The State of Maharashtra vs Ranjeet Constructions, Engineers and Contractors

R.Y. Ganoo, J.—The appellants herein had entrusted Civil Construction work to respondents. The respondents attended to the said work and had certain money claim against the appellants. In order to resolve the disputes between the appellants and the respondents it was necessary to appoint an Arbitrator. Accordingly, the application was made by the respondents in the Court of Civil Judge Senior Division, Satara against the appellants u/s 8 Clause (2) r/w. Explanation u/s 9 of the Arbitration Act, 1940. (For short the said Act). The said application came to be decided by the learned Judge and accordingly one Mr. Jagtiani Superintending Engineer (Retired) came to be appointed as an Arbitrator. This was done by the learned Civil Judge, Senior Division, Satara by Order dated 7.10.1982.

Pursuant to the said Order dated 7.10.1982 Mr. Jagtiani conducted the arbitration. After giving opportunity to both the parties, he passed the award on 28.2.1983 and declared it on 2.3.1983.

On 25.1.1984 the respondents herein filed Misc. Application No. 12 of 1983 for decree in terms of award. The said application was numbered as Special Civil Suit No. 94 of 1984. As the appellants were aggrieved by the award they also filed what may be referred to as objections to the award. The learned Civil Judge, Senior Division, Satara, heard the Special Civil Suit No. 94 of 1984 as well as the objections to the said award. By judgment and Order dated 18.11.1989 he confirmed the said award by passing the following Order:

The award dated 28th February, 1983 signed and published by the Sole Arbitrator Shri D.N. Jagtiani and filed in this Court on 24th March, 1983 is hereby made a rule of the Court. The defendants do pay the plaintiff a sum of Rs. 6,93,699.40 only (Rupees Six Lakhs Ninety-three Thousand Six Hundred Ninety-nine and paise forty Only.

Being aggrieved by the aforesaid judgment and decree dated 18.11.1989 the appellants State has filed the present appeal.

I have heard learned Advocate Ms. Manchekar appearing on behalf of the appellants and Mr. Bhosale appearing on behalf of the respondents. Both of them had taken me through the record for the purpose of advancing their respective submissions. The appellants expected that the impugned judgment and decree dated 18.11.1989 should be quashed and set aside, whereas the respondents expected that the said judgment and decree should be confirmed.

It was brought to my notice that the award impugned in this proceeding was without reasons and the learned Arbitrator had merely noted the claim of the appellants or the respondents as the case may be and had passed an Order in regard to the respective claim. The grievance in so far as this aspect was made by learned Advocate Mrs. Manchekar appearing on behalf of the State that in the absence of reasons for grant or rejecting the claim the Court which dealt with the award was unable to proceed with the matter in the proper perspective for the purpose of deciding whether the award was legal and proper.

One more grievance was put up before this Court viz. that all the claims filed by the appellants came to be rejected by the learned Arbitrator thereby showing that the learned Arbitrator was bias. I am not in agreement with this submission. Even some of the claims which have been preferred by the respondents have been rejected by the learned Arbitrator. Since the award was without reasons, one is not in a position to judge as to why a claim came to be rejected or granted. Fact remains that because all the claims of the appellants came to be rejected cannot be a ground to say that the Arbitrator was bias so far as the appellants are concerned.

Learned Advocate Mrs. Manchekar appearing on behalf of the appellants had raised points by placing reliance on Section 30 of the said Act to challenge the award as well as the impugned judgment. The learned Judge has in paragraph 25 given various points on the basis of which award can be challenged. I have perused the impugned judgment delivered by the learned Judge and I am in agreement with the view taken by him that the learned Arbitrator who passed the award, has done his job in the proper manner and that no ground is made out to set aside the award. The learned Judge has considered the various objections and has dealt with them by giving reasons and I see no reason to differ with the view taken by the learned Judge. As a result of this, so far as the merits of the matter are concerned, I am inclined to observe that there is no need to interfere in the impugned judgment as well as the impugned award.

