AI Structured Summary
Not yet generated for this judgment
Judgment
Lakshmanan, J.—Thiru N. Meenakshisundaram, the arbitrator/petitioner filed original petition No. 179 of 1991-under S. 14 sub clause 2 of
the Arbitration Act, 1940, hereinafter referred to as the Act to receive the award passed by him dated 15-3-1991 and order notice to the claimant
and the opposite party.
Original Petition No. 197 of 1991 was filed by the Chairman, Tamil Nadu Electricity Board, Madras against the claimants, South India
Corporation Private Limited, Cochin and the arbitrator under S. 30 of the Act to set aside the award dated 15-3-1991 filed in Original Petition
No. 179 of 1991.
Application No. 2365 of 1991 in Original Petition No. 179 of 1991 was filed by the claimant, South India Corporation Private Limited,
represented by its Manager, S. Palaniappa Chettiar to pass a decree in terms of the award dated 15-3-1991 of the arbitrator.
Brief facts that are relevant for the disposal of the above three matters are as follows:
Civil suit No. 144 of 1979 was filed by the claimant, South India Corporation Private Limited, Cochin under S. 20 of the Act for an order
directing the Tamil Nadu Electricity Board to file the Arbitration Agreement, dated 27-10-1967 entered into between the South India Corporation
Private Limited (hereinafter called as the Corporation) and the Chairman, Tamil Nadu Electricity Board (hereinafter called as the Board) into Court
and refer the matter to arbitration.
The suit was resisted by the Board. Singaravelu, J by his order dated 21st July, 1983 appointed Thiru. N. Meenakshisundaram, retired District
and Sessions Judge and retired Additional Registrar of this Court to decide the disputes between the parties in accordance with the terms of the
Arbitration Agreement, dated 27-10-1967. Learned single Judge specifically directed that the arbitrator appointed by him shall decide the question
of limitation along with the other points of disputes.
The sole arbitrator who was appointed by this Court to decide the disputes between the parties in accordance with the terms of the agreement,
dated 27-10-1967 entered upon the reference and issued notice to both parties, requiring them to file their statements relating to the disputes. The
disputes between the parties relate to the contract or agreement, dated 27-10-1967 for the supply and erection of Power House Structural Steel
between columns 0 to 10 (both inclusive) excluding Coal Bunker for the Ennore Thermal Scheme, Ennore, Madras-57, according to specification
No. C.990. The claimant/Corporation filed a claim statement setting forth the various points of disputes and differences on the claim against the
Board. The Board filed its counter to the said claim statement, denying and disputing the claims raised. A rejoinder was also filed by the
Corporation by way of meeting out certain points raised in the counter filed by the Board. The claim statement filed by the Corporation consists of
five claims. According to the claimant, a total sum of Rs. 6,35,999.57 p. was due from the Board together with interest at 18 per cent per annum
from the date of claim till payment and costs of Arbitration. The Board contested the claims. Several points for consideration were framed.
Point No. 7 relates to the claim of interest on the amount due and if so at what rate. No oral evidence had been adduced on either side. The
claimants'' documents have been marked as Exs.C.1 to C.41 by consent and admitted in evidence. On the side of the Board, no document had
been produced and marked in evidence.
On point No. 1, the arbitrator held that the claim made by the Corporation is not barred by limitation and is well within time.
On point No. 2, the arbitrator held that the excess quantity of work fabricated by the claimant was 1563 tonnes.
On point No. 3, the arbitrator held that the claimant was not entitled to claim additional rate of Rs. 292/- per tonne for 1383 tonnes i.e., to say Rs.
4,03,836/-
On point No. 4, the arbitrator held that the claimant was entitled to recover from the Board a sum of Rs. 54,096.30 p. towards the difference in
cost of various articles purchased under Ex. C-33 invoices in open market.
On point No. 5, the arbitrator has found that the claimant was entitled to the refund of Rs. 1,12,814.80 p. from the Board with regard to the
excess percentage charges levied and collected.
On point No. 6, which relates to the claim regarding the final bill, the arbitrator held that it cannot be construed as a dispute arising under the
Arbitration Agreement.
On point No. 7, with which we are presently concerned in all the three matters and which relates to the claim of interest by the
claimant/Corporation on the amount due at 18 per cent per annum from the date of claim till date of payment, the arbitrator observed as under:
Point No. 7 :- The petitioner claimed interest on the amount due at 18 per cent per annum from the dale of claim till the date of payment. S. 29 of
the Arbitration Act deals with the question of awarding interest and it runs as follows :
Where and in so far 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 amount as adjudged by the award confirmed by the decree.
This provision available in the Arbitration Act does not empower the Arbitrator to award interest. It is for the Court while passing the decree
confirming the award to award interest as it may deem fit. Hence, it is for the petitioner to move the Hon''ble High Court with regard to interest to
be awarded on the amount found due from the respondent.
Thus, the arbitrator passed an award in a sum of Rs. 5,70,747.10 p. on various claims. However, he declined to grant interest as prayed for on the
ground that he is not empowered to do so.
