STATE OF KERALA v. MYTHRI CONSTRUCTIONS ENGINEER — 1990 DIGILAW 321 (KER)

JUDGMENT Varghese Kailash, J. - This is an appeal by State of Kerala, represented by the Secretary to Government, Water & Power Department and the Superintending Engineer, Irrigation Central Circle, Trichur, challenging the decree in O.P. (Arb.) No. 60 of 1986 of the Sub-Court, Irinjalakuda. Respondent herein was the contractor for the work of Chimoni Dam Project construction Masonry Dam Block No. 15 upto 73 M and Block Nos. 16 & 17 upto 81 MSL. The agreement in question is dated 24-1-1979. 2. When disputes arose, respondent herein filed O.S. 226/81 before the Subordinates Judge's Court, Irinjalakuda under Section 20 of the Arbitration Act, hereinafter referred to as 'the Act', for filing the agreement and also to refer the dispute to an arbitrator appointed by court. This suit was contested by the appellants. In their written statement it was contended that clause 3 of the main agreement and clause 24 of the notice inviting tenders, which are the relevant arbitration clauses have been specifically deleted from the agreement and there is no arbitration provision for the concerned contract. The court relying on the decision reported in (State of Kerala v. Joseph) (1983 K.L.T. 583) held that the conations raised by the appellants herein are untenable and the agreement also provides for arbitration if disputes have to be settled between the contracting parties. Accordingly, the court appointed Shri P. V. Joseph (Retired Chief Engineer) as the sole arbitrator. 3. Respondent raised several claims numbering 26. All the claims were seriously disputed before the arbitrator by the Department. A non-speaking award was passed by the arbitrator. The arbitrator allowed certain claims and rejected certain other claims. He allowed claims Nos. 1, 4, 7, 11, 13, 14, 21, 23, 24 and 25. The award was filed before the court. Appellants objected the award and also prayed for setting aside the award. The court below negatived the contentions raised by the appellants and passed a judgment and decree in terms of the award. Appellants are aggrieved. They appeal. 4. Several contentions were raised before us including the contention that reference by the court itself is bad, since the decision relied on by the learned Judge, viz., 1983 K.L.T. 583 has been subsequently overruled by a full Bench of this court in M.F.A. No. 789/87. Anyhow, it has to be noted that the judgment in O.S. No. 266/81 was not challenged and it became final. Anyhow, it has to be noted that the judgment in O.S. No. 266/81 was not challenged and it became final. Not only it became final, but the directions in the judgment were implemented. An arbitrator was appointed and he has passed the award. In those circumstances, it is not possible to challenge the award itself on the ground that the arbitrator lacked jurisdiction to adjudicate the matter. 5. In regard to the reasonability of the amount awarded on the various claims, being a non-speaking award, the appellants were not able to persuade the court below to set aside the award. It is now well settled by the decisions of the Supreme Court that in a non-speaking award, the court cannot go into the question of reasonability of the amount rewarded. It has to be noted even in a reasoned award, the Supreme Court had occasion to say that the court cannot go into the question of reasonability of the reasons given in the award. The court below found that there is no error apparent on the face of the award and only if the appellants were able to satisfy the court that there is some error apparent on the face of the award, the award can be set aside. No ground which would satisfy the court under Section 30 of the Act was pointed out before the court below to convince the court that the award is liable to be set aside. The court below rightly passed a judgment and a decree on the terms of the award. 6. Before us, counsel for the appellants submitted that the award provides for interest and the provisions regarding interest in the award are not justifiable and the main argument advanced before us was confined to the correctness of the interest awarded by the arbitrator. 7. Before considering this question, we feel that it is better to formulate in general the various stages in the matter of awarding interest, when there is a dispute adjudicated between the contracting parties before an arbitrator, (1) interest on the dispute amount prior to the date of reference, (2) interest from the date of reference to the date of award, (3) interest from the date of award to the date of decree, (4) interest from the date of decree to the date of realisation of the amount. 8. 8. There is no dispute as to the question of jurisdiction of the arbitrator to award interest prior to the date of reference. In this case, the serious dispute is with regard to the grant of pendente lite interest, i.e., when the matter was before the arbitrator. Counsel for the appellants submitted that the arbitrator has no jurisdiction to allow interest from the date of reference to the date of award. Of course, counsel for respondent submitted relying on certain decisions, particularly, (State of M.P. v. S. & S. Ltd.) (AIR 1972 S.C. 1507), that it is not wrong for an arbitrator to award interest pendente lite, i.e., from the date of reference to date of award. We will consider this question separately. 9. Before considering this question, we have to determine what is the date of reference. Counsel for the appellants submitted that the date of reference has to be taken as the date of filing of the suit, O.S. No. 266/81 and that is 25.11.1981 and so, interest from 25.11.1981 till the date of passing of the award, viz. 24.5.1986 has to he treated as a period which will be a period within the pendente lite clause in the matter of awarding interest. Counsel further submitted that the suit (O.S. No. 266/81) was decreed on 23.9.1983 and the arbitration commenced at any rate from 23.9.83. 