IMPORTANT POINT
Award of interest by Arbitrator – When discretion is vested to Arbitral Tribunal to award interest at a rate which it deems reasonable, then a duty would be cast upon Arbitral Tribunal to give reasons as to how it deems the rate of interest to be reasonable.

JUDGMENT :

B.R. GAVAI, J.

1. The appellants have challenged the judgment dated 18th April 2012 passed by the learned Single Judge of the High Court of Orissa in Arbitration Appeal No. 25 of 2007, thereby dismissing the appeal filed by the appellants.

2. The facts in brief giving rise to the present appeal are as under:

The respondent was awarded the contract for construction of 3 kilometers missing link on NH-6 from Kanjipani to Kuntala on 16th December 1971. The work was to be completed within one year that is before 15th December 1972. The contract amount was Rs.4,59,330/. However, the work could not be completed by the stipulated date and it was completed only on 30th August 1977, by which date, the respondent was already paid an amount of Rs.3,36,465/.

3. The respondent, on 25th July 1989, issued a notice to the appellant regarding his claim. The said notice was replied to by the appellant on 10th August 1989 stating therein that, as against the claim of Rs.3,34,744/, the respondent had been paid an amount of Rs.3,36,465/. The respondent thereafter filed a suit being O.S. No. 206 of 1989 before the Court of Civil Judge (Senior Division), Bhubaneswar (hereinafter referred to as the “trial court”) under Section 20 of the Arbitration Act, 1940 (for short, “the 1940 Act”) seeking reference of the dispute to arbitration. By order of the trial court dated 14th February 1990, the suit was decreed in favour of the respondent and he was directed to file the original F-2 agreement in the court for referring the dispute to arbitration. However, the respondent did not file the original F-2 agreement as directed. In the meantime, the 1940 Act was repealed and the Arbitration and Conciliation Act, 1996 (for short, “the 1996 Act”) came into force.

4. The respondent thereafter filed an application in the disposed of suit before the trial court, praying for appointment of an arbitrator under the provisions of the 1996 Act. The same was rejected by the trial court vide order dated 4th February 2000 for lack of jurisdiction. The respondent thereafter moved an application being MJC No. 36 of 2000 under Section 11 of the 1996 Act before the High Court for appointment of an arbitrator. The learned Single Judge of the High Court, vide order dated 15th October 2001, allowed the said application and appointed Shri S.K. Mohanty, former Judge of the same High Court as the Arbitrator.

5. On 15th March 2002, the respondent filed his claim of Rs.1,45,28,198/- under 15 heads of claim and demanded 19.5% interest from 1st April 1976 to 15th March 2002. The learned Arbitrator, vide award dated 24th August 2004, awarded a sum of Rs.9,20,650/in respect of head Nos. 1 to 14. The learned Arbitrator also awarded interest pendente lite with effect from 1st April 1976 to the date of the award at the rate of 18% per annum which came to Rs. 46,90,000/. The learned Arbitrator further directed the future interest to be paid at the rate of 18% per annum on the total of the aforesaid two amounts till actual payment. Being aggrieved thereby, the appellants filed a petition being Arbitration Petition No. 153 of 2004 before the Court of District Judge, Cuttack under Section 34 of the 1996 Act for setting aside the award. The same was rejected by an order dated 25th July 2007. Being aggrieved thereby, the appellants filed an appeal under Section 37 of the 1996 Act before the High Court. The same was also dismissed vide the impugned judgment. Being aggrieved thereby, the present appeal.

6. We have heard Shri Sibo Sankar Mishra, learned counsel appearing on behalf of the appellants and Shri Ashok Panigrahi, learned counsel appearing on behalf of the respondents.

7. Shri Mishra submitted that the learned Arbitrator has grossly erred in awarding interest for the period from 1977 to 1989 inasmuch as the respondent was in deep slumber for a period of twelve years and did not take any step for raising his claim. It is further submitted that the learned Arbitrator has also erred in awardin