Two original petitions were Filed, one by the arbitrator and the other by the claimant in Original Petition Nos. 206 of 1987 and 562 of 1987
respectively. In the original petition No. 206 of 1987 filed by the arbitrator, the award filed by the arbitrator was ordered to be received on 29th
April, 1987. this Court after receipt of the award ordered notice to the parties under S. 14, sub clause 2 of the Act. The Corporation aggrieved by
that portion of the award declining to grant interest came forward with Original Petition No. 562 of 1987 to set aside the same. Janarthanam, J., by
his Order dated 11-6-1990, after hearing both the counsel passed a decree in terms of the award of the arbitrator, allowing the claim of the
Corporation/claimant to the extent of Rs. 5,70,747.10 p. with interest at 18 per cent per annum from the date of his Order (11-6-1990) till dale of
payment on the amount awarded by the arbitrator.
On the question regarding the power of the arbitrator to award interest from the date of claim to the date of passing of the award, the matter
was seriously argued by both parties. Janarthanam, J. passed a decree in terms of the award for Rs. 5,70,747.10 p. with interest at 18 per cent
per annum from 11-6-1990 till dale of payment and set aside the finding of the arbitrator, rejecting the claim of the Corporation regarding payment
of interest and remitted the matter to the arbitrator for fresh consideration of that claim within six months from the date of receipt of the order.
Accordingly, the learned single Judge allowed Original Petition No. 562 of 1987.
It is pertinent to note that the Order of the learned single Judge was not appealed against by any of the parties to the proceedings and has
become final and conclusive. In fact, the Board had already paid Rs. 6,48,083.20 p. being the principal sum of Rs. 5,70,747/- and interest of Rs.
77,336.20 p. on 12-3-1991 in accordance with the directions given by this Court in the common Judgment, dated 11-6-1990 in Original Petition
Nos. 206 and 562 of 1987.
After remand, the arbitrator issued notice to the counsel appearing for both parties for fresh consideration of the claim regarding interest. No
fresh evidence either oral or documentary has been adduced by any party. Learned Counsel appearing for the respective parties advanced
arguments referring to certain documents already marked during enquiry of the earlier award proceedings. The arbitrator has decided the only
point that arose for consideration with regard to interest.
Learned arbitrator on a careful consideration of the entire materials placed before him and on record and also taking into account the counter
statement filed by the Board not denying the claim for interest held that the claimant is entitled to claim interest on the amount of Rs. 5,70,747.10 p.
which was found due from the date 1-8-1970 upto 11-6-1990 with interest at 18 per cent per annum on the said sum till the date of payment. In
considering the rate of interest to be awarded on Rs. 5,70,747.10 p. the arbitrator held that the award of interest at 18 percent per annum is just
and reasonable and accordingly awarded 18 percent per annum of the amount of Rs. 5,77,747.10 p. from 1-8-1979 to 10-6-1990. Learned
arbitrator in awarding interest at 18 per cent per annum from 1-8-1970 to 10-6-1990 has considered all the relevant materials, the submissions
made by both parties, the records placed before him and also the Judgments of the Supreme Court in Firm Madanlal Roshanlal Mahajan Vs.
Hukumchand Mills Ltd., Indore, State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., Union of India (UOI) Vs. Unit Construction Co. (Pvt.)
Ltd. and Another, Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, M/s. Hind Builders Vs. Union of India,
and found that the claim of interest has also not been specifically denied by the Board in its counter statement. The arbitrator held that the work
was completed in March, 1970 and even though the claimant had put forward the claim before the Board for an additional rate of Rs. 300/-. per
tonne for the excess work of 1500 tonnes over and above the agreed rate of Rs. 1525/-. per tonne under a letter dated 1-8-1970 (Ex. C.6) which
was followed by another letter dated 2-3-1971 (Ex. C.7), the said claim has not been considered by the Board. The arbitrator held that on the
basis of these letters, the claim for the additional rate of Rs. 300/-. per tonne for the extra work done was on 1-8-1970 and for carrying out such a
work claimant/Corporation had to purchase materials like, Girders, Angles, Plates, Joists, Channels, Structurals, Gas, Welding Electrodes, paints
etc., in open market at considerable cost and even after the completion of the contract work and inspite of the claim made, the accounts were not
settled and that the amount became due even as early as 1970. Thus, the arbitrator has also clearly held that the claimant is entitled to interest from
1-8-1970 and that the delay in settling the account is wholly attributable to the Board.
This award was challenged by the Board in O.P. No. 197 of 1991 under S. 30 of the Act. This award was supported by the
claimant/Corporation by filing application No. 2365 of 1991 in O.P. No. 179 of 1991 to pass a decree in terms of the award dated 15-3-1991.
As stated supra, the sole arbitrator himself has filed Original Petition No. 179 of 1991 under S. 14 sub-clause 2 of the Act to receive the award
and order notice to the respective parties.
I have heard the arguments of Mr. K.V. Venkatapathi, Learned Counsel appearing for the Board and Mr. G. Rajagopalan, Learned Counsel
appearing for the claimant/Corporation.
