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Judgment
Pratap Krishna Lohra, J.
Genesis of both these appeals is arbitral award dated 20th January, 2007 rendered by sole arbitrator, Mr. N.P. Mathur on being appointed vide order dated 08.04.2004, passed by Chief Engineer, P.W.D. Rajasthan, Jaipur.
In CMA No. 3525/2011, laid by the Contractor challenge is given to the impugned order dated 07.01.2009 of learned District Judge, Jaisalmer to the limited extent of rate of interest determined by sole arbitrator slashing it from 18% to 7% per annum for all the three stages, namely, (i) from the stage of accrual of cause of action till filing of arbitration proceedings; (ii) interest pendente lite, and (iii) future interest from the date of award till realization. On the other hand, Department in CMA No. 3025/2011 has assailed the arbitral award as well as impugned order passed by learned District Judge, Jaisalmer in toto.
Aggrieved by the order dated 07.01.2009, passed by learned District Judge to the limited extent, whereby the interest awarded by the sole arbitrator at the rate of 18% per annum has been reduced to 7% per annum, the Contractor has laid appeal under Section 37 of the Arbitration and Conciliation Act, 1996 (for short, ''Act of 1996''). By the order impugned, learned District Judge, Jaisalmer has disposed of the application of the Department under Section 34 of the Act of 1996 reducing the rate of interest from 18% to 7% per annum and affirmed the rest part of arbitral award dated 20th January, 2007.
Succinctly stated, facts of the case are that the Contractor was awarded a work of transportation of materials for widening of NH 15, from KM 290 to KM 310, vide work order dated 09.05.1988 for a sum of Rs. 22,51,156/-. The said work was allotted to the Contractor on the terms and conditions, which were agreed between the Contractor and Department and in this respect an agreement No. 9 of 1988-89 was entered into. The date of commencement of work was 24th May 1988 and deadline for completion of the work was 23rd November 1989. Since the Contractor left the work incomplete, the Department issued notices to the Contractor for completing the work, which remained uncompleted and thereafter the Department got completed the remaining work from other person at the risk and cost of the Contractor in accordance with Clause 2 and 3 of the contract agreement. The Contractor raised dispute with regard to payment and sought reference of the matter to the sole arbitrator. Vide order dated 08.04.2004, Mr. N.P. Mathur was appointed as sole arbitrator. The Contractor submitted its claim before the sole arbitrator, while dividing it in 8 parts, details of which are as under:-
Claim No. 1
Payment of final bill - Rs. 1,35,374/-
Claim No. 2
Payment of Security Deposit deducted from running bills - Rs. 1,08,550/-
Claim No. 3
Payment of price escalation charges under clause 45 of the agreement - Rs. 1,66,355/-
Claim No. 4
Payment on account of idleness of machinery and labour contractor - Rs. 2,47,499/-
Claim No. 5
Loss of overhead charges due to prolonging of work - Rs. 1,53,210/-
Claim No. 6
Litigation charges - Rs. 25,000/-.
Claim No. 7
Refund of wrong recovery - Rs. 70,000/- (deducted towards recovery of other division).
Claim No. 8
Payment of interest @ 24% on total withheld amount.
For substantiating the aforementioned claims, the Contractor pleaded requisite facts in the claim petition and also produced documentary evidence.
Responding to the claim petition submitted by the Contractor, Department filed a reply. In the return, Department alleges that the Contractor failed to mobilize its resources in commencing the work on scheduled date and thus the Contractor failed to complete the work in time. It is also alleged that no money was ever unlawfully withheld and since the claimant left the work incomplete, therefore, action as per clause 2 and 3(c) of the agreement was taken. The Department further alleges in the return that there is no provision in the contract agreement with regard to interest and prays that the claim of the Contractor may be rejected.
The sole arbitrator, in all, framed 11 issues for determination between rival parties, and after completion of evidence passed the award on 20th January, 2007 favouring the Contractor. The sole Arbitrator passed the award in following terms:-
That the clamant is awarded a sum of Rs. 4,69,353/- as principal amount of it claims payable by Respondent Department. In addition to it, the Claimant is also awarded 18% simple interest on Rs. 3,99,353/- from 10.1.91 uptill it is paid by Respondent plus 18% simple interest on Rs. 70,000/- from 1.6.2001 uptill it is actually paid, so as to include past, pendent lite and future interests on claims from their respective dates of cause of action. No further relief to any party is granted. All counter claims raised by the respondent department for Rs. 3,41,299.00 are set aside and rejected.
