M/s Harish Chandra And Co. vs @Hash State Of Uttar Pradesh & Others

Lok Pal Singh, J

The cross objections have been filed by M/s Harish Chandra and Co. in A.O. No. 277 of 2010 seeking enhancement of interest of rate as reduced by the Court under Section 30/33 of the Arbitration Act, 1940 (hereinafter referred to as 'the Act').

Brief facts of the case are that appeal from order no. 277 of 2010 "State of U.P. and others Vs. M/s Harish Chandra and Co. was filed against the judgment and order dated 30.04.2010 and decree dated 10.05.2010 passed by 3rd Additional Civil Judge (Senior Division), Dehradun in Misc. Case No. 36 of 2009 "State of U.P. through Executive Engineer Vs. Harish Chandra and Co., whereby the objections filed by the State of Uttar Pradesh-appellant under Section 30/33 of the Act were dismissed. On filing of the appeal under Section 39 of the Arbitration Act, 1940, the cross objection/cross appeal was filed by the respondents.

The cross objections filed by M/s Harish Chandra and Co. with the prayer that the Court has illegally reduced the rate of enhancement of the interest, instead of 12% to 6% per annum from the date of a ward till actual payment. The appeal filed by the State of U.P. was admitted by the Coordinate Bench of this Court on 22.06.2015. The operative portion of the said order is extracted below:

"The appeal is admitted subject to the deposit of fifty percent of the decretal amount by the appellant, in cash, (wherefor the execution can be launched), and remaining fifty percent in the form of bank guarantee, within a period of four weeks from today. If such deposit is made, then the execution, if any, pursuant to the ongoing proceedings, shall remain stayed. In case of default, it would be open for the respondents to press execution before the court below."

The State of U.P. could not deposit the amount pursuant to the said order, instead of making compliance of the aforesaid order, the appellants/State of U.P. has moved an application for recalling/modification of the order dated 22.06.2015.

Coordinate Bench of this Court dismissed the recall application as well as appeal filed by the State of U.P. vide judgment and order dated 09.11.2016. The operative portion of the said judgment is extracted below:

"It is pertinent to mention that initially this appeal was filed on 12.08.2010. Due to latches and sleeping attitude of the State of U.P./appellants, it was dismissed in non-prosecution at least two times. Somehow, it could be restored even after condonation of excessive delay.

Thereafter, on 22.06.2015, it was admitted subject to deposit of 50% of the total awarded amount in cash and remaining 50% in the form of bank guarantee within a period of four weeks.

Instead of making compliance of the Court's order, a recall/modification application was moved by the State of U.P./appellants. The Court, showing liberalness, curtailed the amount i.e. to deposit only 25% of the total awarded amount and 25% amount of the total awarded amount was asked to be deposited in the form of bank guarantee within a period of six weeks i.e. by 15.10.2016 but even after lapse of 13 months, the time was again being sought by Smt. Beena Pandey, which has been vehemently resisted by learned Senior Counsel for the respondents.

I think the State of U.P./appellants is not at all serious in making compliance of the Court's order even after availing much liberty, so, in view of the order passed by this Court on 22.06.2015, this appeal is hereby dismissed. Decree Holder shall be full liberty to execute the decree. LCR be sent back."

Feeling aggrieved by the aforesaid judgment and order, the State of U.P./appellants preferred SLP No. 7745 of 2017. The Hon'ble Apex Court vide order dated 24.03.2017 dismissed the said SLP filed by the appellants.

The cross objection under Order 41 Rule 22 C.P.C. were filed by M/s Harish Chandra and Co. in appeal. The said objections were entertained as Civil Misc. Application No. 644 of 2017 "M/s Harish Chandra and Co. Vs. State of U.P.". The appeal filed by the State of U.P. was dismissed, since, the cross objection were not registered as cross appeal, therefore, the cross objection could not decided; the Registry of this Court has listed the cross objection as Civil Misc. Application No. 5511 of 2011. This Court vide order dated 7.10.2017 has observed that the cross objections filed by the respondent has been mentioned as Civil Misc. Application 1155 of 2011, though the judgment of dismissal of the appeal has been affirmed by the Apex Court but since the cross objections filed by the respondent are not decided, therefore, the Court directed that the cross objections, so filed by the respondent be numbered as cross appeal. Consequently, the Registry of this Court registered the cross objections as Cross Appeal No. 2 of 2019 "M/s Harish Chandra & Co. Vs. State of U.P. & others".