According to Mr. K.V. Venkatapathi, the award in question is not just and legal and that the arbitrator had no jurisdiction to award interest for
the reason that he was not appointed under Chapter IV. According to him, since the arbitrator was appointed under S. 20 of Chapter III, pursuant
to an application in the form of a suit, requesting the Court to refer the matter for arbitration, pursuant to an agreement entered into between the
parties, the arbitrator has no jurisdiction to award interest as a Court. The arbitrator appointed under S. 20 of the Act has to be construed and
treated as an appointment without the intervention of the Court and that the aid of the Court was sought only to enforce the agreement. A few
important remarks passed by the counsel appearing for the Board are as follows:
(a) The order appointing the arbitrator was passed under S. 20 of the Arbitration Act 1940 which will not amount to mean that the Arbitrator has
been appointed through the intervention of the Court;
(b) The learned Arbitrator should have seen that only when arbitrators are appointed under Chapter IV of the Indian Arbitration Act 10 of 1940,
the Arbitrator should be deemed to have been appointed through the intervention of the Court;
(c) The learned Arbitrator should have seen that in the present case, he was appointed as arbitrator under Chapter III on the basis of a signed
Agreement and hence he is not an Arbitrator appointed through the intervention of the Court;
(d) The learned arbitrator has no power to award interest, when he is not appointed through the intervention of the Court;
(e) When the arbitrator has not been appointed through the intervention of Court, the learned Arbitrator has no power to order interest under S.
34 C.P.C.
(f) The learned arbitrator had no jurisdiction to apply the provisions of the interest Act 1978 for awarding interest;
and
(g) In any event, the learned arbitrator had no jurisdiction to award interest on the basis of Interest Act as the dispute had arisen on the basis of a
contract, dated 21-7-1967 which was long before the coming into force of the Interest Act.
Per contra, Mr. G. Rajagopalan, Learned Counsel appearing for the claimant/Corporation has contended that the order of the learned single
Judge has become final and conclusive in view of the fact that the Board did not file any appeal against the said order and has also paid the amount
decreed with interest upto the date and after remand, the arbitrator passed an award on 15-3-1991 holding that the applicant is entitled to interest
at 18 per cent per annum from 1-8-1970 and hence, the applicant became entitled to interest at the rate of 18 per cent per annum on the amount
awarded from 1-8-1970 to 10-6-1990. According to him, the Corporation has never disputed the grant of interest in its counter statement and the
arbitrator only after taking into consideration of the entire materials on record and also taking note of the fact that the Corporation never disputed
the grant of interest as awarded interest for the period mentioned above.
In support of his contention, Mr. K.V. Venkatapathi, Learned Counsel appearing for the Board placed strong reliance on the recent
pronouncement of the Supreme Court reported in M/s. Hind Builders Vs. Union of India, . That case arose out of a reference made to the
arbitrator by the High Court of Calcutta under S. 20 of the Act. While dealing with the contention raised by the Union of India, the Supreme Court
laid down that the grant of pendente lite interest would be justified only when the reference to arbitration is made in the course of a suit. In support
of the above view, the Supreme Court referred to its earlier pronouncement made in Executive Engineer (Irrigation), Balimela and Others Vs.
Abhaduta Jena and Others,
It is significant to notice that the decision in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, , clearly lays
down the ratio that in cases arising after the corning into force of the Interest Act (14 of 1978), which came into force on 19-8-1981, The position
is that the award of pendente lite interest is still governed by the same principle laid down in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand
Mills Ltd., Indore, (three Hon''ble Judges), Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., (three Hon''ble Judges) and State of
Madhya Pradesh Vs. Saith and Skelton (P) Ltd., (three Hon''ble Judges) and the award of interest prior to the suit is governed by the Interest Act
(14 of 1978).
Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, was a case of reference made to arbitration in the course of a suit. The
parties to the lis entered into three contracts, whereby the appellant before the Supreme Court agreed to sell some bales of cloth. The dispute
arose between the parties in respect of the three contracts. Hukumchand Mills the respondent before the Supreme Court instituted a civil suit No.
10 A of 1950 in the Court of the District Judge, Indore against the appellant before the Supreme Court claiming a sum of Rs. 1,72,856, interest
thereon from July 1, 1948 upto January 30, 1950, godown rent interest from the date of the institution of the suit and costs. The disputes in this suit
were referred to the sole arbitration of Mr. S.N. Samvatsar, Advocate. After hearing the parties, the arbitrator made his award on November 30,
1961. The award recited the disputes between the parties and their respective contentions and submissions and then directed that the defendant
(appellant before the Supreme Court should pay Rs. 1,17,108-7-9 in all to the plaintiff (respondent in the Supreme Court) and to give up claim to
46� bales. The appellant/defendant should pay interest on the above sum to the plaintiff at the rate of six annas per cent per month. Some other
directions were also given. The award was filed in Court. The defendant/appellant before the Supreme Court filed an application to set aside the
award. The District Judge, Indore, dismissed the application and passed a decree on the award. An appeal from this order preferred by the
appellant/defendant was dismissed by the High Court of Madhya Pradesh, the correctness of which was challenged in the appeal by special leave
before the Supreme Court.
Learned Counsel for the appellant submitted before the Supreme Court that the award should be set aside on various grounds. One of the
objections to the award was that the arbitrator had no power to award interest during the pendency of the suit.
