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Krishan Kumar Madhok Vs. Union of India (Uoi) - Court Judgment

LegalCrystal Citation
SubjectArbitration
CourtDelhi High Court
Decided On
Case NumberFAO(OS)68/1980
Judge
Reported inILR1982Delhi606
ActsArbitration Act - Sections 29, 30 and 33; Code of Civil Procedure (CPC) - Sections 34 and 34(1)
AppellantKrishan Kumar Madhok
RespondentUnion of India (Uoi)
Appellant Advocate A.B. Saharya, Adv
Respondent Advocate D.P. Wadhwa and ; Madan Lokur, Advs.
DispositionAppeal partly allowed
Cases ReferredThawardas v. Union of India
Excerpt:
.....order interest at such rate as it deems reasonable on the principal adjudged. for interest from date of decree to date of payment, section 34, code of civil procedure, provides that the court shall not award interest at a rate exceeding 6 per cent per annum. it is to this period that the proviso to sub-section (1) has been added. neither the proviso nor the explanationns have any application to awards. the power to order interest on award from the date of decree to payment is regulated by section 29 of the arbitration act and not by section 34, code of civil procedure. in both the cases, pendente lite or post-decretal interest can be awarded at such rate as is deemed reasonable, in one case by the arbitrator, in the other by the court. if the arbitrator's award of interest is..........award a rule of the court with this modification that he reduced the rate of interest from 18 per cent awarded by the arbitrator to 6 per cent from april 14, 1977 till the date of the passing of the decree i.e. 16-1-1980. there was another dispute between the parties. the learned judge clarified that in respect of claim no. 11 of the contractor and counter-claims 2 and 4 of the union of india, a sum of rs. 82.531.60 shall be refunded by the union of india to the contractor against the recovery of rs. 1,40,000 made by the union, of india from the contractor's bills. in other respects he upheld the award.4. as regards the future he awarded interest to the contractor at 6 per cent per annum from the expiry of two months from the date of his order till realisation because he allowed a.....
Judgment:

Avadh Behari Rohatgi, J.

1. This is an appeal from the order of a learned single judge of this court dated January 16, 1980.

2. These are the facts. The appellant is a firm of contractors. They did work for the respondent Union of India. Disputes arose between the parties. There was an arbitration clause. The matter was referred to the sole arbitration of the Chief. Engineer, Pune Zone. He made an award dated July 16, 1977. The award wag filed in court. The Union of India filed objections to the award under Sections 30 and 33 of the Arbitration Act (the Act). The contractore, on the other hand, made an application under Section 15 of the Act for the modification of the award.

3. The learned judge made the award a rule of the court with this modification that he reduced the rate of interest from 18 per cent awarded by the arbitrator to 6 per cent from April 14, 1977 till the date of the passing of the decree i.e. 16-1-1980. There was another dispute between the parties. The learned judge clarified that in respect of claim No. 11 of the contractor and counter-claims 2 and 4 of the Union of India, a sum of Rs. 82.531.60 shall be refunded by the Union of India to the contractor against the recovery of Rs. 1,40,000 made by the Union, of India from the contractor's bills. In other respects he upheld the award.

4. As regards the future he awarded interest to the contractor at 6 per cent per annum from the expiry of two months from the date of his order till realisation because he allowed a period of two months to the Government to pay the amount under he award to the contractor. From the order of the learned judge the contractor appeals to this court.

5. Counsel for the contractor has raised two points. One is about the clarification made by the learned judge in respect of claim No. 11 of the contractor and counter-claims 2 and 4 of the Union of India. Counsel for the parties are agreed that on this point the clarification made by the learned judge is correct. In respect of claim No. 11 and counter-claims 2 and 4 of the Union of India a sum of Rs. 82,531.60 shall be refunded by the Union of India to the contractor against the recovery of Rs. 1,40,000 made by the Union of India from the contractor's bills. We accordingly affirm this finding of the learned judge.