Learned Advocate Mrs. Manchekar appearing on behalf of the appellants had advanced the submissions with reference to the grant of interest to the respondents. In so far as this aspect is concerned, my attention was drawn to the grant of interest under the award at two occasions namely the sum of Rs. 103059.50 has been granted on a principal sum of Rs. 535374/-for the period 27.4.1981 to 8.8.1982 i.e. the period between the date of withdrawal of the work upto the appointment of the Arbitrator. The second occasion where the interest is granted to the tune of Rs. 45625.90 on Rs. 535324/-is for the period 9.8.1982 upto 2.3.1983 i.e. for the period appointment of the Arbitrator till declaration of the award. She also pointed out that the learned Judge has granted interest on Rs. 693699.40 at the rate of 15% per annum from 29.2.1983 till realisation. This date 29.2.1983 is arrived at by the learned Judge because in claim No. 18 the learned Arbitrator had given interest upto 28.2.1983. Learned Advocate Mrs. Manchekar also submitted that the grant of interest at the rate of 15% per annum on Rs. 6,93,699.40 is erroneous because the sum of Rs. 693699.40 includes interest which is granted during the time when the alleged cause of action arose upto the date of arbitration and from the appointment of the Arbitrator till 28.2.1983. According to her this grant of interest would mean, the learned Judge has granted interest on interest which is not permissible. Learned Advocate Mrs. Manchekar, therefore submitted that, to that extent the learned Judge has erred and that the question of grant of interest from a particular day is required to be gone into. She had also submitted that the grant of interest at the rate of 15% is without any basis in as much as there was no agreement between the parties for grant of interest on the claim put up by a particular party. She therefore submitted that the grant of interest at the rate of 15% should also be looked into by the Court and the appeal should be allowed.

Learned Advocate Mr. Bhosale, on behalf of the respondents submitted that by the impugned Judgment, the learned Judge has considered all the points raised before him and has rightly arrived at the conclusion that the award passed by the learned Arbitrator does not suffer from any defect and there is no point on the basis of which it could be said that the award should be set aside.

In so far as the grant of interest is concerned, in the first place, learned Advocate Mr. Bhosale submitted that the respondents for the purposes of completing the project had to raise funds and had to pay the interest at the rate of 21% to their financers and therefore interest granted at the rate of 15% by the learned Judge or the learned Arbitrator was right. He also drew my attention to the fact that the appellants in claim put up before the Arbitrator had demanded interest at the rate of 18% per annum. According to him if the appellants had claimed interest at the rate of 18%, grant of interest at the rate of 15% per annum is very much justified.

Learned Advocate Mr. Bhosale further submitted that on or about 26.4.1981 the appellants created situation by which the work granted to the respondents came to be withdrawn and thereafter the respondents were required to face the arbitration proceeding and thereafter the learned Arbitrator passed the award. According to learned Advocate Mr. Bhosale, for no fault of the respondents, the work was withdrawn and if that is the situation then the respondents are entitled to interest on the claim which has been granted by the learned Arbitrator. Learned Advocate Mr. Bhosale submitted that some time was taken for the appointment of the Arbitrator or for the Arbitrator to declare the award and therefore the grant of interest in favour of the respondents right from day one i.e. the day when the work came to be withdrawn was proper. He therefore submitted that the impugned judgment and decree dated 18.1.1989 needs no interference and the same should be confirmed.

I have heard learned Advocates on both the sides and considered the record. So far as giving reasons for the judgment, the learned Judge has observed in para 25 as follows:

It may be noted that it is not the case of the defendants and it is also the fact that the arbitration agreement between the parties does not provide that the Arbitrator should give reasons in support of the award That being the settled legal position, the objections of the defendants that the Arbitrator should give reasons in support of his award has no merit and the same stands dismissed.

This view taken by the learned Judge is required to be confirmed. If there was no specific clause by which it was agreed between the parties to the Arbitration that the reasoned judgment be given then if the learned Arbitrator has passed an award without reasons one may not be able to find fault in the award on that count and the argument advanced by learned Advocate Mrs. Manchekar is required to be rejected on that count.

In so far as the challenge to the award on merits I am inclined to observe that the learned Judge in paragraph 25 onwards had given good reasons as to why it cannot be said that the award needs interference. The learned Judge has properly considered the various objections raised before him so as to challenge the award and that the learned Judge has considered those points and as such no interference is required in the impugned judgment as regards confirming the award on merits. Merely because the claims of the Appellants were rejected it cannot be said that the Arbitrator was bias.