The Supreme Court on a consideration of the objections raised by the appellant has observed as under Firm Madanlal Roshanlal Mahajan Vs.
Hukumchand Mills Ltd., Indore, :
.....In the present case, all the disputes in the suit were referred to the arbitrator for his decision. One of the disputes in the suit was whether the
respondent was entitled to pendente lite interest. The arbitrator could decide the dispute and he could award pendente lite interest just as a Court
could do so under S. 34 of the Code of Civil Procedure. Though, in terms, S. 34 of the CPC does not apply to arbitrations, it was an implied term
of the reference in the suit that the arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite
interest as the Court could give if it decided the dispute. This power of the arbitrator was not fettered either by the arbitration agreement or by the
Arbitration Act, 1940. The contention that in an arbitration in a suit the arbitrator had no power to award pendente lite interest must be rejected.....
Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., was a case in which the question of grant of pendente lite interest by the arbitrator
was considered in a case where the reference to arbitration was not made in the course of a suit. Dealing with the argument that the arbitrator had
no authority to award interest, the Supreme Court held that it is an implied term of the reference that the arbitrator will decide the dispute according
to existing law and give such relief with regard to interest as a Court could give if it decided the dispute. The principle underlying S. 34, C.P.C. was
held to be applicable to the arbitration proceedings for awarding interest. After referring to the decisions in Edwards v. Great Western Rly. (1851)
II CB 558 and Chandris v. Isbrandtsen-Moller Co. 1951-I KB 240 the Supreme Court held that the legal position in England that it was an
implied term of the contract that the arbitrator could award interest in a case where the Court could award it is equally applicable in India. In that
case it was held that since all the disputes including the question of interest were referred to the arbitrator for his decision, the arbitrator had
jurisdiction to grant interest from the date of the award to the date of the decree. It is useful to extract the relevant passage in the above judgment.
In the present case, all the disputes in the suit, including the question of interest were referred to the arbitrator for his decision. In our opinion, the
arbitrator had jurisdiction, in the present case. (sic) grant interest on the amount of the award from the date of the award till the date of the decree
granted by Mallick, J. The reason is that it is an implied term of the reference that the arbitrator will decide the dispute according to existing law
and give such relief with regard to interest as a Court could give if it decided the dispute. Though in terms S. 34 of the CPC does not apply to
arbitration proceedings, the principle of that section will be applied by the arbitrator for awarding interest in cases where a Court of law in a suit
having jurisdiction of the subject matter covered by S. 34 could grant a decree for interest. In Edwards v. Great Western Rly., (1851) II CB 558,
one of the questions at issue was whether an arbitrator could or could not award interest in a case which was within S.28 of the Civil Procedure
Act 1833. It was held by the Court of Common Pleas that the arbitrator, under a submission of ''all matters in difference'', might award the plaintiff
in iciest, not withstanding the notice of action did not contain a demand of interest; and further, that, assuming a notice of action to have been
necessary the want or insufficiency of such notice could not be taken advantage of, since the 5 and 6 Vict. C.97, S.3, unless pleaded specially.
In State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., it has been held that where all the disputes including claim for payment of the
amount with interest are referred to the arbitrator, the arbitrator can award interest during the pendency of the proceedings. While considering the
contention that the arbitrator had no jurisdiction to award interest from a period anterior to the date of the reference, it was held that if all the
disputes including the claim for payment of amount of interest was referred to the arbitrator, the arbitrator had jurisdiction to award interest, even
during the pendency of the proceedings. On facts of the said case, it was also found that the contract did not provide that no interest was payable
on the amount that may be found due. The Judgments reported in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, and
Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., were rendered by Bench consisting of three Honourable Judges of the Supreme Court.
The Judgment reported in M/s. Hind Builders Vs. Union of India, was rendered by a Bench consisting of two Honourable Judges of the Supreme
Court. The decision in Executive Engineer (Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, was a Judgment rendered by a Bench
consisting of three Honourable Judges of the Supreme Court.
The decisions reported in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, and Union of India (UOI) Vs. Bungo Steel
Furniture Pvt. Ltd., were considered in the decision reported in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., and it has been
categorically laid down for the payment of the amount with interest are referred to the arbitrator, the arbitrator can award interest pendente lite. In
fact, the decision reported in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., did not arise out of a reference made to arbitration in a suit.
According to me, the ratio laid down in the three Judgments referred to above, which is still holding the field is that when all the disputes
including a claim for payment of interest are referred to the arbitrator, the arbitrator has power to award interest during the period the proceedings
are pending before him. Applying the said ratio to the facts of the present case, it has got to be held that the claim for payment of interest was
specifically referred to the arbitrator as could be seen from the following paragraph:
Thus according to the claimant, a total sum of Rs. 6,35,999.57 p. is due from the respondent together with interest at 18 per cent from the date of
claim till payment and costs of Arbitration.
Further, the very question of ''interest'' was the subject matter of arbitration as is evident from the following Issue No. 7 in the award, which
specifically deals with interest:
. .
. .
. .
. .
. .
. .
Whether the petitioner is entitled to claim interest on the amount due and if so at what rate?
