STATE OF MADHYA PRADESH v. M. B. GHARPURAY, POONA — 1986 DIGILAW 170 (MP)

JUDGMENT : B.C.VARMA, J. ( 1. ) This is an appeal under section 39 of the Arbitration Act. ( 2. ) The State of Madhya Pradesh invited certain tenders for the construction of a foot bridge across Narmada river at Onkareshwar. The respondents tender of Rs. 16 lacs was accepted on a lump sum basis. The agreement was reduced into writing embodying the terms of the contract. Clause 17 of the contract provides for settlement of dispute arising out of and under the said contract to arbitration. The respondent undertook the work but disputes arose. Shri M.P. Apte was appointed arbitrator by the respondent while States nominee was shri V.N. Rao. Shri Y.K. Patil was appointed the umpire. The arbitrator could not pronounce the award in time and, therefore, the time was extended for making award. On 20-3-1980, the award was pronounced and later filed in Court. While the respondent prayed for a decree in terms of the award, the appellant objected on various grounds. The lower Court substantially accepted the award returned by the arbitrators and passed the decree which is the subject matter of this appeal. ( 3. ) A perusal of the award would indicate that the respondent raised many items of claim before the arbitrators. Not only this, he also claimed that he was entitled to interest on all the amount payable to him. The appellant joined issues and the parties filed agreed issues before the arbitrator. The appellant answered each item of the claim made by the respondent and contested it before the arbitrator who gave the parties full opportunities of substantiating their contentions and then after hearing them passed the impugned award. This award also includes a direction for payment of interest at nine per cent per annum on the amount found due to the respondent from a period after a month of the award, i.e. from 28-4-1980, until realisation. Before the lower Court also the amount found by the arbitrator as due to the respondent against different heads was challenged and so also was challenged the award of interest. The Court did not find the arbitrator guilty of misconduct or of misconducting the proceedings. ( 4. ) Before us Shri R.K. Thakur, learned Government Advocate, first argued that since the contract was for a lump sum amount of Rs. 16 lacs, the arbitrator ought not to have entertained the claim against specific items. The Court did not find the arbitrator guilty of misconduct or of misconducting the proceedings. ( 4. ) Before us Shri R.K. Thakur, learned Government Advocate, first argued that since the contract was for a lump sum amount of Rs. 16 lacs, the arbitrator ought not to have entertained the claim against specific items. This argument must be rejected for the simple reason that no objection of this kind was raised before the arbitrator. Instead of protesting to the laying of claim under various heads, the appellant/State joined issues and the parties submitted agreed issues for decision by the arbitrator. The award shows that the State placed before the arbitrator all material at its command to demonstrate that the claim made by the respondent was untenable. Even after the close of evidence when the parties addressed the arbitrators no such contention was raised. It will, therefore, be too late in the day now to permit such an objection to be raised. Even otherwise, what we find is that although the contractor was agreed to be paid a lump sum amount, he had to specify and particularise his claim which could be done only by mentioning the amount due to him against various items of work and on different counts. This contention is, therefore, rejected. ( 5. ) It was then urged that the award is liable to be vitiated for it assigns no reason for the conclusion reached and has not made even a reference of the evidence adduced. This argument has been fully answered by a Division Bench of this Court in Umraosingh vs. State of M.P. 1976 MPLJ 91 . It must be remembered that the Court before whom an award by the arbitrator is filed does not deal with that award as a Court of appeal. It has to act within the framework of the Arbitration Act. The award can be set aside only in terms of Section 30. After quoting several authorities of the Supreme Court as also relying upon certain decision, the learned Judges of the Division Bench in Umraosinghs case (supra) held that the arbitrator is not bound to record his reasons or state the principles of law on which he proceeds. The award can be set aside only in terms of Section 30. After quoting several authorities of the Supreme Court as also relying upon certain decision, the learned Judges of the Division Bench in Umraosinghs case (supra) held that the arbitrator is not bound to record his reasons or state the principles of law on which he proceeds. Following the decision in Bungo Steel Furniture vs. Union of India ( AIR 1967 SC 378 ), it has been laid down that it is only when the arbitrator proceeds to give his reasons or to lay down the principles on which he has arrived at his decisions that the Court is competent to examine whether he has proceeded contrary to law and is entitled to interfere if such error in law is apparent on the face of the award. In that case, also, the award did not refer to the contract of to any of its terms and did not give any reason but only awarded a particular sum against each item of claim. On these facts, it was observed that in absence of any reference/to the contract or to its terms and in absence of any reason contained in the award, it is not possible to hold that there is an error of law apparent on the face of the award relating to the construction of any of the terms of the contract. That decision in Umraosinghs case (supra) fully applies to the present case for here too the award does not make a reference to any clause of the agreement nor has it any reference to law when it proceeds to award a definite sum against each item of claim. The award, therefore, cannot be set aside for want of reasons to support the conclusion reached. It well indicates that arbitrators have applied their mind to the material on record before they proceeded to make the award. ( 6. ) The learned Government Advocate, however, submitted that the arbitrators were not competent to award interest and the Court erred in upholding the award at least to that extent. It is true as laid down in Umraosinghs case (supra), that this part of the award relating to interest is quite separable from the remaining part of the award and if found defective or baa, can well be set aside, although the remaining award is upheld. It is true as laid down in Umraosinghs case (supra), that this part of the award relating to interest is quite separable from the remaining part of the award and if found defective or baa, can well be set aside, although the remaining award is upheld. Relying upon the decision of the Supreme Court in U.G.V.R.S.Co. v. U.P.E. Board, AIR. 1973 S.C. 683, and referring to Russell on Arbitration, Eighteenth Edition, pp. 399,400 and 401, it was observed