State Of Bihar v. Prasad Constructions — 1978 DIGILAW 70 (PAT)

Judgment D.P.SINHA, J. 1. This is an appeal under S.39(1)(vi) of the Arbitration Act, 1940 (hereinafter referred to as the Act). The plaintiff-respondent, a registered partnership firm engaged in carrying on various kinds of business including contract business, entered into a contract with appellant No. 1, namely, the State of Bihar in the Public Works Department (hereinafter referred to as the Department) on 6-5-1969 for construction of an R.C.C. high level bridge at village Gaurichak. One of the terms of the agreement was that all disputes and differences arising between the department and the contractor would be referred for decision to a sole arbitrator to be chosen with common consent of the parties. The work was taken up by the plaintiff. There was delay in the completion of the work and each party held the other responsible for the delay and ultimately the Department rescinded the contract and the claim of the plaintiff would not be settled. Thereupon the plaintiff filed an application under S.20 of the Act in the court of the Second Subordinate Judge, Patna (vide Title Suit No. 70 of 1972) stating the circumstances and his claim against the appellants and prayed that notices be issued to the appellants requiring them to file the agreement in the court and in case they failed to do so the certified copy of the agreement produced by the plaintiff be deemed to have been filed and refer the dispute between the parties detailed in Sch. 1 read with Sch. II of the application to an arbitrator who should submit his award within the time which the court may fix. The total amount claimed on account of various items detailed in Sch. II of the application was laid at Rs. 2,74,341.73 after a set off of the amounts received by the plaintiff from the Department. To this he had added a sum of Rs. 6,585.48 on account of interest calculated at 12 per cent per annum from 31-1-1970 to 31-1-1972. The application under S.20 of the Act was filed on 15-2-1972. 2. II of the application was laid at Rs. 2,74,341.73 after a set off of the amounts received by the plaintiff from the Department. To this he had added a sum of Rs. 6,585.48 on account of interest calculated at 12 per cent per annum from 31-1-1970 to 31-1-1972. The application under S.20 of the Act was filed on 15-2-1972. 2. After hearing the parties the learned Subordinate Judge, by his order dated 20-11-1973, overruled the objections filed an behalf of the appellants and directed that the agreement be filed and in the absence of a consensus between the parties as to who should be appointed arbitrator, he appointed Shri Shiva Chandra Prasad, a retired High Court Judge, to be the arbitrator and, accordingly, a reference was made to him. 3. The arbitrator gave his award on 20-5-1975. He held that the rescission of the contract by the appellants was invalid and while he disallowed the claim for interest, he awarded a sum of Rs. 2 lacs only as a consolidated sum in respect of all the other items of the claim in Sch. II except item No. 5 thereof which he disallowed as not having been pressed. He also allowed interest pendente lite at 6 per cent per annum. 4. The award was filed in court. The appellants filed objection under S.30 of the Act or setting aside the award. The plaintiff filed a petition contending that the grounds of objection raised by the appellants were frivolous and untenable and that the same be rejected. It further prayed that since the award was silent with regard to the costs, the court should in exercise of its powers under S.29 of the Act allow costs to the plaintiff. 5. The matter was heard by the learned Subordinate Judge and he came to the conclusion that the award was all right and, accordingly, affirmed it and made it a rule of the court and also allowed future interest at 6 per cent per annum till realisation (vide order dated 27-2-1976). 6. It appears that after the composite order dated 27-2-1976 (i) affirming the award and making it a rule of the court and (ii) the grant of future interest by the court, a decree was prepared in which the pendente lite interest was calculated at Rs. 48,000.00 and Rs. 10,060 was entered as cost to be paid by the appellants. 6. It appears that after the composite order dated 27-2-1976 (i) affirming the award and making it a rule of the court and (ii) the grant of future interest by the court, a decree was prepared in which the pendente lite interest was calculated at Rs. 48,000.00 and Rs. 10,060 was entered as cost to be paid by the appellants. The decree is dated 27-2-1976 though it appears to have been signed on 6-3-1976. 7. This appeal under S.39(1)(vi) was filed by the appellants on 21-6-1976. The grounds taken in the memorandum of appeal are substantially these. That the order of the court affirming the award and making it a rule of the court was bad in law and in fact, that the court should have held that the arbitrator had misconducted the proceedings and should have set aside the award after holding that the reasons given by the Arbitrator for the rescission of the contract were illegal, and, further that the arbitrator had misconducted himself in awarding a lump sum amount of Rs. 2 lacs as consolidated sum in respect of all the items without any basis; that the award had been improperly procured; that the arbitration proceedings were invalid as the arbitrator had taken a long time in hearing and submission of the award. It was further stated that the order of the court below was bad in law and facts. 