I am of the opinion that the principles laid down by the Supreme Court in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., has not
been departed from the subsequent Judgments reported in M/s. Hind Builders Vs. Union of India, which dealt with the general question relating to
the ''power of the arbitrator'' to award interest pendente lite. In the Judgments in Executive Engineer (Irrigation), Balimela and Others Vs.
Abhaduta Jena and Others, and M/s. Hind Builders Vs. Union of India, , no argument appears to have been advanced on the power of the
arbitrator to award interest pendente lite where, the dispute referred for arbitration including the claim for interest. Therefore, in my opinion,
Learned Counsel appearing for the Corporation/claimant, Mr. G. Rajagopalan was right in placing strong reliance in the Judgments reported in
Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, and Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., , as
understood and explained in the State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., . In view of the aforesaid conclusion, the award of
interest from 26-9-1983 (date of entering upon the reference) to 15-4-1987 (date of the first award by the same arbitrator) is legal, proper and
valid. Hence, I confirm the finding of the arbitrator on this aspect.
Coming to the question of grant of interest for the period prior to the arbitration proceedings, viz., between 1-8-1970 (date of Ex. C-6) and
25-6-1983, the same is fully covered by the ratio laid down in the Judgment reported in Executive Engineer (Irrigation), Balimela and Others Vs.
Abhaduta Jena and Others, wherein it has been held that in cases to which the Interest Act 1978 applies the award of interest prior to the
proceedings is not open to the question.
In the present case, the dispute between the parties was referred to arbitration pursuant to the order dated 21-7-1983 by Singaravelu, J. in
C.S. No. 144 of 1979. Admittedly, the present case has arisen after the coming into force of the Interest Act 1978 on 19-8-1981. Therefore, the
arbitrator is fully justified in awarding interest on the amount awarded from 1-8-1970 (date of Ex. C-6) to 25-9-1983.
The question of interest awarded by the arbitrator from 15-4-1987 (date of the first award by the same arbitrator) till the date of the decree
viz., 11-6-1990 of this Court in the present case (post award period) is governed by the ratio laid down by the Supreme Court in the decision
reported in Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., wherein it has been held that the arbitrator has power to grant interest from
the date of the award to the date of the decree. This position of law has been reaffirmed by the decisions reported in Executive Engineer
(Irrigation), Balimela and Others Vs. Abhaduta Jena and Others, and Gujarat Water Supply and Sewerage Board Vs. Unique Erectors (Gujarat)
(P) Ltd. and Another, . Therefore, the award of the arbitrator granting interest for the aforesaid period is also confirmed.
The ratio laid down by the Supreme Court in Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., is understood and explained in the
decision in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., which has been subsequently applied and followed by the High Courts of
Orissa, Delhi, Andhra Pradesh, Jammu & Kashmir, Calcutta and Kerala, and now by me in the instant case as could be seen from the following
references:
In State v. K.R. Narayan AIR 1971 Kerala 243, a Division Bench of the Kerala High Court, after following the Supreme Court Judgments held as
follows :
......Though in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, and Union of India (UOI) Vs. Bungo Steel Furniture Pvt.
Ltd., interest was awarded from the date of the award, the ratio of the decisions is that if the claim regarding interest is an implied term of the
reference the arbitrator will have the power to decide the dispute according to existing law and give such relief with regard to interest as a Court
could give on the basis of the principle underlying S. 34, Civil P.C.
We are satisfied from the award before us that the claim for interest was impliedly a subject matter of the reference. We therefore hold that the
award of interest from the date of the reference is legal and cannot be interfered with.
In Executive Engineer, R.E.O. Khurda v. D.N. Senapati AIR 1980 Orissa 74, Acharya, J. held as under:
It is urged on behalf of the appellant that the arbitrator was not legally justified in awarding interest from 1-8-1973 to 31-7-1977 on the amount of
the award. It is now well settled by a series of decisions of this Court and of the Supreme Court that unless there is specific clause in the agreement
prohibiting award of interest, the Arbitrator has jurisdiction to award interest from the date of the award till the due date of payment.
(See State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd.,
The same learned single Judge, while considering a similar question in Executive Engineer, Rural Engg. Divn. v. Surendranath AIR 1980 Orissa
119 had as follows :
Unless there is specific clause in the agreement prohibiting award or interest the Arbitrator has jurisdiction to grant interest on the principal amount
awarded by him on the different items of claim referred to him for arbitration. The natural conception of the word ''interest'' is the ordinary or
normal profit which the person entitled to the principal money might have made if he had the use of the said money, or his expected loss under
usual or ordinary circumstances due to the non-payment of the same at the proper time. Apart from the express provisions for payment of interest
in different statutes or in the contracts between the parties, interest can be directed to be paid in an arbitration proceeding on ex gratia basis by
way of compensation for the deprivation of the use of the principal amount. If interest can be awarded by the Arbitrator on that basis in order to
compensate the loss suffered by the man entitled to the principal amount due to deprivation of the use of the said amount, there is no reason why
the Arbitrator cannot on the same principle grant future interest from the due date till its realisation. True it is that provision of S. 34, C.P.C., is not
applicable to the proceedings before the Arbitrator but there is nothing wrong for the Arbitrator to call into aid the principles of that section for
awarding interest, especially when one of the disputes referred to him for adjudication relates to payment of interest.