6. The other question is about interest. The arbitrator in the award dealt with the question of interest under claim No. 7. Before the arbitrator the contractor claimed 'interest at the rate of 18 per cent on the amount of Rs. 9,89,357,15 vide para 18 of the contractor's statement of claims dated 27-11-1975.' On this the arbitrator's decision was in these terms :

'The claim is partly established. The respondent will pay interest on the amount awarded w.e.f. 14-4-1977 today of payment or dale of court decree whichever is earlier.'

7. The Union of India objected to the award of interest at the rate of 18 per cent before the learned judge. He dealt with this question. He held that the arbitrator had the power to award interest. But as regards the rate of interest he thought that under the newly added proviso to Section 34(1) of the Code of Civil Procedure interest at a rate higher than 6 per cent per annum could be awarded only if it was a 'commercial transaction.' He found that there was no evidence as to at what rate moneys were being lent or advanced by the nationalised banks in 'commercial transactions.' He, thereforee, came to the conclusion that interest could not be awarded to the contractor at 18 per cent because he had, not established by evidence that 18 per cent was the prevailing rate of interest in 'commercial transactions.' On this view he held that the contractor was not entitled to interest at more than 6 per cent per annum. The upshot of the discussion is that the judge modified the award of the arbitrator and substituted the rate of interest of 6 per cent per annum on the amount awarded by the arbitrator from April 14, 1977 till the date of the decree in place of 18 per cent interest which the arbitrator had awarded. As regards future interest from the date of the decree till realisation he awarded interest at the rate of 6 per cent per annum.

8. On behalf of the contractor, counsel says that the learned judge was not right in reducing the rate of interest from 18 per cent to 6 per cent per annum. In our opinion, he is right. This is not a case to which the proviso to Sub-section (1) of Section 34, Code of Civil Procedure will apply. On a plain reading of Section 34 it appears to us that the proviso will apply only to cases of future interest or what the Code calls 'further interest'. Section 34 of the Code of Civil Procedure deals with two classes of cases. (1) Interest from date of suit to decree--This is the period during the pendency of the suit. This is popularly called pendente lite interest. For this period Section 34, C.P.C. says that the court may order interest at such rate as it deems reasonable on the principal sum adjudged. (2) Interest from date of decree to date of payment--For this period Section 34 provides that the court shall not award interest at a rate exceeding 6 per cent per annum from the date of the decree till the date of payment. It is to this period that the proviso to Sub-section (1) has been added which says that interest may be awarded at a rate higher than 6 per cent if it is a case of 'commercial transaction' and the term 'commercial transaction' is defined in Explanationn II. To Sub-section (1) the proviso and Explanationns have been inserted with a view to increasing post-decretal interest in relation to a liability arising out of a 'commercial transaction' on the principal sum adjudged. Neither the proviso nor Explanationns have any application to awards. The power to order interest on award from the date of the decree to payment is regulated by Section 29 of the Act and not by Section 34, Code of Civil Procedure. Section 29 of the Act empowers the court to order interest 'at such rate as the court deems reasonable' from the date of decree till payment.