The appeal was preferred under Section 39 of the Act. By said appeal, appellants/State of U.P. challenged the order dated 30.04.2010. After dismissal of the objections, under Section 33 of the Act, decree was prepared. The trial court decided the original suit no. 128 of 2006 "M/s Harish Chandra & Co. Vs. State of U.P. & others by its judgment and order dated 30.04.2010, whereby the court has made the award rule of the Court holding that the plaintiff in whose favour learned Arbitrator has passed the award would be entitled to interest @ 6% instead of 12% per annum from the date of award till payment.

In my view, the cross objections only can be accompanied to the judgment challenged in the appeal and not in regard to any other judgment. Thus, in my view the cross objections filed by the respondent-M/s Harish Chandra & Co. in regard to the judgment and order dated 30.04.2019 passed in Original Suit No. 128 of 2006 "M/s Harish Chandra & Co. Vs. State of U.P. & others" is not maintainable. On merit also, the court below by impugned order dated 30.04.2010 passed in Original Suit No. 128 of 2006 "M/s Harish Chandra & Co. Vs. State of U.P. & others" after it to be taken its an independent appeal and is maintainable within that contingency since, the court by assigning the reason in its judgment and order dated 30.04.2010 has reduced the interest rate @6% instead of 12% as awarded by learned Arbitrator.

Ms. Beena Pande, Standing Counsel for the State of U.P. would submit that the State of U.P. has amended the provisions of the Act by insertion of Section 7-A. Section 7-A of the Arbitration Act, 1940 is extracted below:

"7-A. Where and in so far as an award is for the payment of money, the arbitrators or the umpire may, in the award, order interest at such rate as the arbitrators or umpire may deem reasonable to be paid on the principal sum awarded (3) of Section 37, to the date of award, in addition to any interest awarded on such principal sum for any period prior to such commencement, with further interest at such rate not exceeding six per cent per annum as the arbitrators or umpire may deem reasonable on such principal sum from the date of the award to the date of payment or to such earlier date as the arbitrators or umpire may think fit, but in no case beyond the date of the decree to be passed on the award."

She would submit that Section 7-A of the Act give right to an Arbitrator to award the interest but not more than 6% per annum. When, the statute, itself prescribed the maximum limit of interest @ 6% per annum the Arbitrator without looking into the provisions of Section 7A of the Act has awarded interest @ 12% per annum.

Mr. S.K. Jain, Senior Advocate appearing for the respondent would submit that since the Arbitrator has awarded interest @12% from the date of award till the date of payment, therefore, the Court has illegally without assigning any reason has reduced the interest @ 6% per annum instead of 12%. He has placed reliance upon the judgment of Hon'ble Apex Court in the case of M/s Manalal Prabhudayal v Oriental Insurance Co. Ltd. reported in AIR 2006 SCC 3026, the paragraph 12, 13 & 16 are extracted below:

"12. Having considered the rival contentions of the parties, in our opinion, the appeal deserves to be allowed by granting relief to the appellant Firm. It is well settled that award of interest is in the discretion of court. Normally, when interest is granted, appellate, revisional or writ court would not interfere with exercise of discretion unless the discretion has been exercised arbitrarily or capriciously. It is equally well settled that like grant of interest, rate of interest is also in the discretion of the court and in the absence of any agreement between the parties, usually, the court would not interfere with rate of interest unless it is convinced that the discretion of the lower court was ex facie bad in law.

