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2000 Supreme(All) 1187
IN THE HIGH COURT OF ALLAHABAD
Sudhir Narain and Krishna Kumar, JJ.
UNION OF INDIA - Appellant
Versus
CHANNA BROTHERS AND CO. - Respondents
F. A. F. O. 839 Of 1997
Decided On : 09/08/2000
SHISHIR KUMAR, V.K.Bist
The main legal point established in the judgment is the arbitrator's jurisdiction to award interest for different periods and the limitations on the rate of interest as per statutory provisions.
Headnote:
Interest - Arbitration - Arbitration Act, 1940 - Section 14, Section 17, Section 30, Section 33 - Interest Act, 1978 - Section 2(a), Section 3(1)(b) - U.P. Civil Laws (Reforms and Amendment) Act, 1976 - Section 24
Fact of the Case:
The Union of India appealed against the court's order making the arbitration award rule of the court and rejecting the appellant's application. The dispute arose from a construction contract where the respondent claimed entitlement to material costs and other expenses, which was disputed by the appellant. The arbitrator awarded amounts to both parties, and the court below allowed interest to the respondent but not to the appellant.
Finding of the Court:
The court analyzed the arbitrator's power to award interest for different periods, referencing relevant case law and statutory provisions. It found that the arbitrator had the jurisdiction to award interest prior to the date of reference, pendente lite interest, and interest till the date of decree. The court also addressed the rate of interest, noting the limitations imposed by the Interest Act, 1978 and U.P. Civil Laws (Reforms and Amendment) Act, 1976. It concluded that both parties were entitled to interest at the rate of 6% for the entire period.
Issues: The issues involved the arbitrator's power to award interest for different periods, the applicable rate of interest, and the justification for awarding interest to one party but not the other.
Ratio Decidendi: The court established that the arbitrator had the jurisdiction to award interest for various periods based on the provisions of the Interest Act, 1978 and relevant case law. It also clarified the limitations on the rate of interest as per statutory provisions.
Final Decision: The appeal was partly allowed, modifying the court's order to entitle both parties to interest at the rate of 6% for the entire period.
( 1 ) THE Union of India has filed this appeal against the order passed by the Court below dated 30. 5. 1997 by which the award has been made rule of the Court and the application filed on behalf of the appellant has been rejected.
( 2 ) BRIEFLY stated the facts are that the appellant invited tender for constructing buildings at New cantonment, Allahabad, in the year 1989. The respondent submitted tender which was accepted by the appellant. The work was to be completed within the time specified in the agreement. The respondent got the time extended and completed the work on 10. 1. 1990. On completion of the work, the respondent claimed that they were entitled to the prices of the material which he used for construction purposes and certain other things. This was not accepted by the appellant. The dispute was referred to the sole arbitrator. Sri B. M. Kohli, on 13. 10. 1994. He entered inlo reference on 1st November, 1994. The appellant also made various claims before the Arbitrator, particularly in regard to the materials supplied to the respondent, but neither the material so supplied was returned nor its amount was adjusted.
( 3 ) THE arbitrator gave award on 30. 12. 1995 and awarded Rs. 4,40. 182. 44 to the respondent and further 18% interest on such amount for the period between the 25. 3. 1991 to 30. 12. 1995. The arbitrator also accepted certain claims of the appellant and awarded a sum of Rs. 1,02,450. 73 to it, but no interest was awarded on this amount. The respondent filed application before the Court below under Section 14 read with Section 17 of the Arbitration Act. 1940, for making the award dated 30. 12. 1995 rule of the Court. The appellant filed objection under Section 30/33 of the arbitration Act for setting aside the award. The application was registered as Suit No. 75 of 1096. The Court below dismissed the objection of the appellant and made the award rule of the court with further direction that the respondent shall be entitled to 6% interest on the amount awarded by the arbitrator to the respondent from the date of award dated 31. 12. 1995 till 30. 5. 1997.
( 4 ) THE question involved in the present appeal is whether respondents were entitled to amount of interest and if so. what should be rate of interest which should be awarded to the parties. The period of Interest can be divided In three parts : (i) the power of the arbitrator to award interest for the period prior to the date the reference was made to him. (ii) the period the proceedings remained pending before the arbitrator (pendente lite) and (iii) the period after the award is made till the date of payment of the amount.
( 5 ) THE controversy as to whether an arbitrator has a power to award interest prior to the date of making reference to him, the Supreme Court in Executive Engineer, Irrigation, Galimala and others v. Abhaduta Jena, AIR 1988 SC 1520, held that after the enforcement of Interest Act. 1978. the arbitrator is entitled to award interest prior to the date of making reference to him. The arbitrator could not award interest under the Interest Act, 1939 for the period prior to making the reference to him, but in view of the provisions of Interest Act, 1978, such interest can be awarded. Section 2 (a) of the Interest Act. 1978, defines the Court as it includes Tribunal and arbitrator. Section 3 (1) (b) of the said Act confers power on the Court to award interest from the date of making the claim to the date of institution of the proceedings. This decision was considered in State of Orissa v. Lal Chand Kapani, AIR 1993 SC 2464, and followed the view taken in Executive Engineer, Irrigation, Galimala v. Abhaduta Jena (supra ). The matter again came up for consideration before the Supreme Court in State of Orissa v. B. N. Agarwal etc. , JT 1097 (2) SC 51, where the argument was raised that Jenas case (supra) was overruled in secretary, Irrigation Department, Government of Orissa and others v. G. C. Roy, AIR 1992 SC 732, and t
