Important Points
1. Awarding interest in the name of damages is not permissible.
2. In an appeal under Section 39 of the Arbitration Act, cross objection by the respondent is not maintainable.

Headnote:(i) Arbitration Act, 1940-Section 29-Interest-Nothing on record to show respondent could claim interest either under agreement or under Interest Act-Arbitrator, however, awarding interest in the name of damages-Not sustainable.
       Held : Under claim No. 5 what the arbitrator has given though in the shape of damages is in fact interest on the amount of Rs. 85,000/- for a period prior to the date of reference of disputes to him. The amount of Rs. 38,250/- is nothing but interest for a period prior to the date of reference of disputes to him. Interest for a period prior to the reference could be awarded only if there was an agreement or it was allowable under the Interest Act, 1978. There is nothing on the record to show as to how the respondent could claim interest whether under the agreement or under the Interest Act. By giving the name of damages, when, in fact it is claim of interest it cannot be permitted. Award of Rs. 38,250/- as damages has to be set aside. (Para 7)
       (ii) Arbitration Act, 1940-Sections 39 and 41-Code of Civil Procedure, 1908-Order 41, Rule 22-Appeal - Cross objection - Court making the award rule of Court reduced rate of interest awarded by arbitrator-No appeal there against filed-In other party’s appeal cross objection filed challenging reduction of interest-Whether maintainable?-Held:-No-No right of cross objection given under Section 39-Section 41 not applicable to appeal under Section 39.
       Held : In the present case, as noted above, the respondent did not file any appeal under Section 39 of the Act in the High Court which right he admittedly had when the award of interest @ 18 per annum was reduced to 12 per annum by the trial Court. Section 41 of the Act is merely procedural in nature. If there is no right of cross-objection given under Section 39 of the Act, it cannot be read into Section 41 of the Act. Filing of cross-objection is not procedural in nature. Section 41 of the Act merely prescribes that procedure of the Code would be applicable to the appeal under Section 39 of the Act. We are, therefore, of the opinion that cross-objection by the respondent was not maintainable and the High Court was not correct in holding otherwise and restoring the award of interest to 18 per annum and, thus, interfering in the decree of the Trial Court. (Para 23)
       (iii) Code of Civil Procedure, 1908-Order 41, Rule 22-Cross objection-Principles.
       From the examination of various judgments and the provision of Order 41, Rule 22, the following principles emerge:
        (1) Appeal is a substantive right. It is a creation of the statute. Right to appeal does not exist unless it is specifically conferred.
        (2) Cross objection is like an appeal. It has all the trappings of an appeal. It is filed in the form of memorandum and the provisions of Rule 1 of Order 41 of the Code, so far as these relate to the form and contents of the memorandum of appeal apply to cross-objection as well.
        (3) Court fee is payable on cross-objection like that on the memorandum of appeal. Provisions relating to appeals by indigent person also apply to cross-objection.
        (4) Even where the appeal is withdrawn or is dismissed for default, cross-objection may nevertheless be heard and determined.
        (5) Respondent even though he has not appealed may support the decree on any other ground but if wants to modify it, he has to file cross-objection to the decree which objections he could have taken earlier by filing an appeal. Time for filing objection which is in the nature of appeal is extended to one month after service of notice on him of the day fixed for hearing the appeal. This time could also be extended by the Court like in appeal.
        (6) Cross-objection is nothing but an appeal, a cross-appeal at that. It may be that the respondent wanted to give quietus to whole litigation by his accepting the judgment and decree or order even if it was partly against his interest. When, however, the other party challenged the same by filing an appeal statute gave the respondent a second chance to file an appeal by way of cross-objection if he still felt aggrieved by the judgment and decree or order. (Para 22)

Judgment

D.P. Wadhwa, J.-This appeal is against the judgment dated December 23, 1992 of a Division Bench of the Andhra Pradesh High Court in proceedings arising out of the Arbitration Act, 1940 (for short, the ‘Act’) where the High Court made the award as given by the arbitrator, rule of the court. High Court dismissed the appeal filed by the Superintending Engineer, the same appellant as now before us and allowed the cross-objections of the respondents-contractor.

2. Two objections have been raised by Mr. K. Amareshwari, Senior Advocate appearing for the appellant : (1) cross-objections are not maintainable under Section 41 of the Act; and (2) the arbitrator could not award interest for the period prior to reference of disputes to him. Not only that the arbitrator awarded interest over interest which he had no authority to do.

3. An agreement was entered into between the appellant and the respondent for execution of the work called “providing lining to bet and side slopes of Pamidipadu Branch Canal of N.S. Canals from K.M.0-0-008 to 1-00-004 KM”. Four separate agreements were entered into. As is usual in such contracts, disputes arose and these were referred to sole arbitrator who gave separate awards dated April 18, 1986 in respect of each of the agreements as under:

Sl. No. of agreement Amount awarded No.

1. A.S. No. 8/SE, dated Rs. 3,73,486/- + final 20.5.82 Bill, with-held amounts and damages.

2. A.S. No. 9/SE, dated Rs. 4,08,377/- + final 20.5.82 Bill, with-held amounts and damages.

3. A.S. No. 10/SE, dated Rs. 1,23,250/- + E.M.D., 20.5.82 (work not Bank Guarantee and executed) damages.

4. A.S. No. 11/SE, dated Rs. 1,23,250/- + E.M.D., 20.5.82 (work not Bank Guarantee and executed) damages.

4. At the same time, the award also directed payment of interest at the rate of 18 per annum on the amounts so awarded.

5. To understand the rival contentions, we may refer to one of the awards in agreement No. 11/SE (serial No. 4 above). The arbitrator allowed five claims of the respondents and these are:

Sl. Claims Amount Amount No. claimed awarded

1. Towards loss of Rs. 40,000 Rs. 40,000 advances to labour

2. Towards loss of Rs. 30,000 Rs. 20,000 advance on machinery and crew

3. Towards over-head Rs. 10,000 Rs. 5,000 charges

4. Loss of profit Rs. 40,000 Rs. 20,000

5. Damages towards Rs. 28,800, Rs.38,250 delay in payments Rs. 21,600, under four claims Rs. 7,200 & Rs. 28,800

6. Mr. Amareshwari did not challenge award on claims 1, 2, 3 and 4. She said claim No. 5 was inadmissible. We may note as to how the arbitrator arrived at the figure of Rs. 38,250/- under claim No. 5. He held that a total amount of claims allowed under claims 1, 2, 3 and 4 worked out to Rs. 85,000/-. The date of completion of the contract was 21.10.1982. The date of reference of disputes was 21.10.1985. He awarded interest as measure of damages at the rate of 15 per annum on the amount of Rs. 85,000/- for three years from 21.10.1982 till the date of reference, i.e., 21.10.1985. The arbitrator further gave interest to the respondent at the rate of 18 per annum on the total amount of award of Rs. 85,000/-, E.M.D. (Earnest Money Deposit), B.G. (Bank

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1999 Supreme(SC) 559

Important Points1. Awarding interest in the name of damages is not permissible.2. In an appeal under Section 39 of the Arbitration Act, cross objec­tion by the respondent is not maintainable.

Cases Referred (10)

Important Points
1. Awarding interest in the name of damages is not permissible.
2. In an appeal under Section 39 of the Arbitration Act, cross objection by the respondent is not maintainable.