As far as arbitration proceedings are concerned, it is well established that an arbitrator, in absence of any prohibition in an arbitration agreement, has power to award interest. Though it is not a "court" within the meaning of Section 34 of the Code of Civil Procedure, 1908, an arbitrator has power to grant reasonable rate of interest at all the three stages i.e pre-reference period, pendente lite and post-award period.

Once it is conceded that an arbitrator has power to grant interest and has also discretion in granting interest at a particular rate provided it is reasonable, the award of the arbitrator cannot be held to be bad in law or interfered with on the ground that he could not have granted interest or could not have awarded it at a particular rate unless the court is convinced that the grant of interest was not at a "reasonable rate". From the record, it is clear that the arbitration proceedings started in 1995 and the award was passed in 1999. The arbitrator had granted uniform interest @ 12 per cent per annum all throughout. The award was made rule of the court and the Court of the Civil Judge (Senior Division), Bhubaneshwar did not find illegality therein. The High Court, in our opinion, therefore, should not have interfered with the said order and reduced the rate of interest from the date of award till the date of realization of the amount."

Learned senior counsel also placed reliance upon another judgment of Hon'ble Apex Court in the case of Bhagwati Oxygen Ltd. Vs. Hindusan Copper Ltd. reported in (2005) 6 SCC 462, the paragraph nos. 36 & 41 of which are excerpted below:

"36. The last question relates to payment of interest. The Arbitrator awarded interest to BOL at the universal rate of eighteen per cent for all the three stages, pre-reference period, pendente lite and post award period. It is not disputed that in the arbitration agreement there is no provision for payment of interest. The learned single Judge as well as the Division Bench were right in observing that the Arbitrator, in the facts and circumstances, could have awarded interest. The Arbitrator had granted interest at the rate of eighteen per cent on the ground of loan so advanced by HCL to BOL at that rate.

In view of the aforesaid decisions, we hold that it was within the power of Arbitrator to award interest. As to the rate of interest, the contention of HCL is that it ought to have been at the rate of six per cent only. The learned counsel for HCL has strongly relied upon the decision of this Court in Nav Bharat Construction Co. In that case, interest was awarded by the Arbitrator at the rate of fifteen per cent. The said action was challenged by the State Government as well as the Contractor. The contention of the State Government was that the Arbitrator could not have awarded interest at the rate of fifteen per cent and it was exorbitant. The Contractor, on the other hand, urged that interest ought to have awarded at the rate of eighteen per cent. This Court held that it would be appropriate if interest at the rate of six per cent is awarded."

Mr. S.K. Jain, Senior Advocate has also referred the judgment of Hon'ble Apex Court in the case of State of U.P. Vs. Harish Chandra and Co. reported in (1999) 1 SCC 63 . Paragraph no. 10 & 11 are extracted herein:

"10. A mere look at the Clause shows that the claim for interest by way of damages was not to be entertained against the Government with respect to only a specified type of amount, namely, any moneys or balances which may be lying with the Government owing to any dispute, difference between the Engineer-in-Charge and the contractor; or misunderstanding between the Engineer-in-Charge and the contractor in marking periodical or final payments or in any other respect whatsoever. The words "or in any other respect whatsoever" also referred to the dispute pertaining to the moneys or balance which may be lying with the Government pursuant to the agreement meaning thereby security deposit or retention money or any other amount which might have been with the Government and refund of which might have been withheld by the Government. The claim for damages or claim for payment for the work done and which was not paid for would not obviously cover any money which may be said to be lying with the Government. Consequently, on the express language of this Clause, there is no prohibition which could be called out against the respondent-contractor that he could not raise the claim for interest by way of damages before the arbitrator on the relevant items placed for adjudication. In fact, similar contention has been repelled by the aforesaid decision of the 3-Judge Bench of this Court in paragraphs 25 of the Report that under Clause 4 which was pressed in service, no interest was payable on the amount withheld. The claim which was made in that case by Durga Parshad before the arbitrator was for the non-payment of the full amount as per final bill submitted by him and the interest so awarded on the said amount was clearly not covered by Clause 4 of the contract. Similar is the facts situation in the present case and the working of the Clause in question is also of an identical nature. Therefore, the contention of learned senior counsel for the appellant-State that Clause 1.9 barred the consideration of such a claim for interest cannot be sustained. The High Court, therefore, rightly came to the conclusion that that Clause was not a bar to such a claim. Further contention of learned senior counsel for the appellant that the claims regarding cutting of hardrock were wrongly granted, cannot be made subject matter of an objection under Section 30 of the Arbitration Act which could have been agitated for getting any reduction of the amount as awarded by the arbitrator. It was a question purely on merits of the award which could not be agitated in objections as they were not in the nature of an appeal against the award before the court below. Civil Appeal No. 7643 of 1995 is disposed of accordingly.