8. I have set forth the grounds taken in the memorandum of appeal in extenso for the reason that none of those specific grounds was raised or pressed at the time of hearing of this appeal. The learned advocate-general who appeared on behalf of the appellants, however, raised two new grounds. First, that the arbitrator had no power to grant pendente lite interest and to that extent the award was liable to be modified. In the alternative, the learned Advocate General argued that if it be held that the arbitrator did have the power to grant pendente lite interest then the period of pendency of the proceedings for which he had granted interest in this case would be the period between 20-11-1973 when the reference was made and 20-5-1975 on which date the award was given and not for any other period. The second ground taken by the learned Advocate General was that the decree passed by the court on the basis of its composite order dated 27-2-1976 should be modified in so far as it allowed costs and a sum of Rs. 48,000.00 by way of pendente lite interest calculated from the date of the filing of the application under S.20 of the Act to the date of the decree of the court because by the said composite order the court had not allowed, on its own, costs or any pendente lite interest and it had only affirmed the award which had given pendente lite interest at 6 per cent per annum which meant that he had allowed pendente lite interest only for the pendency of the arbitration proceedings before him. 9. On the other hand, Mr. A.K. Saran learned counsel appearing on behalf of the respondent submitted that the appellants should not be allowed to raise the question of validity of the grant of pendente lite interest by the arbitrator as this point had not been taken either in the grounds of objection under S.30 of the Act or in the memorandum of appeal. He contended that once all the disputes between the parties are referred to an arbitrator the arbitrator will decide the dispute and he may grant according to law the same relief as the civil court may grant if the claim is laid in a suit before it. As to the contention that the court had wrongly allowed costs in the decree, Mr. Saran contended that since no appeal had been preferred against the decree, the objection should not be allowed to be raised. 10. I shall state and consider the contentions raised by Mr. Saran with regard to the submissions made by the learned Advocate-General in respect to the decree later on. 11. I shall first consider the contention that the arbitrator had no power to grant pendente lite interest. 10. I shall state and consider the contentions raised by Mr. Saran with regard to the submissions made by the learned Advocate-General in respect to the decree later on. 11. I shall first consider the contention that the arbitrator had no power to grant pendente lite interest. It is true that this point had not been taken either in the objection petition under S.30 or in the memorandum of appeal under Sec.39(1)(vi) of the Act but since this was a question of law and no fresh investigation of facts was necessary for deciding the point and in the grounds taken in the memorandum of appeal it had been stated that the award was invalid also on grounds other than those specified in the memorandum of appeal, we allowed the Adv.-Genl. to raise the point and the point was argued at length by either side and each side cited reported decisions of the Supreme Court and of some of the High Courts in support of their respective contentions. 12. The sheet-anchor of the contention of the learned Advocate-General that the arbitrator did not have the power to grant interest pendente lite was the decision of the Supreme Court in the case of Thawardas Pherumal V/s. Union of India, AIR 1955 SC 468 . Reliance was placed on the following observations of Bose, J. (at p. 478) : "It was suggested that at least interest from the date of suit could be awarded on the analogy of S.34 of the Civil P.C., 1908. But S.34 does not apply because an arbitrator is not a court within the meaning of the Code nor does the Code apply to arbitrators, and, but for S.34 even a court would not have the power to give interest after the suit. This was, therefore, also rightly struck out from the award." The observations divorced from their context lend colour to the argument that the arbitrator had no power to award pendente lite interest but in the later cases the Supreme Court pointed out that the said observations in Thawar Dass case, AIR 1955 SC 468 were not intended to lay down such a broad and unqualified proposition. In this behalf the decision in the case of Firm Madan Lal Roshan Lal Mahajan V/s. Hukumchand Mills Ltd., AIR 1967 SC 1030 may be noticed. In this behalf the decision in the case of Firm Madan Lal Roshan Lal Mahajan V/s. Hukumchand Mills Ltd., AIR 1967 SC 1030 may be noticed. In this case it has been clearly