9. It is now settled by the Supreme Court that the though in terms Section 34, Code of Civil Procedure does not apply to arbitration, the arbitrator has power to award interest pendente lite as the court itself could give, if it decided the dispute. (See Firm Madan Lal Roshan Lal v. Hukam Chand Mills Ltd., AIR 1967 SC 7030 The Supreme Court, has held that the arbitrator has power to award interest pendente lite, i.e., during the pendency of the arbitration proceedings. If the question of interest has been referred to the arbitrator he has the authority to grant interest from the date of award to date of decree (Union of India v. Bungo Steel Furniture, : [1967]1SCR324 . The only question is about, the rate of interest. In the present case the arbitrator has awarded interest from April 14, 1977 to the date of the decree at the rate of 18 per cent per annum. The learned judge was of the view that this rate is exorbitant. He thought that only under the proviso to Sub-section (1) of Section 34, C.P.C. did the arbitrator have power to award interest at 18 per cent and as the contractor did not prove his case under the proviso the arbitrator had gone wrong in ordering interest at 18 per cent. In our opinion, the learned judge was in error. We say this with respect. Award of interest pendente lite is entirely discretionary with the court. The same is the power of the arbitrator. If the arbitrator thinks that 18 per cent per annum is reasonable, the court ought not to reduce the rate of interest. This was sealed in State of Madhya Pradesh v. Saith & Skelton (P) Ltd.. : [1972]3SCR233 . In that case the arbitrator had awarded interest at 9 per cent per annum from June 7, 1958 to the date of the decree. It was argued that the award of interest at 9 per cent is exorbitant. The court rejected the argument and held that the rate of interest awarded is not excessive. The court said : 'the arbitrator has got power in this case to award interest from June 7, 1958 at the rate specified by him.' (page 1515). The award in the present case was made on 16th July, 1977. The arbitrator has awarded interest at 18 per cent per annum from April 14, 1977 till the date of the decree. In these days of high rate of interest we do not think that 18 per cent interest awarded by the arbitrator is in any way excessive or exorbitant. If 9 per cent was held to be reasonable in 1958 it is not unreasonable to award 18 per cent in 1977. If the disputes ate referred to the arbitrator and one of the disputes so referred to him is whether the contractor is entitled to pendente lite interest and the arbitrator gives his decision and awards interest at a rate specified by him the court cannot say that the interest ought to have been awarded at the rate of 6 per cent and not at any higher rate.

10. In this case the arbitrator awarded interest not for the future but for the period from 14-4-1977 till the parsing of the decree. He thought it reasonable to award interest at 18 per cent. We cannot say that the arbitrator's award of interest is unreasonable. It was for the arbitrator to award interest at such rate as he deemed reasonable. He has exercised his discretion. In our opinion, the learned judge ought not to have interfered with the arbitrator's discretion.

11. As regards future interest we do not propose to interfere with the discretion exercised by the learned judge under Section 29 of the Arbitration Act. He has awarded interest at 6 per cent per annum from the expiry of two months of the passing of the decree till payment. This part of the order we uphold.

12. To sum up. The arbitrator has power to award interest pendente lite. Bose J. in Thawardas v. Union of India, : [1955]2SCR48 said that an arbitrator is not a court and thereforee Section 34, CPC does not apply to him. Later Judicial decisions to which we have referred show that his view was not accepted. Though Section 34 does not in terms apply the arbitrator has the same power as the court has. The court can award pendente lite interest 'at such rate as the court deems reasonable.' So can the abritrator. Though no statute gives him that power the judicial decisions recognise as of necessity that power in him as an implied term of the reference. So far as post-decretal interest is concerned Section 29 of the Act is a part of the statute law. It says that 'court may in the decree order interest, from the date of the decree, a such rate as the court deems reasonable' Whether it is a judge made law or statute law the principle is the same. In both cases--pendent lite or post-decrial--interest can be awarded at such rate as is deemed reasonable, in one case by the arbitrator and in the other by the court. The two domains are different. Pendente lite is the close of the arbitrator. Post-decretal is the preserve of the court. If the arbitrator's award of interest is reasonable the law forbids the court to break and enter the close of the arbitrator.

13. For these reasons the appeal is allowed to this extent that the ward of interest by the arbitrator or under claim No. 7 is restored. The contractor shall be entitled to interest at 18 per cent per annum on the amount awarded from April 14, 1977 till the passing of the decree. From the date of the decree till realisation he shall be entitled to 6 per cent interest per annum after the expiry of two months. This means that there shall be no future interest if the Union of India has paid amount awarded by the arbitrator within two months from the date of the order of the Judge. The parties are left to bear their own costs.


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