In State v. B.N. Agarwala AIR 1981 Orissa 124, Mohanti, J. observed as under:
The arbitrator has jurisdiction to award interest from the due date of payment but his power to award interest comes to an end upon the passing of
the decree. The period thereafter is covered by S. 29.
A Division Bench of Orissa High Court consisting of Das, J. and Mohanty, J. in State of Orissa v. Gokulachandra AIR 1981 Orissa 160 held as
follows :
It has been consistently held by this Court basing on the principle laid down in Ashok Construction case (supra) that interest can be awarded by
the arbitrator if there is no prohibition for the same. The arbitrator has to find out as to what is the reasonable compensation. To justify the same,
the contractor has to place materials before the arbitrator which he did in the instant case. The contractor claimed interest at the rate of 18%
whereas the arbitrator has awarded interest at the rate of 10%. Thus, it appears that the arbitrator has taken into consideration the question of the
rate of interest. The rate of interest is not challenged before us and no argument has been advanced on this point. In view of the dictum laid down
in M/s. Ashok Construction case, it has been established by a series of decisions of this Court and it is no longer open to the appellant to contend
that the arbitrator had no jurisdiction to award interest when the reference was of general nature.
In State v. Consolidated Construction Co. AIR 1981 Orissa 166, Misra, C.J., (as he then was) held as under:
Unless there is a clear exclusion, the arbitrator would have jurisdiction to entertain a claim for interest. The award of interest for the period from the
date of detention of the money upto the raising of the claim as also for the period the arbitrator was in seisin of the proceeding is tenable and the
award would not be vitiated on that account. Case law discussed.
In V.K. Madhok Vs. Union of India, a Division Bench of Delhi High Court consisting of Avadh Behari Rohtagi and Mrs. Leila Seth, JJ., on the
same question held as under:
To sum up, the arbitrator has power to award interest pendente lite, Bose, J. in Seth Thawardas Pherumal Vs. The Union of India (UOI), said that
an arbitrator is not a court and therefore S. 34 C.P.C. does not apply to hint. Later judicial decisions to which we have referred show that his view
was not accepted. Though S. 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 arbitrator. 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, S. 29 of the Act is a
part of the statute law.
In considering the jurisdiction of the arbitrator to award interest, unless prohibited in agreement, Behera, J. of Orissa High Court in a decision in
State v. M/s. Choudhury AIR 1982 Orissa 275 has observed as follows:
Unless there is a specific clause in the agreement prohibiting award of interest, the Arbitrator has jurisdiction to award interest. The Arbitrator has
power to award interest when it is an implied term of reference and in the absence of prohibition in the agreement, interest may be awarded from
the due date till the date of the award and the award allowing interest is not vitiated on that ground.
.....Where the entire dispute has been referred to the arbitrator it is open to him to allow claims for additional works. Therefore, the award cannot
be set aside on the ground that some claims for additional work have been awarded.
In State v. Purusottam Pradhan AIR 1983 Orissa 287, Behera, J. of Orissa High Court held as under :
Unless the payment of interest has been prohibited by the agreement, it is open to the arbitrator to award interest. This position has been well
settled in a number of judicial pronouncements of this Court.
A Division Bench of Andhra Pradesh High Court, consisting of Punnayya, J. and Kodandaramayya, J. in a decision reported in Govt. of A.P. v.
The Gammon India Ltd., Bombay AIR 1984 Ap.P. 23 held that if there is a reference relating to the claim of interest, the arbitrator can award
interest from the date of reference till the date of award or upto the date of the decree, if the reference is with the intervention of the Court. The
arbitrator has no power to award interest, after the date of decree and the Court alone is competent to award interest after the date of decree
under S. 29 of the Arbitration Act.
In the decision in Lala Gobind Ram Kapoor and Others etc. Vs. Prem Parkash Kapoor and Others, , a Division Bench of Jammu and Kashmir
High Court, consisting of Dr. A.S. Anand, J. (as he then was) and Kotwal, J. while considering an identical question held as follows:
Even though S. 34 Civil P.C., 1908, does not in terms apply to proceedings before an arbitrator, nevertheless, the principles underlying the section
do apply to such proceedings. To decide the dispute and give appropriate relief to the parties according to law, being always an implied term of
the reference, an Arbitrator shall have as much power to award interest in arbitration proceedings, as a Court trying a suit will have U/S 34, C.P.C
Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, and Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., on Seth
Thawardas Pherumal Vs. The Union of India (UOI), Refd.
The provisions of S. 34, Civil P.C. are applicable in awarding interest in an account suit. Therefore, an arbitrator can award interest in a suit for
accounts that has been referred to him. A suit for accounts is as good a suit for money, as any other suit for its recovery, and the ''principal sum
adjudged'' within the meaning of S. 34 in a suit for accounts, would be the sum found due at the date of the suit. Sigappiachi and Others Vs.
M.A.P.A. Palaniappa Chettiar, Reln. on.