10. Counsel for the respondent submitted that pendente lite interest means only interest from the date of reference to date of award. In (Executive Engineer, Irrigation Galimela v. Abhaduta Jena) (AIR 1988 S.C. 1520). The Supreme Court has said what is the period to be reckoned for the purpose of determining "pendente lite interest". What the Supreme Court has said is" : in regard to pendente lite interest, that is, interest from the date of reference to the date of the award --". So, there cannot be any dispute that pendente lite interest will cover only the period from the date of reference to the date of award. 11. We have to decide what is the date of reference. This is important for two purposes. One, to determine the period covering pendente lite interest and the other to reckon the period prior to the date of reference. It is not possible for us to say that the matter was pending before the arbitrator, when the suit O.S. No. 266/81 was filed on 25.11.1981. This is important for two purposes. One, to determine the period covering pendente lite interest and the other to reckon the period prior to the date of reference. It is not possible for us to say that the matter was pending before the arbitrator, when the suit O.S. No. 266/81 was filed on 25.11.1981. So, we cannot accept the contention of the counsel for appellants that pendente lite interest will commence from 25.11.1981. On 25.11.1981 nothing was before the arbitrator. The arbitrator was not selected. Then, how it is possible to say that the dispute was before the arbitrator. The interest which the arbitrator is not empowered is grant to for the period when the matter was pending before the arbitrator. As we said earlier, since on 25.11.1981, there was no arbitrator at all in this case, it is not at all possible for us to say that interest pendente lite commenced on the date of suit, viz. 25.11.1981. 12. The second date suggested by counsel for appellants is the date of judgment, viz. 23.9.1983. Of course, on 23.9.1983, the court directing the filing of the agreement and passed a decree directing for a reference to an arbitrator. But, subsequent to that, an I.A. was filed as I.A. 1983/83 and ipso facto an arbitrator was appointed and he accepted the appointment only on 15.11.1984. In the circumstances, we feel that it will be safe to take 15.11.1984 as the date of reference. The award was published on 24.5.1986. So, pendente lite interest in this case is for the period 15.11.1984 to 24.4.1986. When we have decided the date of reference as 15.11.1984, the interest prior to the date of reference shall be a date prior to 15.11.1984. From what point of time, the claimant is entitled to interest is a matter for the arbitrator to decide. But, the terminal point is the date of reference and in this case, that date is 15.11.1984. Now we have got the relevant dates, viz. 15.11.1984 as the date of reference, 24.5.1986 as the date of award and 23.5.1988, the date of decree. 13. Now, we shall examine how the arbitrator has awarded interest in this case. He has directed appellants to pay interest to the respondent at the rate of 12% simple interest per annum on the award amount under claims 21 and 23 i.e. on Rs. 13. Now, we shall examine how the arbitrator has awarded interest in this case. He has directed appellants to pay interest to the respondent at the rate of 12% simple interest per annum on the award amount under claims 21 and 23 i.e. on Rs. 2,60,185/- from 25.11.1981 till the date of decree and for all other amounts of the award 12% simple interest per annum from 15.11.1984 till date of decree. 14. From the award, it is clear that on amount of Rs. 2,60,185/- the arbitrator has directed the appellants to pay interest at 12% from 25.11.1981. We have found that 25.11.1981 is the date of institution of the suit and the arbitrator has directed payment till the date if decree from 25.11.1981. Certainly, this will take in the period from 15.11.1984 (date of reference) to 24.5.1986 (publication of the award) and then to 25.3.1988 (date of decree). Of course, the arbitrator has got the power to award interest for a period prior to 15.11.1984. So, it may not be incorrect for the arbitrator to award interest for a period from 25.11.1981 to 15.11.1984. It is a period prior to the date of reference. We hold that the arbitrator is right in allowing interest for that period. 15. In A.I.R. 1988 S.C. 1520, the Supreme Court held thus : "The case State of Rajasthan v. Raghubit (AIR 1979 SC 825) certainly supports him and in the cases to which the 1978 Interest Act applies the award of interest prior to the proceeding is not open to question". In the same judgment, the Supreme Court also paid that "if there was the alightest possibility of the entitlement of the claimant in interest on one or other of the legally permissible grounds, it may not be open to the Court to go behind the award and decide whether the award of interest was justifiable. 16. The controversial period as far as the amount of Rs. 2,60,185/- relates to the period 15.11.1984 to 24.5.1986 and 24.5.1986 to 25.3.1988. We have to consider the jurisdiction of the arbitrator to award interest for these two different periods on different considerations. The first period relates to interest pendente lite, that is, interest during the pendency of the proceedings before the arbitrator. Interest Pendente Lite 17. 