1992 Supreme(Cal) 107

High Court Of Calcutta
N. P. SINGH, TARUN CHATTERJEE
FOOD CORPORATION OF INDIA - Appellant
Versus
HARI PRASAD KANORIA - Respondent
Appeal 564  Of  1990
Decided On : 03/11/1992

An Arbitrator enters upon the reference when he first applies his mind to the dispute or controversy before him, depending on the facts and circumstances of each case.

Headnote:

ARBITRATION - AWARD - SETTING ASIDE - GROUNDS - ERROR OF LAW ON THE FACE OF THE AWARD - CONSTRUCTION OF CONTRACT - FORFEITURE OF EARNEST MONEY - INTEREST - AWARD OF INTEREST FROM THE DATE OF AWARD TILL THE DATE OF DECREE OR PAYMENT, WHICHEVER IS EARLIER.

Fact of the Case:

The Food Corporation of India (FCI) invited bids for the sale of damaged food grains through a public auction. The respondent was the highest bidder for two lots of uncategorised damaged wheat. He deposited 25% of the total cost of the stocks as earnest money. He lifted only a part of the stocks and failed to pay the balance price. FCI forfeited the earnest money. The respondent filed an application under Section 20 of the Arbitration Act, 1940 (the Act) for filing of the arbitration agreement and for appointment of an Arbitrator. The Arbitrator made an award directing FCI to refund the earnest money to the respondent with interest at the rate of 16% per annum from the date of forfeiture notices till the date of payment or the date of the decree, whichever was earlier. FCI filed an application to set aside the award on the grounds that: (i) the award was null and void having been made and/or filed after the expiry of the period of six months from the date of entering upon the reference; (ii) the direction to refund the earnest money to the respondent on the finding that the forfeiture of the earnest money by the FCI was invalid, amounted to an error on the face of the award; (iii) the Arbitrator should not have awarded interest pendente lite to the respondent from the date of entering upon the reference up to the date of making/publishing of the award; (iv) the Arbitrator should not have awarded interest to the respondent from the date of the award up to the date of the decree or the date of payment, whichever was earlier.

Finding of the Court:

The Court held that: (i) the Arbitrator entered upon the reference on 11/09/1985 and the award was made and published on 3/01/1986, which was within six months from the date of entering upon the reference; (ii) the Arbitrator did not commit an error of law apparent on the face of the award in holding that the forfeiture of the earnest money was illegal and invalid, as the contract relating to sales in question had not been cancelled before the notices forfeiting the earnest money were issued; (iii) the Arbitrator was entitled to award interest from the date of entering upon the reference till the date of the award at the rate of 16% per annum, and from the date of the award till the date of the decree or actual payment, whichever is earlier, at the rate of 9% per annum.

Issues: 1. Whether the award was null and void having been made and/or filed after the expiry of the period of six months from the date of entering upon the reference? 2. Whether the direction to refund the earnest money to the respondent on the finding that the forfeiture of the earnest money by the FCI was invalid, amounted to an error on the face of the award? 3. Whether the Arbitrator should have awarded interest pendente lite to the respondent from the date of entering upon the reference up to the date of making/publishing of the award? 4. Whether the Arbitrator should have awarded interest to the respondent from the date of the award up to the date of the decree or the date of payment, whichever was earlier?

Ratio Decidendi: 1. The Arbitrator enters upon the reference when he first applies his mind to the dispute or controversy before him, depending on the facts and circumstances of each case. In the present case, the Arbitrator entered upon the reference on 11/09/1985 when he passed an order saying that the contractor had submitted his rejoinder to the counter-statement and counter-claim filed on behalf of the Corporation and as such the pleadings and the documents were more or less complete, a date of hearing can be fixed at Calcutta where the parties may lead evidence and make submissions. 2. The Arbitrator did not commit an error of law apparent on the face of the award in holding that the forfeiture of the earnest money was illegal and invalid, as the contract relating to sales in question had not been cancelled before the notices forfeiting the earnest money were issued. 3. The Arbitrator was entitled to award interest from the date of entering upon the reference till the date of the award at the rate of 16% per annum, and from the date of the award till the date of the decree or actual payment, whichever is earlier, at the rate of 9% per annum.

Final Decision: The appeal was dismissed subject to the modification regarding payment of interest at the rate of 9% per annum instead of 16% per annum as directed by the Arbitrator for the periods mentioned above.