Further the Court can award interest under S. 34 C.P.C., even if it is not specifically claimed. Therefore, an Arbitrator by applying S. 34 C.P.C.
can award interest in arbitration proceedings even if it has not been specifically claimed. AIR 1979 Pun. & Har. 179 (FB); AIR 1921 Lah 125 and
AIR 1931 Bom. 549, Rel on. However, the Arbitrator can award interest in arbitration proceedings only from the date of the award to the date of
the decree and not beyond that date in view of S. 29 of the Arbitration Act. While S. 29 of the Arbitration Act in no way conies into conflict with
the ordinary powers of the arbitrator to award interest pendente lite, or till the award is made a rule of the Court, however, on the principle of
generalia specialibus non derogant, excludes the jurisdiction of the Arbitrator to award interest beyond the date of he decree. Awarding interest till
the amount decreed is realised, is entirely the discretion of the Court that makes the award a rule of the Court. No power can be, therefore,
assumed in he Arbitrator to fetter this discretionary power of the Court. Thus it cannot be said that an Arbitrator with the aid of S. 34, C.P.C. has
power to award interest even from the date of the decree to the date the amount decreed is realised, as such an interpretation is bound to create a
conflict between the powers of the Court and those of the Arbitrator assuming that these powers are co-extensive.
In Food Corpn. of India v. Sarman Kumar AIR 1985 Calcutta 225, a Division Bench of the Calcutta High Court, consisting of Ray, J. and
Mookerjee, J. has observed as follows:
Where the issue regarding the grant of interest on the claim made by the claimant had been specifically referred to the Arbitrator, the award of
pendente life interest by the Arbitrator in his award is wholly within his jurisdiction. It cannot be said that the Arbitrator has committed a legal
misconduct within the meaning of S 30(a) in awarding interest or there is any illegality apparent on the face of the award within the meaning of S.
16(1)(c).
In E. & N.E.F. Rly. Co-operative Bank Ltd., v. M/s. Cuha & Co. AIR 1986 Calcutta 146, Majumdar, J. held that so long as there was a claim
for interest present before the arbitrator he could award it that he could also award it and that he could also award interest from the date of award
to the date of decree.
In Union of India v. Unit Construction Co., (P) Ltd. AIR 1987 Calcutta 175, again another learned single Judge, Mrs. Pratibha Bannerji, J. of the
Calcutta High Court has also taken the similar view and observed that the arbitrator has jurisdiction to allow interest pendente lite both from the
date of reference and from the date of entering upon the reference till the date of making of the award.
The further facts of the present case also compel me to make a sad commentary as to how a public body like the Board is attempting to
disown its liability to pay the principal amount as well as the interest. It is seen from the records that the original claim was made by the claimant as
early as on 1-8-1970 under Ex. C-6 letter, followed by several other letters and reminders. There was absolutely no response. Later, the
Corporation/claimant was compelled to approach this Court by filing a suit under S. 20 of the Act in the year 1979. The matter was pending in this
Court till 21-7-1983, when this Court appointed Mr. N. Meenakshisundaram, Retired District Judge and Retired Additional Registrar of this
Court as arbitrator to resolve all the disputes including interest between the Corporation and the Board. The arbitrator entered upon the reference
on 26-9-1983 and passed an award on 15-4-1987. The award was filed in this Court as early as on 29-4-1987 in O.P. Nos. 206 and 502 of
1987. The award of the arbitrator was confirmed by my learned brother, Janarthanam, J. on 11-6-1990 with subsequent interest from the date of
his order. It is pertinent to note that no appeal was preferred against the order of the learned single Judge by the Board. On the contrary, they paid
a sum of Rs. 5,70,747/- being the principal and a sum of Rs. 77,336.20 p. towards interest, in all totalling to a sum of Rs. 6,48,083.20 p. on 12-
3-1991. In view of the payment made by the Board on 12-3-1991, the order of Janarthanam, J has been fully accepted and acted upon by the
Board. Thus, it is seen that the sum of Rs. 5,70,747/- (principal sum), which is lawfully payable to the Corporation on 1-8-1970 under Ex. C-6
has been wrongfully withheld by the Board for more than twenty years. The S.I. Corporation was driven from pillar to post to receive their
legitimate and lawful dues. Hence, it is unfortunate to note that the Board instead of acting as a responsible public body has fought the litigation
unnecessarily.
Mr. K.V. Venkatapathi, Learned Counsel appearing for the Board in support of his contention that the arbitrator appointed under S. 20 of the
Act is not a Court and hence cannot award interest as a Court has relied on Sheel Chandra Vs. Central Bank of India, ; Usha Rani and Others Vs.
Indermal and Sons and Others, and Bimal Kumar v. Saikat Sarkar AIR 1987 Cal. 208. In view of the discussions made on this aspect in the
earlier part of this Order, it is unnecessary for me to deal with these Judgments separately.
The next question to be decided is the rate of interest payable on the amount awarded by the arbitrator. My learned brother, Janarthanam, J.
has already awarded interest at 18 per cent per annum on Rs. 5,70,747.10 p. from 11-6-1990 (date of his order) till payment. In my opinion, the
rate of interest at 18 per cent per annum is just and reasonable and also in accordance with the current lending rate by the Bank. It is also further to
be seen that the said order of this Court was not appealed against by any party and the same was accepted and acted upon by the Board by
paying a sum of Rs. 5,70,747/- towards principal and a sum of Rs. 77,336.20 p. towards interest at 18 per cent per annum, in all amounting to Rs.
