Hon’ble Amitava Lala, J.—This appeal has been preferred by the State of U.P. under Section 39 of the Arbitration Act, 1940 (hereinafter in short called as the ‘Act, 1940’) challenging the judgment and order dated 20th February, 2001 passed by the learned District Judge, Bulandshahar in Original Suit No. 6 of 2000 (State of U.P. v. Allied Construction) under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter called as the ‘Act, 1996’). By the order impugned the Court below dismissed the application for setting aside the arbitral award dated 8th May, 1998 passed by one Sri K.K. Sahanan, Chief Engineer, Irrigation Department, U.P.

2. The State-appellant has already acted upon the award by paying the principal sum, so determined by the arbitrator, to the respondent-contractor but raised a dispute with regard to interest. As per the award, rate of interest for the pre-reference period is fixed @ 15% per annum, whereas for the pendente lite and subsequent period is fixed @ 18% per annum.

3. At the initial stage when the appeal was not open for hearing, a prayer was made by the State appellant to reduce the rate of interest though as per Section 31 (7)(b) of the Act, 1996, a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest @ 18% per annum from the date of the award till the date of payment. However, without prejudice to the rights and contentions of the parties at that stage, we had called upon the respondent ­contractor whether he is ready and willing to compromise with the State by accepting any reduced rate of interest or not, to which it agreed. Time has been granted to the State accordingly. Hearing of the appeal was postponed for a considerable period but the State never come forward with any proposal, on the contrary, wanted to contest the cause without any settlement, as a result whereof we have called upon the parties to make their respective submissions.

4. The moot point as argued by the State appellant is whether the proceeding which continued before the arbitrator under the Act, 1996 as per the agreement between the parties in accordance with Section 85 (2)(a) of the Act, 1996 is binding upon the parties only for the arbitration proceedings before the arbitrator or also for the proceedings before the Court arising out of said proceeding.

5. According to the appellant, the arbitration proceeding commenced on 3rd March, 1995/25th March, 1995 i.e. prior to coming of the Act, 1996 in force. Therefore, as per Section 21 read with Section 85 of the Act, 1996 arbitration proceeding will be governed by the Act, 1940. The arbitration clause as referred to in Clause 52 of the general conditions of the contract speaks that the arbitration shall be conducted in accordance with the provision of the Act, 1940, or any statutory modification thereof. The decision of the arbitrator shall be final and binding on the parties thereto. Such arbitration clause of the agreement is as follows :

“52. ARBITRATION :

All the disputes or differences in respect of which the decision has not been final and conclusive shall be referred for arbitration to a sole arbitrator appointed as follows :

Within thirty days of receipt of notice from the contractor of his intention to refer the dispute to arbitration the Chief Engineer, Irrigation Department shall send to the contractor a list of three officers of the rank of Superintending Engineer or higher, who have not been connected with the work under this contract. The contractor shall within fifteen days of receipt of this list—select and communicate to the Chief Engineer the name of one officer from the list who shall then be appointed as the sole arbitrator. If contractor fails to communicate his selection of name, within the stipulated period, the Chief Engineer shall without delay select one officer from the list and appoint him as the sole arbitrator. If the Chief Engineer fails to send such a list within thirty days, as