Sat Narain vs Haryana State Agri. Marketing Board

R.L. Anand, J.—This is a civil revision filed by Sat Narain, contractor and has been directed against the order dated 3.11.1998 passed by the Additional District Judge, Jind, who affirmed the order dated 29.4.1998, passed by the Court of Additional Civil Judge (Sr. Division), Jind, who while allowing the application u/s 14 r/w Section 17 of the Arbitration Act (thereinafter referred to as the Act) passed a money decree and made the award the rule of the .Court except the grant of interest to the petitioner.

A dispute arose between the parties and as per the arbitration clause, the matter was referred to the Arbitrator. The contractor made a claim of Rs. 6,30,047.00. As against this a sum of Rs. 3,30,883.00 were allowed, the Arbitrator also awarded interest to the petitioner. When the award was scrutinised by the Court u/s 14 r/w Section 17 of the Act, the following impugned order was passed on 29.4.1998, by the Additional Civil Judge (Senior Division), Jind:-

"The cumulative effect of my finding on the various issues above is that the objections of State of Haryana to the award dated 16th July, 1996 except in respect of award of claim No. 7 fail and are rejected. The portion of award dated 16.7.1996 allowing the interest as compensation is disallowed. The award dated 16.7.1996 (except grant of interest as compensation) is made a "Rule of the Court". Plaintiff Sat Narain Gupta shall also be entitled to the interest at the rate of six per cent per annum from the date of award till its realisation. Decree sheet be prepared accordingly. The award dated 16.7.1996 will form part of the decree. The parties are left to bear their own costs. File be consigned to the record-room after due compliance."

Aggrieved by the said order, the petitioner-Sat Narain as well as the Haryana State Agricultural Marketing Board (hereinafter referred to as the Board) filed the appeals. Both the appeals were dismissed vide the impugned order dated 3.11.1998, as per reasons given in Para 17 of the order, which reads as under: -

"Section 15 of the Arbitration Act empowers the Court to modify or correct the award and section 16 of the Arbitration Act empowers the Court to remit the award dated 16.7.1996 shows that the award of interest can be separated from the other part because the arbitrator has awarded the interest amounting Rs. 1,08,000/- as compensation to the contractor on the with held and wrongful recovered amount at the rate of 12% per annum upto 15.7.1996 in this manner the interest has been given separately and certainly it can be separated from the other award and this interest has been given in contravention of the agreement clause 25-A. In 1989 S.L.J. 820 Kamla Nehru College v. Mr. Veenu Malik and Ors., it was observed that the arbitrator has no power to grant interest and only the court can grant interest as per section 34 C.P.C. In view of the law laid done in this authority by the Hon''ble High Court the counsel for the contractor cannot take any benefit from the citations 1995(2)L.J.R 322 Karnataka and Latest Judicial Reports 1994(3) A P 130 in which contrary view was taken. The lower Court has rightly separated interest portion from the main award and has rightly made the award rule of the Court and has rightly allowed interest at the rate of 6% per annum from the date of award till its realization in view of the observation contained in 1989 S.L.J. 820 (supra). There is no merit in the appeal filed by the Board and similarly there is also no merit in the cross-appeal filed by the contractor, both the appeals fail and the same are hereby dismissed. No order as to costs. Decree-sheet be drawn accordingly. Lower Court report alongwith copy of the judgment be sent back and the appeals file be consigned to the record room."

Aggrieved by the order dated 3.11.1998, Sat Narain has filed the present revision.

I have heard Mr. Sanjay Majithia, Advocate on behalf of the petitioner and Mr. K.K. Gupta, Advocate, for the respondent and with their assistance have gone through the record of this case.

The frontal argument raised by the counsel for the petitioner is that the Arbitrator was competent to award interest on the adjudicated amount in favour of the Contractor and both Courts fell in error while disallowing the claim of the petitioner regarding interest. In support of his contention, the learned counsel for the petitioner has relied upon a judgment of the Hon''ble Supreme Court, reported in The Board of Trustees for the Port of Calcutta Vs. Engineers-De-Space-Age, , and my specific attention has been invited to para 4 of the said judgment, which runs as under:-

"We are not dealing with a case in regard to award of interest for the period prior to the reference. We are dealing with a case in regard to award of interest by the Arbitrator post reference. The short question, therefore, is whether in view of sub clause (g) of Clause 13 of the contract extracted earlier the Arbitrator was prohibited from granting interest under the contract. Now the terms in sub-clause (g) merely prohibit the Commissioner from entertaining any claim for interest and does not prohibit the Arbitrator from awarding interest. The opening words ''no claim for interest will be entertained by the Commissioner'' clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the Arbitration is not, in any manner, stifled by this term of the contract and the Arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the Arbitrator was in no manner prohibited from awarding interest pendente lite."