Made and signed by the undersigned at Jaipur 20th day Jan month 2007 year with its notice and copies to both the parties.
Being aggrieved by the arbitral award, Department submitted an application under Section 34 of the Act of 1996 for setting aside the arbitral award before learned District Judge, Jaisalmer. In the application, Department assailed the arbitral award by urging that sole arbitrator has not scanned the materials on record and without recording cogent finding awarded claim worth Rs. 4,69,353/- in favour of Contractor and interest at the rate of 18% per annum.
Application under Section 34 submitted by the Department was contested by Contractor and a reply to the same is submitted. Countering all the allegations, in the return, the Contractor has pleaded that the arbitrator has examined the matter threadbare and thereafter adjudicated its claim, which cannot be upset on the strength of grounds set out in the application. The Contractor has also submitted in the reply that the sole arbitrator has examined the individual claims in light of the evidence and other materials and thereafter decided all the issues, and thus, resisting the application of the Department with full vigor, the Contractor prayed for its rejection.
The learned District Judge examined the application of the Department within the parameters and yardsticks set out under Section 34 of the Act of 1996 for interference with the arbitral award. In the order impugned, it is found by the learned Court below that there is no semblance of proof that the award is vitiated within the four corners of any of the reasons set out under sub-section (2) of Section 34 of the Act of 1996. The findings of the sole arbitrator on the issues were also examined by the learned Court below with bird''s eye view, and it was found that there is no infirmity much less legal infirmity in the findings so as to interfere with the findings in exercise of powers under Section 34 of the Act of 1996. Learned Court below has also taken note of the fact that powers under Section 34 of the Act of 1996 are to be exercised with great care and circumspection and such powers are not akin to the powers of appellate Court. In totality, the learned District Judge concluded in the impugned order that there is no infirmity much less legal infirmity in the arbitral award within the four corners of sub-section (2) of Section 34 of the Act of 1996 but for the rate of interest determined by the sole arbitrator. The learned Court below recorded a definite finding that the rate of interest, i.e. 18% per annum, determined by the sole arbitrator is exorbitant and the same being dehors the public policy warrants interference. Accordingly, the learned Court below slashed the rate of interest on the amount payable to the Contractor (from 18% to 7% per annum).
Learned counsel for the Contractor submits that awarding of interest by the arbitrator is within its sole discretion and the same cannot be made subject-matter of judicial review under Section 34 of the Act of 1996 unless and until it is outcome of arbitrary or capricious exercise of discretion by the sole arbitrator. Learned counsel for the Contractor would contend that the learned District Judge, while fully concurring with the findings and conclusions of the sole arbitrator, has reduced the rate of interest from 18% to 7% per annum without any rhyme or reason, which is unsustainable. Lastly, learned counsel has urged that by reducing the rate of interest vis-a-vis post-arbitral award, the learned District Judge has completely eschewed the mandatory provisions contained under Section 31(7)(b) of the Act of 1996, which has rendered the order impugned vulnerable.
Learned counsel for the Department submits that the sole arbitrator has not examined the alleged afflictions of the Contractor in right perspective while allowing its claim worth Rs. 4,69,353/- and interest thereon at the rate of 18% per annum for all three stages. Learned counsel would contend that failure on the part of Contractor to comply with the terms of the contract to undertake some additional work, despite repeated letters and reminders, has compelled the Department to invoke clause 2 and 3 of the contract agreement for getting completed the remaining work at the risk and cost of Contractor, was a very vital issue, which has not been given due credence by the sole arbitrator and is sufficient to vitiate the arbitral award. He further submits that this aspect has not been examined by the learned Court below in the impugned order, and therefore, the arbitral award as well as impugned order cannot be sustained. Lastly, in the alternative, learned counsel for the Department would contend that slashing of rate of interest from 18% to 7% per annum by the learned Court below is a just decision based on sound exercise of discretion, which requires no interference even if arbitral award as such is upheld.
I have heard learned counsel for the parties, perused the impugned order as well as the arbitral award so also the record of arbitral proceedings.
These two cross-appeals, one by Contractor and other by the State, depict altogether different grievances. While in Civil Misc. Appeal No. 3525 of 2011 filed by Contractor, challenge is confined to the impugned order passed by the learned District Judge whereby it has slashed the rate of interest for three stages from 18% to 7% awarded by the sole arbitrator, on the other hand, in the appeal preferred by the State, i.e. Civil Misc. Appeal No. 3025 of 2011, arbitral award whole hawk is under challenge and partial affirmation by the District Judge barring rate of interest is also questioned.
