Jaico Brothers, Bombay and Others vs Mandya National Paper Mills Limited, Belagola

Hari Nath Tilhari, J.-This appeal under Section 39 of the Arbitration Act arises from the judgment and order dated 21-12-1991 whereby the learned Civil Judge, Srirangapatna, partly allowed the objections of the appellant and modified the award. The operative portion of the order reads as under:

"Petition is partly allowed. No costs. The award is set aside as regards entitlement of respondent to recover Rs. 3,37,254.79 ps. and Rs. 25,000/- at Items 3 and 5 of Award from petitioner 1. Rest of the award shall remain intact.

The duty and penalty on the award and Power of Attorney Ex. P. 1 shall be paid within 15 days from this day".

It is against this order the appeal has been filed under Section 39.

We have heard Sri S.G. Bhagavan, learned Counsel for the appellants as well as Sri Vikram holding brief for learned Counsel Sri S.N. Murthy for respondent.

The facts of the case in nut shell are that the Chairman of the respondent-Mandya National Paper Mills Limited, appointed the Arbitrator on 23-12-1977 and the Arbitrator passed the award on 13-4-1979 holding that the respondent is entitled to recover money from the petitioners as detailed in it i.e., the award. The said award was filed before the Civil Court by the Arbitrator and respondent filed a petition under Sections 14(2) and 17 of the Indian Arbitration Act, 1940 praying to pronounce judgment and decree as per the award. After notices being served, the present appellants i.e., the petitioners before the Trial Court filed objections with a prayer for setting aside the award under Section 33 of the Indian Arbitration Act and for declaration that there existed no valid subsisting or legally binding arbitration agreement between them or any one of them on one hand and the company of the respondent namely, Hindustan Paper Corporation on the other hand.

The petitioners disputed the very existence of the arbitration agreement between the parties on number of grounds. To the application for setting aside the award, the respondent filed the statement of objections alleging that arbitration agreement was in existence and the award does not call for interference. On the basis of the application for filing of the award and making rule of the Court and the objections of the respondent, the Civil Judge framed the following 10 issues:

"1. Whether this Court has no jurisdiction to entertain, try and dispose of the petition A.C. No. 2/79 for decree in terms of award?

Whether the award suffers from an error apparent on the face of record?

Whether there exists an arbitration agreement between petitioners and respondent?

Whether the reference of dispute to the Arbitrator was according to arbitration agreement, if any, or was vague, as such bad?

Whether the award has been passed within time, if not, does it render it invalid?

Whether the award is invalid in view of Section 35 of the Arbitration Act?

Whether the Arbitrator has misconducted himself or the proceedings?

Whether the award has been improperly procured or is otherwise invalid?

Whether the objection statement filed in A.C. No. 2/79 was barred by time, and this petition, as a separate case is not maintainable?

To what reliefs parties are entitled?"

The Civil Judge answered the issues in favour of the respondents. Feeling aggrieved by the order of the Civil Judge modifying the award i.e., setting aside a part of the award and maintaining a part of the order mentioned in the operative portion which has been quoted in the earlier part of the judgment, the petitioner before the Civil Judge filed the appeal under Section 39(1)(vi) of the Arbitration Act. We may mention it that really the appeal from the order of the Civil Court modifying the award lies under Section 39(1)(iii) modifying the correcting the award. This appeal is taken to be thereunder.

Learned Counsel, Sri S.G. Bhagwan submitted that finding on issue 3 namely, whether there exists an arbitration agreement between petitioners and respondent is not correct and he submitted that really there has been no contract or arbitration agreement between the present appellants and the respondent. He submitted that appellant 1 placed the order for supply of paper to Hindustan Paper Corporation Limited at Calcutta. He submitted that it is on the direction of Hindustan Paper Corporation, the respondent made supply of the goods and there is no doubt that the appellant had taken the supply and delivery of the goods, but privity of the contract namely as to arbitration clause had not been framed between the appellants and the respondent. Learned Counsel contended, really if the orders for supply of papers has been made to Hindustan Paper Corporation Limited, the respondent might have made delivery on the direction of the Hindustan Paper Corporation. So there was no privity of contract and therefore there was no arbitration clause and as such the finding of the Trial Court on this aspect is erroneous.

The basis on which the Trial Court has recorded the finding about the existence of Arbitration agreement between the appellants and the respondent may not appear to be sound. But we find from the perusal of Ex. P. 87 that there has been arbitration agreement. Ex. P. 87 is the delivery order issued by Mandya National Paper Mills Limited dated 15-9-1976. There is one important term that "this order is subject to the terms and conditions mentioned on the reverse side". Once under this delivery order the goods were delivered the offer for delivery to the present appellant was made and he accepted the delivery order and delivery of goods under the order then from the action of the appellant contract did come because he accepted the offer of delivery subject to terms and conditions as mentioned on the reverse side, when this agreement came into being. It means delivery was taken subject to all the conditions mentioned on the reverse side of Ex. P. 87. Clause 8(a) and (b) are very material for this purpose:

"Clause 8(a).-In the event of dispute and difference arising out of and/or in connection with the contract a notice of existence of such dispute or difference shall be given to the Chairman, Mandya National Paper Mills Limited and such dispute and differences shall be referred to the sole arbitration of an Arbitrator to be nominated by the Chairman of the Mandya National Paper Mills Limited and the award of such sole Arbitrator shall be final and binding on the parties. The provisions of the Indian Arbitration Act shall be applicable to such arbitration proceedings. The venue of such arbitration shall be at Delhi or the town where the Chairman''s office is located".