pointed out that the above observations of Bose J. in Thawar Dass case were not intended to lay down such broad and unqualified proposition as had been pointed out in Nachiappa Chattiar V/s. Subramaniam Chettiar, AIR 1960 SC 307 , Satinder Singh V/s. Umrao Singh, AIR 1961 SC 908 and Union of India V/s. Premchand Satram Das, AIR 1951 Pat 201 . Bachawat J. who spoke for the Supreme Court in Firm Madanlal Roshanlal Mahajans case (supra) had distinguished Thawar Dass case (supra) in the following words :- "The arbitrator awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrator had no jurisdiction to entertain the claim. In this court, counsel for the claimant contended that the arbitrator had statutory power under the Interest Act of 1889 to award the interest and, in any event, he had power to award interest during the pendency of the arbitration proceedings u/s. 34 of the Civil P.C., 1908. Bose J. rejected this contention. It will be noticed that the judgement of this Court in Thawar Dass case, 1955-2 SCR 48 : ( AIR 1955 SC 468 ), is silent on the question whether the arbitrator can award interest during the pendency of arbitration proceedings if the claim regarding interest is referred to arbitration. In the present case, all the disputes in the suit were referred to the arbitrator for his decision. One of the disputes in the suit was whether the respondent was entitled to pendente lite interest. The arbitrator could decide the dispute and he could award pendente lite interest just as a court could do so under S.34 of the Civil P.C. Though, in terms, S.34 of the Civil P.C. does not apply to arbitrations, it was an implied term of the reference in the suit that the arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite interest as the court could give if it decided the dispute. This power of the arbitrator was not fettered either by the arbitration agreement or by the Arbitration Act, 1940 . The contention that in an arbitration in a suit the arbitrator had no power to award pendente lite interest must be rejected. 13. Thawar Dass case (supra) was again considered by the Supreme Court together with a large number of other cases including some English cases. In AIR 1967 SC 1032 one of the questions which had arisen for decision was whether the arbitrator had the power to award interest subsequent to passing of the award. The observations of Bose. J. were put forth in support of the contention that interest could not be awarded by the arbitrator after the date of the award. It was again pointed out that the said observations were not intended to lay down such a broad and unqualified proposition; it was pointed out that Thawar Dass case did not deal with the question whether the arbitrator could award interest subsequent to the passing of the award if the claim regarding interest was referred to arbitration. The principles decided in Firm Madanlal Roshanlal Mahajans case, AIR 1967 SC 1030 were reiterated in the following words at p. 1035 : "In the present case, all the disputes in the suit, including the question of interest, were referred to the arbitrator for his decision. In our opinion, the arbitrator had jurisdiction, in the present case, to grant interest on the amount of the award from the date of the award till the date of the decree granted by Mallick, J. The reason is that it is an implied term of the reference that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as a court could give if it decided the dispute. Though, in terms S.34 of the Civil P.C. does not apply to arbitration proceedings, the principle of that Section will be applied by the arbitrator for awarding interest in cases where a court of law in a suit having jurisdiction of the subject-matter covered by S.34 could grant a decree for interest." 14. The next case to which reference may be made is that of the State of Madhya Pradesh V/s. Saith Skelton (P) Ltd., AIR 1972 SC 1507 . The next case to which reference may be made is that of the State of Madhya Pradesh V/s. Saith Skelton (P) Ltd., AIR 1972 SC 1507 . In that case the arbitrator had made the interest payable from the date on which the final inspection of the work had taken place and when the amounts became payable to the respondent. The main contention of the appellant was that S.34 of the Civil P.C. would not apply to the proceedings before the arbitrator as he is not a "court". It was pointed out that in AIR 1967 SC 1032 , the Supreme Court had recognised the power of an arbitrator to award interest on the amount of the award from the date of the award till the date of the decree and that from the decision in AIR 1967 SC 1030 it was clear that if all the disputes are referred for arbitration, the arbitrator has power to award interest pendente lite i.e. during the pendency of the arbitration proceedings. It was further pointed out that the question ultimately will be whether the dispute referred to the arbitrator included the claim for interest from any particular period or whether the party is entitled by contract or usage or by a provision of law for interest from a particular date. 15. In view of the above decisions of the Supreme Court it is established that if all the disputes between the parties are referred