As in the appeal preferred by the State this Court has called upon to examine the entire arbitral award as well as impugned order, it has become imperative at the threshold to examine the matter threadbare.
On a close scrutiny of the arbitral award, it clearly and unequivocally emerges out that sole arbitrator has bifurcated claim of the Contractor in 7 parts including the interest. Considering defence of the State, the sole arbitrator settled 11 issues for determination. After thoroughly examining the evidence and materials available on record, the sole arbitrator recorded a finding favouring cause of the Contractor on Issue No. 1 by concluding that respondent was prevented in carrying out its work smoothly to facilitate its completion as per scope of the agreement due to lackadaisical approach of the State. Similarly, Issue No. 2 is also decided in favour of Contractor. While switching on to Issue No. 3, the sole arbitrator considered the contentions of the rival parties in conjunction with evidence and other materials available on record and concluded that State is partly responsible for breach of contract to some extent which it was obliged to perform. As regards Issue No. 4 to 6, the sole arbitrator delved deep into the matter to scrutinize the available material and eventually recorded a finding favouring cause of the Contractor. The very crucial issue, i.e. Issue No. 7, is thoroughly examined by the sole arbitrator, and while pressing into service the concept for efficient management of contract and theory of capitalization of minimization of time, drawn a conclusion favouring the cause of the Contractor. Taking a dig at the State, wherein it was involved to undertake certain activities departmentally, the sole arbitrator recorded an affirmative finding that not transferring it in the hands of others has obviously led to the theory of discounting time for its completion sans appreciation of its necessity. Issue No. 8 too is decided by the sole arbitrator in favour of the Contractor by holding that no action against it in terms of Clause 2 and 3 of the agreement is desirable and the State is not entitled to recover any compensation. Switching on to Issue No. 9, the sole arbitrator further bifurcated this issue into 8 parts, which are as under:
The sole arbitrator made sincere endeavor to analyze the individual sub-issues in conjunction with the available material. Sub-issue (a) relating to amount of final bill, is partly decided in favour of Contractor. Sub-issue (b) is decided in favour of the Contractor in toto. Sub-issue (c) is partially decided in favour of Contractor. Sub-issue (d) is decided in negative and nothing is awarded to the Contractor. Sub-issue (e) is also partly decided in favour of the Contractor. Sub-issue (f) is decided in favour of respondent Contractor. Under sub-issue (g), pertaining to litigation expenses, nothing is awarded to the Contractor. Sub-issue (h) relating to Contractor''s claim for interest @24% per annum on an amount of Rs. 8,10,988/- is decided in favour of the Contractor with the under-mentioned conclusions:
"Finally, this issue is decided in favour of claimant and against Respondent, meaning thereby, that Respondent must pay the interest to the Claimant @ 18% simple interest p.a. on Rs. 3,99,363/- from 10.7.1991 and on Rs. 70,000/- from 1.6.2001 uptill it is actually paid to Claimant by the Respondent deptt., so as to include past, pendent elite and future interests."
Issue No. 10, relating to counter-claim of the State, is decided against it and the sole arbitrator rejected its counter-claim in totality. Finally, on Issue No. 11, the sole arbitrator has recorded a definite finding that whatever adjudicated is admissible to the Contractor claimant and it is not entitled for any further relief.
Findings of the sole arbitrator on all the issues, barring Issue No. 9(h), are well reasoned and clearly demonstrate true application of mind. As regards Issue No. 9(h) relating to award of interest, I propose to examine the same while considering Civil Misc. Appeal No. 3525/2011 laid by the Contractor. Perusal of the Award makes it amply clear that the same is not infirm within the four corners of Section 32 of the Act of 1996 and that being so the learned District Judge has also declined to interfere with the same. On its examination afresh by this Court, this Court feels that there is no semblance of proof that award is contrary to fundamental policy of Indian law, justice or morality. The sole arbitrator has scrutinized all the issues threadbare while recording its finding favouring cause of the Contractor on some of the issues. As there is no mistake of law apparent on the face of record, the learned District Judge has rightly declined to interfere with the same and as such the impugned order as well as arbitral award vis-a-vis Issue No. 1 to 10 except Issue No. 9(h) cannot be subjected to judicial review at the behest of State.
