State of Punjab vs M/s. Gammon India Limited

L.N. Mittal, J.—State of Punjab having failed in both the courts below has filed this revision petition under Article 227 of the Constitution of India. Respondent-Caveator M/s. Gammon India Limited executed some work of the petitioner-State of Punjab. Dispute arose between the parties. The dispute was referred to Arbitrators who made award dated 30.07.1996. Respondent-Contractor filed application u/s 14(2) of the Arbitration Act, 1940 (in short, the Act) for filing of the award and for making the same rule of the Court. Petitioner-State of Punjab filed objections against the award. The objections were regarding award of various amounts by the Arbitrators against claims of the contractor. Objection regarding rate of interest was also raised.

Learned Additional Civil Judge (Senior Division), Patiala vide order and decree dated 24.11.1997 dismissed the objection petition filed by State of Punjab and made the award as rule of the Court and passed decree accordingly for recovery of the awarded amount of Rs. 3,51,42,199/-along with interest @ 18% per annum from the date of award till recovery. First appeal preferred by State of Punjab against order and decree of the trial Court has been dismissed by learned Additional District Judge, Patiala vide judgment and decree dated 24.02.2011. Feeling aggrieved, State of Punjab has filed this revision petition.

I have heard learned counsel for the parties and perused the case file.

Learned counsel for the petitioner contended that the Arbitrators erroneously awarded various amounts to the contractor. However, this contention of petitioner-State of Punjab cannot be accepted. Civil Court does not sit as Court of appeal over the award of Arbitrator. Award of claims of either party by the Arbitrator cannot be challenged in civil Court on merits thereof. Moreover, both the courts below have discussed in detail the objections raised by State of Punjab to the award of said amounts by the Arbitrators and have rightly rejected the same. Consequently impugned judgments of the courts below do not warrant interference on this count.

Counsel for the petitioner next contended that award of interest @ 18% per annum from the date of award till recovery is highly excessive. On the other hand, counsel for respondent-contractor contended that according to clause in the contract, interest @ 1/30th of 1% has to be awarded per day. It would come to roughly 12 per annum per annum. Counsel for respondent-contractor contended that this rate of interest is compound rate of interest as per contract between the parties and, therefore, simple interest @ 18% per annum from the date of award onwards as awarded by the Arbitrators and the courts below cannot be said to be excessive.

I have carefully considered the rival contentions. Agreed rate of interest between the parties is roughly 12% per annum, although it is compound rate of interest. However, post-award it would be appropriate to grant simple interest at the said contractual rate of 12% per annum. Here it is worth mentioning here that the Arbitrators have awarded pendente lite simple interest @ 12% per annum for the period the arbitration proceedings remained pending. No justification has been advanced by the Arbitrators to grant post-award interest @ 18% per annum. Even otherwise, since the year 2000 interest rates started falling. Interest rates came down to 8% or 9% per annum although for some time past, the interest rates have again started rising slightly. The award is dated 30.07.1996. Substantial period post-award is covered by falling rate of interest. Keeping in view all these circumstances including the fact that even the arbitrators awarded pendente lite simple interest @ 12 % per annum, I am of the considered opinion that simple interest @ 18% per annum since the date of reward till recovery is highly excessive requiring interference by the Court. I am of the considered opinion that award suffer from error on the face of it in this regard. Judgments of the courts below also suffer from the same error. The ends of justice would be met if the rate of interest is reduced to 12% per annum For the reasons aforesaid, the instant revision petition is allowed partly. Judgments and decrees of the courts below are modified. Impugned award of the arbitrators is also modified to the extent that the respondent-contractor shall be entitled to simple interest @ 12% per annum on the awarded amount since the date of award till recovery. Award of the arbitrators stands made rule of the Court with this modification and decree passed accordingly.