for arbitration, the arbitrator may give all those reliefs which a court of law could give in a suit instituted before it. It has already been stated that in this case all the disputes between the parties including the claim for interest had been referred to the arbitrator. As such, the arbitrator had the power to grant pendente lite interest to the respondent and there can be no doubt about it. 16. The question which next arises for consideration is as to what was the period which may be said to be covered by the expression "pendente lite" used by the arbitrator. Mr. Saran contended that it covered the entire period from the date of the filing of the application by the respondent under S.20 of the Act to the date of the passing of the decree by the court below. Mr. Saran contended that it covered the entire period from the date of the filing of the application by the respondent under S.20 of the Act to the date of the passing of the decree by the court below. On the other hand, learned Advocate-General contended that by pendente lite the arbitrator meant the period during which the arbitration proceedings remained pending before him i.e., the period between 20-11-1973 when the reference was made and 20-5-1975 when the award was given. The contention of the learned Advocate-General must be accepted as the only reasonable interpretation of the words pendente lite in this case. It is quite obvious that the arbitrator was not thinking of any other proceedings except the proceedings before him while awarding pendente lite interest. Mr. Saran argued that an application under S.20 is registered as a suit in view of the provisions of S.20(2) of the Act and that it remains pending till the court passes a final order on the award after it is filed in court and, therefore, the award given by the arbitrator with regard to pendente lite interest covered the entire period from 15-2-1972 on which date the application under S.20 of the Act was filed by the respondent to 20-5-1975 when the award was given. In support of this contention he cited the decision in the case of Nagar Chand Goenka V/s. Surendra Nath Sarcar, AIR 1946 Pat 70. It has already been pointed out that the arbitrator never intended to award interest pendente lite except for the period of pendency of the arbitration proceedings before him. Moreover, Nagarchand Goenkas case is not a decision laying down the proposition that a suit within the meaning of Sub-Sec. (2) of S.20 of the Act was to be treated as a suit for all purposes. What has been held in that case was that in a proceeding under the Act, the court has got power to appoint a receiver when an application under S.20(1) has been made even though no notices have been served on the parties as required under S.20(3) and the proceedings have not become arbitration proceedings. On the other hand, in the case of Satish Chandra Bose V/s. Paliram Agarwala, AIR 1921 Pat 161 it has been held that : "Although an application to file in court an agreement to refer to arbitration under para 17(1) of the second Sch. On the other hand, in the case of Satish Chandra Bose V/s. Paliram Agarwala, AIR 1921 Pat 161 it has been held that : "Although an application to file in court an agreement to refer to arbitration under para 17(1) of the second Sch. of the Civil P.C. 1908, must under the provisions of Cl.(2) of that para, be numbered and registered as a suit, it is not in fact a suit within the meaning of the Code." It would appear that the provisions of Cl.(2) para. 17 of the second schedule of the Code of Civil P.C., 1908 was in pari materia with the provisions of Sub-Sec. (2) of S.20 of the Act. Thus in any view of the matter the contention of Mr. Saran is not acceptable and it is rejected. It may be mentioned that the court had merely affirmed the award and had not, on its own, granted any pendente lite interest with regard to the period of pendency of the proceeding before it. As such, no amount by way of pendente lite interest can be realised from the respondent except for the period 20-11-1973 to 22-5-1975. 17. I shall now take up consideration of the second contention raised by the learned Advocate-General that the decree passed by the court on the basis of its composite order dated 27-2-1976 should be modified in so far as it allowed costs against the appellants inasmuch as in the composite order no order for costs had been made and the decree was not in conformity with the judgement in so far as it allowed costs to the respondent. Mr. Saran, on the other hand, contended that since no appeal against the decree had been preferred by the appellant, there could be no question of modifying the decree. The learned Advocate-General tried to meet this argument by contending that it was not necessary to file a separate appeal against the decree and the matter being connected with the award relief could be given to the plaintiff by this court by striking off the cost from the decree although no separate appeal had been preferred against the decree. This contention has no force. The present appeal under S.39(1)(vi) of the Act is against the order of the court below refusing to, set aside the award. This contention has no force. The present appeal under S.39(1)(vi) of