The counsel submitted that in the above cited case, the Hon''ble Supreme Court was pleased to observe that there is no prohibition on the Arbitrator from awarding the interest and, in these circumstances, the Arbitrator had acted in a reasonable manner when he awarded interest to the Contractor. The counsel further submitted that clause 25-A of the agreement cannot be read to the disadvantage of the petitioner who had been deprived of his legitimate dues by the Board which had withheld illegally the amount due to the petitioner and, in these circumstances, the Board was liable to pay interest and it has been so rightly adjudicated by the Arbitrator. Support has also been taken by the counsel for the petitioner from Hindustan Construction Co. Ltd. Vs. State of Jammu and Kashmir, , wherein it was held that the provisions of Section 34, C.P.C. are applicable to the arbitration proceedings.

On the contrary, the learned counsel for the respondent submits what so far as the proposition of law as propounded by the counsel for the petitioner is concerned, there is no dispute but there is a specific agreement between the parties which lays down that the Arbitrator shall not award any interest to either of the parties and, in these circumstances, the Arbitrator could not award interest in favour of the petitioner. In these circumstances, the Court at the first instance had rightly disallowed the interest in favour of the petitioner.

Meeting the argument of the counsel for the respondent, Mr. Majithia submitted that the award which was made Rule of the Court by the Courts below was separable and by virtue of the provision of Section 34 C.P.C., the interest @ 12% which was awarded by the Arbitrator could be awarded by the Court while entertaining the application u/s 14 r/w Section 17 of the Act and by disallowing the claim of interest, both the courts below have acted in an illegal manner.

After considering the rival contentions of the parties, I am of the considered opinion that the present revision lacks merit and is liable to be dismissed.

Some portion of the clause 25-A can be quoted in the following manner:-

"......It shall also be a term of this contract that in any disputed/difference referred to the arbitrator, the arbitrator shall not award interest to this parties on any of the items of contract agreement executed between the parties. If the arbitrator awards interest the same shall not be binding on the parties."

In view of this negative clause, which has a binding effect on the parties, it was not within the competency of the Arbitrator to award interest to either of the parties as it has been prohibited as per the agreement entered into between the parties and quoted above. In this regard, support can be taken from Secretary, Irrigation Department, Government of Orissa and others Vs. G.C. Roy, , a judgment of the Constitution Bench and especially to para-45, which reads under:-

"Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (alongwith 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 case, keeping the ends of justice in view."

I would not have differed with the learned counsel for the petitioner had there been no negative clause in the agreement but in view of the clause specifically barring the Arbitrator from awarding the interest, any amount awarded by way of interest has to be excluded because it will exceed the jurisdiction of the Arbitrator and to that extent the Arbitrator misconducted himself. Both Courts below rightly came to the conclusion that by awarding interest to the petitioner, the Arbitrator has misconducted himself. That portion of the award was separable and there was no necessity to remit the award to the Arbitrator.

Section 29 of the Arbitration Act lays down as follows:-

"where as in so far as 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."

A plain reading of this section would show that the Court while making the award as rule of Court which has effect of decree, can award interest from the date of the decree at such rate as the Court deems reasonable and in this regard, the Courts are to be guided either by the provisions of Section 34, C.P.C. or by the agreement itself. Section 34, C.P.C., while dealing with the grant of future interest, only talks of interest @ 6% from the date of the decree till the actual payment is made.

The learned counsel for the petitioner wanted to claim higher rate of interest as awarded by the Court @ 12% from the date of the decree by submitting that the awarded rate of interest by the Arbitrator was not unreasonable and, therefore, the Courts below ought not to have interfered in that part of the award.

I do not subscribe to the argument of the learned counsel for the petitioner. Once, the provisions of Section 29 of the Arbitrator Act are read along with the provisions of Section 34, C.P.C., then we have to take the guidance as held by the Supreme Court from the substantive provisions of Section 34, C.P.C., which clearly lays down that the Court may award future interest at such rate not exceeding 6% per annum. It was not a commercial transaction. Rather, the agreement stipulates that no interest shall be awarded to either of the parties.

I would like to examine this case from a reverse angle. Had the award been made in favour of the Board and against the Contractor, whether in that eventuality, the Board could say that the Arbitrator ought to have awarded interest in its favour, the answer of this Court again, would be in the negative because the negative clause in the agreement binds both the parties and not only the petitioner.

I have examined this case from both the angles and am of the view that this revision is meritless and the same is hereby dismissed.