In the cross-appeal being Civil Appeal arising out of Special Leave Petition (Civil) No.6307 of 1995, learned senior counsel for the respondent-State vehemently submitted that as per Section 24 of the U.P. Civil Laws (Reforms and Amendment) Act, 1976, paragraph 7-A was inserted in the First Schedule to the Arbitration Act, 1940 which barred the power of the arbitrator in granting more than 6 per cent interest on the awarded amount and, therefore, the High Court was justified in reducing 15.5 per cent interest to 6 per cent in the light of the said provision. The aforesaid contention of the learned counsel has to be examined in the light of what the High Court stated in para 9 of the impugned judgment. It has observed that when the arbitrator has found interest at the rate of 6 per cent per annum to be reasonable, the trial court ought to have adopted the same rate of interest for being awarded to the contractor. In our view, the said reasoning cannot be sustained for the simple reason that even if aforesaid Paragraph 7-A which was not pressed in service before the High Court could be resorted to, it only barred the power of the arbitrator and not of the court. Further, it could not be said that the arbitrator had found the interest at the rate of 6 per cent per annum to be reasonable. In fact, he had no authority or power to go beyond 6 per cent interest. So far as the court is concerned, it is in its discretion to award 15.5 per cent interest on the decretal amount from the date of the decree till satisfaction of the decree. As that was within the realm of the discretionary jurisdiction of the trial court it could not have been set aside by the High Court in appeal. The cross-appeal will stand allowed to this extent by modifying the judgment and order of the High Court by substituting 15.5 per cent interest instead of 6 per cent interest per annum from the date of the decree till payment."

I have gone through the judgment cited by Mr. S.K. Jain, Senior Advocate and perused the material available on record.

In the present case, the award was passed alongwith interest @12% per annum interest from the date of award till the date of realization, which was reduced by the court below to 6% per annum. The Hon'ble Apex Court in State of U.P. Vs. Harish Chandra and Co. has observed that though it is the authority of Arbitrator to award the interest but the Arbitrator is not the final authority and it is the Court who shall consider what is the appropriate interest. The Court further observed that since the Civil Court instead of 6% interest as awarded by the Arbitrator has enhanced the interest to 15.5% per annum. Since, maximum limit of interest @6% per annum has been fixed as per the provisions contained in Section 7A of the Act, therefore, the Arbitrator had awarded the interest @12% per annum in an arbitrary manner. The Civil Court having considered the provisions contained in Section 7A of the Act reduced the award to the extent of 6%. The discretion has been exercised by the Civil Court in exercise of its original jurisdiction, such discretion exercised by the civil court in reducing or enhancing the award cannot be the subject matter of scrutiny in appeal.

The ratio of three judgments cited by Senior Counsel for the respondent/cross objector is firstly based upon the discretion of the Arbitrator to award the interest pendente lite with interest or to reduced the rate of interest from the date of award till the date of realization of the amount." But the court having original jurisdiction is the final authority to reduce or enhance the award. Thus, in view of the ratio of Hon'ble Apex Court in the judgments (Supra) this Court is of the view that the court below has rightly reduced the interest rate @6% per annum, the maximum limit of interest, prescribed as per provisions contained in Section 7-A of the Act. Thus, I do not find any infirmity, illegality or jurisdictional error in the order impugned, which needs interference of this Court. The cross appeal fails and is hereby dismissed.

No order as to costs.