Clause 8 very clearly exhibits the existence of Arbitration clause and arbitration agreement inter se the parties.

In view of the above, the delivery being made subject to the said terms and conditions, it was open to the appellant not to have accepted the delivery of goods subject to the terms and conditions. Had he not accepted, the contract might not have come into existence. But once the appellant has accepted the delivery of goods subject to the terms and conditions mentioned in Ex. P. 87, the existence of contract did come into being and Clause 8(a) clearly reveals the existence of the arbitration agreement in terms of Section 2(a) of the Arbitration Act to constitute an arbitration agreement. It is not necessary that it should bear the signatures of the parties. The requirement of law is that it should be in writing. As mentioned earlier the deed/document, whereunder offer for the delivery of goods was made, does contain the terms amounting arbitration clause and of reference of dispute to the arbitration of Arbitrator to be nominated by the Chairman of respondent-company, is beyond doubt there and as such there came into existence the agreement when goods to be delivered and the delivery was accepted by appellant subject to terms and conditions as contained on back side of Ex. P. 87 including the arbitration clause. When we so opine we find support for our view from the decision of Hon''ble Supreme Court in the case of Chander Nath Ojha v Suresh Jhalani, (1999)8 SCC 628. Thus considered in our view the first contention of learned Counsel for appellant is without any substance and is hereby rejected.

Learned Counsel for the appellants further contended that the award is invalid as it was given after the expiry of the period prescribed as well as after the expiry of the extended period for delivery of award. There is no dispute that arbitration award was given after the expiry of the extended period. It was open to the Court below either to accept and extend the time or it could hold the award to be bad. The Trial Court thus has exercised power to extend the time as appears from the perusal of finding on issue 5:

"In the above circumstance, keeping in view, that the time had elapsed by conduct of petitioners themselves, I find that it is a fit case to extend time, and therefore, the time be taken as extended".

It is now not open to appellant to take the plea that award was given before the extended period so because no person is allowed to take the benefit of his own wrong. Further in this circumstances of the case, we are of the opinion that the learned Civil Judge has acted within his jurisdiction and as such, the second contention of the learned Counsel has no force. That, no other point has been urged before us and the appeal is devoid of merits.

It appears from the order that the learned Civil Judge has not awarded interest. It is the well-settled view of the Supreme Court that in view of Section 29 of the Indian Arbitration Act, it is the duty of the Court to have awarded the interest.

Learned Counsel for the respondent submitted that the Arbitrator should have awarded interest. Section 29 of the Arbitration Act reads as under:

"Where and insofar as an 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".

The provision under Section 29 of the Arbitration Act is really empowering provision which empower the Court to award pendente lite and future interest after it has made the decree it is the duty of the Court to award interest in case of money decrees being granted as laid down in M/s. Jagdish Rai and Brothers v Union of India, AIR 1999 SC 1258. Delivering the judgment on behalf of the Court Hon''ble Justice Rajendra Babu observes:

"The High Court ought to have examined whether appellant was entitled to any interest after the decree was made in terms of award. The Courts have taken the view the award of interest under Section 34 of the CPC is a matter of procedure and ought to be granted in all cases where there is a decree for money unless there are strong reasons to decline".

The reason as to why interest is to be granted and why powers, carrying a duty, to grant interest to have been conferred has been clarified by the Constitution Bench in the case of Secretary, Irrigation Department, Government of Orissa v G.C. Roy, AIR 1992 SC 732, in following words at page 748:

"A person is deprived of use of money to which he is legitimately entitled has a right to be compensated for deprivation, call it by any name. It may be called interest; compensation or damages".

In the view of the legal position the Court should have awarded interest for the period from the date of filing of award to the date of payment. As mentioned earlier the Court has only set aside the award as regard the entitlement of the respondent to recover Rs. 3,37,254.79 and Rs. 25,000/- on Items 3 and 5 from petitioner/appellant 1 which means award against other petitioners i.e., appellants had been kept intact in respect of all the items. That in Clause 4 of the Arbitrator''s award, which states the claim for recovery of Rs. 65,000/- as interest upto 31-1-1978 from respondents 2, 5, 6 and 7 is, remains intact and effective. Thereafter, again in Clause 6, it is provided that claimants are to recover Rs. 76,107.12 and Rs. 13,000/- as interest for the period upto 31-1-1978 and Rs. 5,500/- as interest for the period of pendency of arbitration proceeding from respondent 1. It appears, the interest had been awarded only upto 31-1-1978 and for the period during the pendency of the arbitration proceeding vide Clause 6. That as regards the question of awarding interest with reference to the period during which proceedings were pending in the Civil Court from the date of filing of the award, to the date of decree etc., the Civil Court has not said anything about it. It is clarified herewith that the claimant is entitled to and is awarded interest on the amount under the Arbitration Award as affirmed by the Civil Court decree for the further period commencing from the date of filing of the award till the date of payment of the amount at the rate of 12% p.a. and the Civil Court decree is modified and clarified in the interest of justice and equity as well.

Thus, the appeal is dismissed. Civil Court decree is affirmed subject to above clarification and modification regarding interest, by awarding 12% p.a. interest to claimant-respondent on the amounts under award as affirmed and made the rule of the Court; against the present appellants, other than appellant 1 (petitioner 1).