an agreement, interest could not be claimed by the

appellant/claimant as the Arbitrator was not a Court within the meaning of Section 34, C.P.C. and reference was not made in course of a suit, is

obviously based on the decision of the Supreme Court in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, .

But this submission though attractive cannot be accepted for the simple reason that the said decision has been overruled by the Supreme Court in

the case of Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , wherein it has been held (para 45) :

............ Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with

the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the

reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore when the

parties refer all their disputes -- or refer the dispute as to interest as such -- to the arbitrator, he shall have the power to award interest. This does

not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the

light of all the facts and circumstances of the cases, keeping the ends of justice in view.

Thus, the fact that the agreement does not provide for payment of interest or that the parties entered into the agreement before the enforcement of

the Interest Act, 1978, cannot be a ground for negativing the claim for interest.

It is no doubt true that Section 3 of the Interest Act, 1978 provides that in any proceeding for recovery of any debt or damages or in any

proceeding in which a claim for interest of any debt or damage already paid is made, the ''court'' may, if it thinks fit, allow interest to the person

entitled to the debt or damages...... Section 2(a) of the said Act defines ''court'' to include ''a Tribunal'' and ''an Arbitrator''. In view of this

definition of the word ''court'', even a Tribunal or an Arbitrator has the jurisdiction to award interest u/s 3 of the Act.

It is next contended that as there was no notice claiming interest, as provided by Sub-section (b) of Section 3, the learned Subordinate Judge

was justified in setting aside the award in so far as it related to grant of interest for the pre-reference period. At this stage, I feel, it will be

appropriate to ascertain as to what would be the meaning of the word ''notice'' occurring in the said provision. At the outset, it may be stated that

the act does not contemplate service of notice in a particular form or mode. All that is provided is that a written notice is to be given by a party

making a claim for interest, which means, an oral notice is not contemplated. Hence, the notice has to be given in writing.

In the popular sense, ''notice'' can be said to be equivalent to ''information'' or ''knowledge''. A written notice would, therefore, be a

communication in writing by which knowledge of a particular fact is conveyed to another. Thus, ''notice'' is making something known to another. In

other words, ''notice'' means, information or an advice intended to apprise a person about a particular fact. In this view of the matter, I find, the

court below was not right in its conclusion that the letters of the appellant to the Department to the effect that he would be claiming interest, cannot

be treated as notice. Thus, the contention of the learned counsel for the respondent that no written notice was served, cannot be accepted.

The moot question which remained for consideration is, whether the Arbitrator had the power to grant interest for the period prior to his

entering upon the reference, in other words, for the pre-reference period. This question cannot detain me as the question is now no longer res

integra. In view of the decision of the Supreme Court in Sudhir Brothers Vs. Delhi Development Authority and Another, , wherein it has been held

that the Arbitrator has the power and jurisdiction to award interest for the period between making of reference to the arbitrator and his entering

upon the reference after coming into force of the Interest Act, 1978. Hence, the decision of the Supreme Court in State of Orissa Vs. B.N.

Agarwala, , can be of no assistance to the respondent as in that case the Award was made prior to the coming into force of the Interest Act, 1978.

Interest, as we know, can be granted for three different periods, viz. (i) pre-reference, (ii) pendente lite, and (iii) post-award. So far as the

period during which the arbitration proceedings were pending, i.e. pendente lite interest, is concerned, the Arbitrator has the power to award the

same as held by the Apex Court in Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, . There can also be no

dispute about the post-award period. So far as the pre-reference period is concerned, when reference is made after the date of coming into force

of the Interest Act, 1978, the Arbitrator has the power to grant interest for this period in view of what has been stated by the Apex Court in Sudhir

Brothers'' case AIR 1995 SCW 4622 (supra).

In view of what has been stated above, it has to be held that as the reference in the instant case was made after 19-8-1981 (the date on which

the Interest Act was enforced), the Arbitrator had the jurisdiction and was justified in granting interest for the pre-reference period. In view of my

finding that notice, as required by Section 3(b) of the Interest Act was served, it has to be held that the learned Subordinate Judge was not right in

deleting the grant of interest for the pre-reference period from the Award. Accordingly, that part of the impugned judgment and decree passed by

the learned Subordinate Judge deleting the grant of interest for pre-reference period from the Award, is set aside.

In the result, the appeal is allowed. There shall be no order as to costs.