the Act is against the order of the court below refusing to, set aside the award. By the composite order the court has rejected the objection of the appellant under Sec. 30 and affirmed the award. By the decree the court has awarded costs against the appellant on its own as the arbitrator had not allowed any costs to the appellant. In the circumstances a separate appeal against that part of the decree by which costs had been allowed should have been preferred but the same was not done. During the course of discussion the learned Advocate-General submitted that in view of the objection raised by Mr. Saran with regard to the absence of an appeal against the decree relating to costs, he proposed to file a petition for treating this appeal which is one under S.39 of the Act as an appeal against the decree also and to apply for condonation of the delay in making this prayer on the ground that in the Act the legal position with regard to the filing of a separate appeal against the decree was in a state of confusion and therefore, no appeal could be filed within time. He was granted a short adjournment for the same and he filed petition incorporating the said prayers. The prayer for condonation was objected to by Mr. Saran as according to him there was no question of any confusion as the law was quite clear and a separate appeal against the decree in so far as it allowed costs was obviously and necessarily required to be filed, if the appellant wanted to challenge that part of the decree. 18. The contention of Mr. Saran is well founded. In this behalf the provisions of S.17 as also that of Sec. 41 of the Act may be noticed, Sec. 17 lays down as follows :- "17. 18. The contention of Mr. Saran is well founded. In this behalf the provisions of S.17 as also that of Sec. 41 of the Act may be noticed, Sec. 17 lays down as follows :- "17. Where the court sees no cause to remit the award or any of the matters referred to arbitration for reconsideration or to set aside the award, the court shall, after the time for making an application to set aside the award has expired, or such application having been made, after refusing it, proceed to pronounce judgement according to the award, and upon the judgement so pronounced, a decree shall follow, and no appeal shall lie from such decree except on the ground that it is in excess of, or not otherwise in accordance with the award." If the appeal preferred under Sec. 39 of the Act is allowed then to that extent the decree pronounced under Sec.17 shall automatically stand modified and no separate appeal would be required to be filed for such modification. But where the court on its own grants by the decree some relief, for example, costs of proceeding in exercise of its powers under S.38(3) of the Act a separate appeal will have to be filed against that part of the courts decree which has allowed costs quite obviously because an appeal under Sec.39 cannot possibly in view of its provisions, include an appeal against the decree awarding costs. In the circumstances it is difficult to accept the argument of the learned Advocate-General that there was confusion with regard to the law as to whether or not a separate appeal was required to be filed against that part of the decree and that had misled the appellants into not filing a separate appeal. I am, therefore, not prepared to accept the prayers which have been made in the appellants petition dated 17-1-1978 and to condone the delay. 19 Another objection had been raised by Mr. Saran to the acceptance of the prayer. I am, therefore, not prepared to accept the prayers which have been made in the appellants petition dated 17-1-1978 and to condone the delay. 19 Another objection had been raised by Mr. Saran to the acceptance of the prayer. It was to the effect that the petition filed on behalf of the appellant for treating the appeal under Sec.39 as an appeal against the decree also was liable to be rejected as it was not accompanied by a certified copy of the decree as required by O.XLI, R.1 of the Civil P.C. To this the Advocate-General replied that since the original decree was already there before this court in the lower court record the requirement with regard to the filing of a certified copy of the decree should be dispensed with. I do not think it necessary to go into that question in view of the fact that no sufficient ground has been made out for condoning the delay in making the prayer. As earlier stated the judgement was pronounced on 27-2-1976, the decree was signed on 5-3-1976 and it appears to have been subsequently modified by an order dated 27-6-1976 whereas a separate appeal has been attempted to be filed on 17-1-1978. In these circumstances the prayers made by the appellants in their petition dated 17-1-1978 are rejected. 20. A number of other decisions, not referred to above, had also been cited by the learned counsel for the parties but it is not necessary to refer to them as they do not appear to be quite pertinent to the points raised in this appeal. 21. In view of the findings recorded above, the appeal is dismissed but in the particular circumstances of this case there will be no order for costs of this appeal. CHAUDHARY SIA SARAN SINHA, J. 22 I agree.