that there is no principle of law that if the portion of award which is clearly separable is found to be defective because of error apparent on the face of record, the Court gets jurisdiction of examining merits of the entire award. Where the arbitrators award interest after a date of award though the dispute as to the interest was not referred nor were all matters in difference referred but only a few items, the portion awarding interest is separable and the arbitrator cannot get jurisdiction to examine the merits of the award. This principle can well be applied in the present case also with full force. Issue No. 17 before the arbitrators relates to interest and is in the following terms: "17. Are the claimants entitled to any interest on the amount awarded and, if so, at what rate and for what period? This issue clearly shows that the matter of award of interest on the amount claimed was also referred to the decision of the arbitrators. Not only this, they were specifically asked to determine the rate and also the period for which the interest could be awarded. The award relating to interest, therefore, cannot be set aside or avoided for want of jurisdiction in the arbitrators in that behalf. ( 7. ) We are, however, of opinion that the award of interest at nine per cent per annum is ex facie bad and to that extent there is an error apparent on the face of the award. Interest has been awarded at nine per cent per annum for a period after the award. ( 7. ) We are, however, of opinion that the award of interest at nine per cent per annum is ex facie bad and to that extent there is an error apparent on the face of the award. Interest has been awarded at nine per cent per annum for a period after the award. In Thdwardas v. Union of India, AIR 1955 SC 468 , it was held that interest after the date of the award could not be allowed even on the analogy of Section 34 Code of Civil Procedure because the arbitrator is not a "Court" within the meaning of the Code nor does the Code apply to arbitrators. That decision was considered subsequently by the Supreme Court and the rule laid down therein was modified to some extent.[Firm Mandanlal Roashan lal v.Hukumchand Mills, AIR. 1967 S.C. 1030, and Union of India v. Bungo Steel Furniture, AIR. 1967 S.C. 1032.] It is pointed out in these decisions that where a dispute as to interest is referred to arbitration, 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 the Court would give if it decided the dispute. Principles of section 34 Code of Civil Procedure were held applicable in such cases and the arbitrator is held to have jurisdiction to allow interest subsequent to the passing of the award. Thawar Dass case (supra) was distinguished on the ground that it does not deal with the\question whether the arbitrator can award interest subsequent to the passing of the award, if the claim regarding interest was referred to the arbitrator. See also State of M.P. v. M/s. Saith and Skelton (P.) Ltd., A.I.R. 1972 S.C. 1507. It will be thus clear that the arbitrator is permitted to award interest after the making of the award if the question relating to interest has been referred to it for decision only on the analogy of section 34 Code of Civil Procedure. This analogy necessarily, therefore, must extend in its application to the rate of interest as well and the arbitrator cannot be left at liberty to award interest at rate beyond that which is permissible under section 34 of the Code of Civil Procedure. This analogy necessarily, therefore, must extend in its application to the rate of interest as well and the arbitrator cannot be left at liberty to award interest at rate beyond that which is permissible under section 34 of the Code of Civil Procedure. Section 34 of the Code permits award of interest at the maximum rate of six per cent per annum after the date of suit. That is the maximum rate of interest except for commercial transactions. Obviously, the transaction in question cannot be said to be commercial within the meaning of that section. Interest, therefore, could be awarded only at the rate of six per cent per annum and to that extent the award made by the arbitrators has to be modified. Learned counsel for the respondent relied upon the decision in State of M.P. v. M/s. Saith and Skelton (P.) Ltd., A.I.R. 1972S.C. 1507 to support the award of interest by the arbitrators at nine per cent per annum. This decision is also an authority for the proposition that if all the disputes are referred to arbitrators, the arbitrators have jurisdiction to award interest pendent elite, i.e. during the pendency of the arbitration proceedings. In that case, the dispute arose out of transaction of sale and purchase of certain commodities. Question referred to the arbitrator was as to the amount due to the vendor from the State Government. While awarding certain amount as due to the firm, the arbitrators also awarded interest pendent elite at nine per cent per annum. The Supreme Court upheld this award of interest in view of section 61 of the Sale of Goods Act, 1930, which permits the seller or the buyer to recover interest or special damages where by law interest or special damages may be recoverable. The award of interest at nine per cent per annum was held justified being not excessive. It is pertinent to note that section 61(2) of the Sale of Goods Act permits the Court to award interest at such rate as it thinks fit. This is, of course, in absence of any contract to the contrary. No outer limit of the rate of interest is prescribed. It was, for this reason that the award of interest was upheld. This is, of course, in absence of any contract to the contrary. No outer limit of the rate of interest is prescribed. It was, for this reason that the award of interest was upheld. The award of interest at nine per cent per annum was upheld just and not excessive in absence of any provision under section 61 of the Sale of Goods Act, fixing the rate of interest. But where section 34 of the Code of Civil Procedure is resorted to justify the award of interest by the arbitrators even during the period subsequent to the making of the award, interest at the rate in excess of that provided under that provision {section 34 of Code of Civil Procedure), in our opinion, cannot be allowed. This decision, therefore, does not help the respondents contention that interest in excess of six per cent per annum could be awarded by the arbitrators. That part of the decree, therefore, which awards interest at nine per cent per annum from 28- 4-1980 until realisation of the decretal amount has to be modified by substituting the rate of interest as six per cent per annum. ( 8. ) The appeal thus succees and is partly allowed. The part of the decree awarding interest at nine per cent per annum is set aside. Instead, the respondent is held entitled to interest at six per cent per annum from 28-4-1980 until realisation. The award made by the arbitrators shall also stand modified to that extent. In view of partial success, there shall be no order as to costs of this appeal. Appeal partly allowed.