There remains no quarrel that scope of judicial review of the arbitral award is a narrow one. Arbitration -as an alternative dispute resolution forum, has emerged as a very effective mode of sorting out disputes to escape the agony of a protracted trial by saving time and expenses. In the commercial world, where time is essence and large amount of money is involved, parties prefer to go for arbitration rather than for civil suit. The long gestation period of a civil suit, which meanders through a labyrinth of procedure and at times climbs the judicial pyramid, has persuaded the parties to place an arbitration clause in the contract. Arbitrator is a Judge appointed by both the parties after reaching a consensus, or a Court appoints him under the provisions of the Act of 1996 and therefore the parties are bound by his decision even if the award is wrong either on law or on facts. The Courts are not expected to sit in an appeal over the verdict of an arbitrator by re-examining and re-appraising the material placed before him even if two views are possible. Therefore, in totality, the challenge to the findings and conclusions of the sole arbitrator at the behest of State is not sustainable and after its affirmation by the learned District Judge by the impugned order, no interference is warranted.
Now, I propose to examine the afflictions of the Contractor as ventilated in Civil Misc. Appeal No. 3525/2011 against the impugned order passed by the learned District Judge. The learned District Judge, while upholding the arbitral award, has interfered with the finding on Issue No. 9(h), whereby the sole arbitrator had slashed the rate of interest from 18% per annum to 7% on Rs. 3,99,365/- from 10.07.1991 for all the three stages; i.e. past interest, pendente lite interest and future interest. Similarly, in relation to a sum of Rs. 70,000/-, which is awarded by the Arbitrator, interest @18% is allowed to the Contractor w.e.f. 01.06.2001 uptil amount is actually paid.
The issue relating to award of interest by the arbitrator is no more res-integra because as per scheme of the Act of 1996, an Arbitrator is competent to award interest for four stages; viz., (1) from the stage of accrual of cause of action till filing of arbitration proceedings, (2) during pendency of the proceedings before Arbitrator, (3) further interest arising between the date of award and date of decree, and (4) interest arising from the date of decree till realization of award. Sub-section (7) of Section 31 of the Act of 1996 is clear and unequivocal in this behalf, which reads as under:-
31(7)(a). Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral Tribunal may include in the sum for which the award is made interest, at such rate it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.
31(7)(b). A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment.
Well it is true that it is within the discretion of sole arbitrator to award interest but at the same time while determining the rate of interest the sole arbitrator cannot overlook some of the facts which are relevant and germane to the matter. The fact that interest rate had gone down after economic reforms cannot be eschewed by the sole arbitrator while determining the rate of interest and it is expected of him to give due credence to the public policies in this behalf. As observed hereinabove, the sole arbitrator has awarded interest @18% per annum for all the three stages including future interest, some rational approach is required to be adopted for re-determining the rate of interest vis-a-vis interest from the stage of accrual of cause of action till filing of the arbitral proceedings and interest pendent lite. The learned District Judge, while examining this issue, has slashed the rate of interest from 18% to 7% without recording cogent and convincing reasons, and on the face of it, this drastic change in the rate of interest by the learned District Judge is per-se irrational and cannot be sustained. Taking into account the fact that interest rates have gone down substantially after economic reforms and for doing justice with the Contractor, whose money is withheld by the State without any justifiable reason, in all fairness, I deem it just and appropriate to award interest @12% per annum on Rs. 3,99,363 from 10.01.1991 till conclusion of the arbitral proceedings and similarly declare the Contractor entitled for interest @12% per annum on Rs. 70,000/- from 01.06.2001 till conclusion of the arbitral proceedings. As regards future interest, Section 31(7)(b) clearly envisage that a sum directed to be paid by the arbitral award shall carry interest @18% per annum from the date of award to the date of payment unless the award otherwise directs. In view of the fact that the sole arbitrator has decided to award future interest @18% per annum, slashing of future interest from 18% to 7% per annum by the impugned order cannot be sustained. As law mandates future interest @18% per annum, and the sole arbitrator while exercising its discretion has awarded 18% interest on the sum directed to be paid to the Contractor, interference by the learned District Judge with the rate of interest in the impugned order cannot be sustained and the order impugned is accordingly modified by reversing the order to that extent and maintaining the arbitral award. Consequently, on the sum directed to be paid to the Contractor, the Contractor shall be entitled for future interest @18% per annum.
Resultantly, appeal preferred by the State (CMA No. 3025/2011) is hereby dismissed and the appeal of the Contractor (CMA No. 3525/2011) is partly allowed, as indicated hereinabove. The Contractor is declared entitled for interest @12% per annum on the sum directed to be paid uptil conclusion of the arbitral proceedings, to be reckoned from the date specified in the arbitral award, and future interest @18% per annum from the date of passing of the arbitral award.