IMPORTANT POINT
Arbitration and Conciliation Act, 1996 would be applicable to all arbitral proceedings which have commenced on or after said Act came into force.

JUDGMENT :

S.ABDUL NAZEER, J.

1. M/s. Shahi and Associates has filed this appeal impugning the common final judgment and order dated 05.12.2007 passed by the High Court of Judicature at Allahabad in F.A.F.O Nos. 3728 of 2007 and 947 of 2007, whereby the High Court has upheld the award of the Arbitrator. However, relying on para 7A of Section 24 of the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 (for short 'U.P. Amendment Act'), it has reduced the statutory interest to 6% p.a. from 18% p.a. as awarded by the Arbitrator. The appellant has questioned the reduction of the interest in this appeal.

2. The appellant is a registered partnership firm engaged in civil construction projects for the government of Uttar Pradesh. The appellant entered into an agreement dated 08.07.1993 with the Superintendent Engineer, Drainage Division, District Gonda, U.P. for work related to the Gola Pump House. Owing to certain disputes that arose between the parties with respect to the rate of payment for additional work under the agreement, the appellant served a notice invoking arbitration on the respondents and filed the claim petition on 11.09.1999. Shri B.M. Arora was appointed as the sole Arbitrator on 12.10.1999 and the proceedings commenced on 27.10.1999 under the Arbitration and Conciliation Act, 1996 (for short 'the Act of 1996').

3. The sole Arbitrator passed an award on 24.12.2001, whereby the appellant was awarded a sum of Rs. 17,86,339/(seventeen lakhs eighty six thousand three hundred thirty nine). The Arbitrator further held that the interest on the sum awarded would be payable in accordance with Section 31(7)(b) of the Act of 1996, i.e. 18% p.a. from the date of the award till the date of actual payment. The operative portion of the award is:

“According to the above, the petitioner becomes entitled for receiving a total amount of Rs. 17,86,339.00 (Rs. Seventeen lac eighty six thousand three hundred thirty nine only) and the petitioner is hereby awarded the same.

From the date of award to the actual date of payment an interest at the rate which is given in the provisions of section 31(7)(b) of the Arbitration and Conciliation Act, 1996 shall also be payable on Rs. 17,86,339.00 which is the amount of declared award. Both the parties would bear their own cost related with the arbitration.”

4. The respondents 1 and 2 being aggrieved by the aforesaid award filed civil miscellaneous case No. 5 of 2002 before the District Judge, Gorakpur, under Section 34 of the Act of 1996. The District Judge while upholding the sum awarded by the Arbitrator, reduced the rate of interest on the sum awarded from 18% p.a. to 6% p.a. by relying on para 7A of Section 24 of the U.P. Amendment Act.

5. Being aggrieved by the aforesaid judgment dated 28.10.2006, both the parties filed F.A. F.O. Nos. 3728 of 2007 and 947 of 2007 before the High Court. The High Court by way of impugned common final judgment and order has dismissed both the appeals. In the course of the order, the High Court has observed that the District Judge has correctly reduced the rate of interest from 18% p.a. to 6% p.a. in view of para 7A of Section 24 of the U.P Amendment Act.

6. Learned counsel for the appellant submits that the arbitration proceedings were commenced on 27.10.1999 under the Act of 1996 and the provisions of Arbitration Act, 1940 will have no application to the proceedings between the parties. The U.P. Amendment Act was a State amendment which introduced para 7A to the First Schedule of the Arbitration Act, 1940. Since the Arbitration Act, 1940, has been repealed under Section 85 of the Act of 1996, the Schedule to Arbitration Act, 1940 also stands repealed and para 7A has become obsolete. Therefore, the Arbitrator has rightly awarded interest @ 18% p.a. under Section 31(7)(b) of the Act of 1996. The District Judge as also the High Court have wrongly relied upon the repealed provision and reduced a statutorily permissible interest rate.

7. On the other hand, learned Addit