Next question is as regards the grant of interest. In so far as this aspect is concerned, provisions of Section 29 of the said Act do indicate that the interest can be granted in a given case. However, the question is the interest should be granted for what period and on what amount. In so far as this aspect is concerned, the entire period i.e. the day when the cause of action arose to the respondents upto the declaration of the award can be divided into two portions. The portion No. 1 would be the date on which the work came to be withdrawn upto the date of appointment of the Arbitrator. This period will have to be termed as "Pre Arbitration Period". The second period will be the date when the Arbitrator came to be appointed till the declaration of the award. In so far as a pre arbitration period is concerned, in view of the judgment of the Supreme Court in the case of Executive Engineer, Irrigation v. Abhaduta Jena, Judgment Today 1987 (4) SCC 8, the interest for the period namely the date on which the work came to be withdrawn i.e. 27.4.1981 till the appointment of the Arbitrator i.e. 8.8.1982 cannot be granted because the respondents have not been able to bring on record any material to show that agreement between parties entitled the arbitrator to award the interest or there is usage or trade having force of law for award of interest or there is any other provisions of substantive law enabling the award of interest. As such the grant of interest for the period 27.4.1981 upto 8.8.1982 will have to be set aside and to that extent the respondent will not be able to get interest of Rs. 103059.50.

So far as the interest for the period appointment of Arbitrator i.e. 9.8.1982 till the declaration of the award i.e. 2.3.1983 i.e. interest pendente lite can be granted.

In so far as interest after the declaration of the award till realisation, the argument advanced by learned Advocate Ms. Manchekar that interest cannot be granted on interest is required to be accepted in view of Section 29 of the said Act which is as follows:

Where and 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. As such, the respondents would be entitled to get interest from 2.3.1983 till realisation. This interest will be payable on Rs. 535374/-.

Then comes the question as regards the rate of interest at which the interest should be granted. Before this Court arguments were also advanced in line with what was contended before the learned Judge. According to the respondents, the respondents had to borrow money at a higher rate than what has been granted by the learned Judge and even the appellants had claimed interest at the rate of 18% and that is how the rate of interest granted by the learned Judge and the Arbitrator was sought to be justified. Learned Advocate Ms Manchekar submitted that the rate of interest granted should have been less than 15 % if at all it was to be granted. In so far as this aspect is concerned, I am inclined to accept the view taken by the learned Judge. The respondents have been able to convince the learned Judge that they had borrowed money at the rate of 21%. In so far as this aspect is concerned, it may be open for this Court to take judicial note of the fact as regards the rate of interest charged by financial institutions in the year 1981 or thereabout, which was definitely in the vicinity of 18 to 21 %. The second point is the appellants herein have also claimed interest at the rate of 18% per annum. Considering the aforesaid points, I am inclined to observe that the grant of interest by the learned Arbitrator as well as by the learned Judge at the rate of 15% per annum cannot be faulted and to that extent the impugned judgment and award are properly arrived at. Keeping in view the discussion aforesaid, it is clear that the appellants would be liable to pay to respondents principal sum of Rs. 5,35,374/-. The appellants will also be liable to pay interest at the rate of 15% per annum as set out in the earlier part of the Order. The period for which interest will have to be paid by the appellants is already discussed and indicated. In the peculiar facts and circumstances, the parties shall bear their respective costs. For the reasons mentioned aforesaid, I pass the following Order:

ORDER

i. The appeal is partly allowed. The award dated 28.2.1983 signed and published by the Sole Arbitrator Shri B.N. Jagtiani and filed in the Court of learned Civil Judge, Senior Division, Satara on 24.3.1983 is hereby confirmed to the extent of the principal claim of the respondents i.e. Rs. 5,35,374/-. The grant of interest at the rate of 15% per annum by the Arbitrator as well as by the learned Civil Judge, Senior Division, Satara is confirmed. However the order granting interest for the period 27.4.1981 till 8.8.1982 is hereby rejected. Accordingly, it is hereby ordered that the appellants shall pay to the respondents Rs. 5,35,374/-.

ii. Appellants shall pay to the respondents interest at the rate of 15% per annum from 9.8.1982 till 2.3.1983 on Rs. 5,35,374/-.

iii. The appellants shall pay to the respondents interest at the rate of 15% per annum from the date of declaration of the award i.e 2.3.1983 till realisation, on Rs. 5,35,374/-.

iv. Parties to bear their own costs so far as this proceedings are concerned as also the proceedings before the learned Civil Judge, Senior Division, Satara.

v. The appellants shall pay to the respondents, Rs. 10,000/- by way of costs of Arbitration Charges.

vi. Learned Advocate Ms. Manchekar, upon instructions states that the appellants had at the time of admission of this First Appeal deposited sum of Rs. 14 lakhs and the said amount is withdrawn by the respondents. If this is so and if the amount payable to the respondents in the aforesaid terms turns out to be less than Rs. 14 lakhs the appellants will be at liberty to recover the difference between Rs. 14 lakhs and the sum which the respondents will be entitled to receive as per this Order.