6,48,082.20 p. on 12-3-1991. I do not find any reason to deviate or take in different view from the view taken by my learned brother,
Janarthanam, J. with regard to the rate of interest awarded by him in the very same case in the earlier round of litigation. Therefore, the rate of
interest awarded by the arbitrator at 18 per cent per annum in my view is not excessive. In my view, it is just and reasonable and in consonance
with the trade practice and the normal banking rate. That apart, the Board had also the benefit of the use of the money all these years.
Yet another point to be noted is that when the matter was remitted back to the Arbitrator by this Court, it was only remitted for the purpose of
determining the interest payable prior to 11-6-1990. The Board had not objected to the order of remittal. It is seen from the order, dated 11-6-
1990 of this Court, no argument appears to have been advanced on the line that the matter should not be remitted back to the arbitrator for the
purpose of determining interest. Having accepted the order of reference, it does not lie in the mouth of the Board now to contend that the award of
interest is illegal and hence, I reject the same.
The recent pronouncement reported in M/s. Hind Builders Vs. Union of India, relied on by the Learned Counsel for the Board was rendered
by two Honourable Judges of the Supreme Court, whereas the following Judgments relied on by the Learned Counsel for the Corporation were
rendered by three Honourable Judges of the Supreme Court:
Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore,
Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd.,
and
State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd.,
The Honourable Supreme Court in the decision reported in Union of India (UOI) and Another Vs. K.S. Subramanian, held that the opinion
expressed by the Larger Bench of the Supreme Court to be preferred to Smaller Bench. In Union of India (UOI) and Another Vs. K.S.
Subramanian, the Supreme Court held as under:
......The proper course for a High Court is to try to find out and follow the opinions expressed by larger benches of the Supreme Court in
preference to those expressed by smaller benches of the Court That is the practice followed by the Supreme Court itself. The practice has now
crystallized into a rule of law declared by the Supreme Court are not applicable to the facts of the case it should say so giving reasons supporting
its point of view.
In Parag Lal Behari Vs. Deputy Director of Consolidation, Gorakhpur and Others, , a Full Bench of the Allahabad High Court observed as under :
.....Secondly, even if some inconsistency may be there this Court is, on the facts of the instant case, bound to follow the decision of the Supreme
Court in the case of State of West Bengal Vs. Hemant Kumar Bhattacharjee and Others, the same having been rendered by a Bench of four
Honourable Judges in preference to the decision in the case of Mathura Prasad (supra) the same having been rendered by a Bench of three
Hon''ble Judges. This is so in view of the decision of the Supreme Court in the case of The State of U.P. Vs. Ram Chandra Trivedi, where it was
held at p. 2556).
It is also to be borne in mind that even in cases where a High Court finds any conflict between the views expressed by larger and smaller benches
of this Court, it cannot disregard or skirt the views expressed by the larger benches. The proper course for a High Court in such a case, as
observed by his Court in Union of India (UOI) and Another Vs. K.S. Subramanian, to which one of us was a party, is to try to find out and follow
the opinion expressed by larger benches of his Court in preference to those expressed by smaller benches of the Court which practice, hardened
as it has into a rule of law is followed by this Court itself.
In Govindanaik v . West Patent Press Co. AIR 1980 Karnataka 92 a Full Bench (Five Hon''ble Judges) of the Karnataka High Court observed as
under :
In the light of the pronouncements of the Supreme Court in Mattulal''s case (supra) and Subramanyam''s case (supra) we hold that the Full Bench
of three Judges in Aramha''s case (supra) did not lay down the law correctly and we overrule that decision. The answer to the question referred to
this bench, should in our opinion, be as follows:
If two decisions of the Supreme Court on a question of law cannot be reconciled and one of them is by a larger Bench while the other is by a
smaller Bench, the decision of the larger Bench, whether it is earlier or later in point of time, should be followed by High Courts and other Courts.
However, if both such Benches of the Supreme Court consist of equal number of Judges, the later of the two decisions should be followed by High
Courts and other Courts.
It is to be noted that in view of the majority opinion, the answer to the question referred to the Full Bench was answered as extracted above.
For all the foregoing reasons, I hold that the petitioner in Application No. 2365 of 1991 in O.P. No. 179 of 1991 is entitled to interest on Rs.
5,70,747.10 p. as ordered by the learned Arbitrator at 18 per cent per annum from 1-8-1970 to 11-6-1990. In the result,
O.P. No. 179 of 1991 is ordered. Since the award has already been received, no further orders are necessary in O.P. No. 179 of 1991.
Application No. 2365 of 1991 to pass a decided in terms of the award, dated 15-3-1991 is ordered as prayed for and there will be a decree in
terms of the award in favour of the applicant viz., ''South India Corporation Limited, Cochin'', in this application;
In view of the orders passed in Application No. 2365 of 1991, O.P. No. 197 of 1991 filed by the Chairman, Tamil Nadu Electricity Board, Mad
has under S.30 of the Act is dismissed.
However, there will be no order as to costs in all these matters.