2,60,185/- relates to the period 15.11.1984 to 24.5.1986 and 24.5.1986 to 25.3.1988. We have to consider the jurisdiction of the arbitrator to award interest for these two different periods on different considerations. The first period relates to interest pendente lite, that is, interest during the pendency of the proceedings before the arbitrator. Interest Pendente Lite 17. In AIR 1988 SC 1520, Chinnappa Reddy, J. speaking for the court said : "In regard to pendente lite interest, that is, interest from the date of reference to the date of the award, the claimants would not be entitled to the same for the simple reason that the arbitrator is not a court within the meaning of Section 34 of the CPC, nor were the reference to arbitration made in the course of suits". The above quote will certainly support the contention of the appellants herein. Counsel for the respondent of the appellants here submitted that in the same paragraph (para. 22) the Supreme Court said : "The award not being a speaking award, it was not permissible to speculate on the reasons for the award of interest and the court was not entitled to go behind the award and disallow interest". He also referred us to (The State of Madhya Pradesh v. M/s. S. and S. (P) Ltd. and others) (supra). He submitted that interest can be awarded by an arbitrator during the pendency of the proceedings, if under any law, the claimant is entitled to interest. He submits that it is not very correct to think that Section 34 of the Code of Civil Procedure alone is the provision for granting interest pending the proceedings. He has referred to paragraphs 32 and 33 of the decision reported in AIR 1972 SC 1507, which read thus : "From the decision in (1967) 1 SCR 105 = (AIR 1967 SC 1030) it is 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. In the case before us there is no controversy that all the disputes including a claim for payment of the amount with interest was referred to the arbitrator. The arbitrator, as pointed out earlier, found that the firm was entitled to the payment as price in the sum of Rs. In the case before us there is no controversy that all the disputes including a claim for payment of the amount with interest was referred to the arbitrator. The arbitrator, as pointed out earlier, found that the firm was entitled to the payment as price in the sum of Rs. 1,79,653.18 p. The arbitrator has further found that the amount became payable as balance price for the goods supplied by the firm on June 7, 1958, on which date of final inspection took place. If that is so, Section 61 of the Sale of Goods Act, 1930, squarely applied and it saves the right of the seller (in this case the firm) to recover interest, where by law interest is recoverable .......". 18. Counsel wants to justify the grant of interest under Section 62 of the sale of Goods Act. This decision was rendered in a totally different circumstance. In a recent decision reported in (State of Orissa v. Dandasi Sahu) (AIR 1988 SC 1971), Referring to (Executive Engineer, Irrigation, Galimela and others v. Abhaduta Jena) (supra). Sabyasachi Mukherji, J. as he then was, said : "It is now well-settled that the interest pendente lite is not a matter within the jurisdiction of the arbitrator. In this connection, reference may be made to the observations of this court in Executive Engineer (Irrigation) Balimela v. Abhaduta Jena (Supra) where this court held that the arbitrator could not grant interest pendente lite. In the aforesaid view of the matter this direction in the award for the payment of such interest must be deleted from the award". We respectfully follow the above case. 19. The result is in regard to the sum of "Rs. 2,60,185/-" the claimant is not entitled to interest for the period 15.11.1984 to 24.5.1986. That portion of the decree allowing interest will stand deleted. 20. As regards all other amounts, the arbitrator has awarded 12% simple interest per annum from 15.11.1984 till date of decree. On the same reasoning we have already given with reference to the amount of Rs. 2,60,185/- in regard to "all other amounts" for the period 15.11.1984 to 24.5.1986, the claimant is not entitled to interest. 21. Now, the remaining question is as to the correctness of the interest provided for the amount of Rs. 2,60,185/- from 25.11.1981 till the date of decree and for "all other amounts" interest from 15.11.1984 till date of decree. 2,60,185/- in regard to "all other amounts" for the period 15.11.1984 to 24.5.1986, the claimant is not entitled to interest. 21. Now, the remaining question is as to the correctness of the interest provided for the amount of Rs. 2,60,185/- from 25.11.1981 till the date of decree and for "all other amounts" interest from 15.11.1984 till date of decree. We have already stated that on both the amounts, the claimant is not entitled to interest for the period 15.11.1984 to 24.5.1986. So, the only question that has to be considered is apart form the said period, which was found to be a period for which the claimant is not entitled to interest, whether the arbitrator has gone wrong in direction payment of interest from the date of award till the date of decree. When once the award is passed, normally, the arbitrator has not jurisdiction to award interest thereafter because on the passing of the award, the arbitrator becomes functus officio. But, the court retains power to grant interest during the pendency of the proceedings before it and Section 3(1)(a) of the Interest Act provides for allowing interest prior to the institution of the proceedings before the court. But, it has to be remembered that the power is with the court and not with the arbitrator. So, the arbitrator's award granting interest from the date of award till date of decree is not justifiable since he lacks jurisdiction to do that. A similar question was considered by the Supreme Court in (Gujarat W.S. & S.B. v. Unique Eractors (Gujarat) (P) Ltd. (AIR 1989 SC 973)). The supreme Court said : "So far as interest for the period from the date of the award (19.7.1985) till the date of the decree is concerned, the question was not specifically considered in Abhaduta Jena's Case but special leave had been refused against the order in so far as it allowed interest for this period. We think interest should be allowed for this period, on the principle that this court can, once proceedings under Sections 15 to 17 are initiated, grant interest pending the litigation before it, is from the date of the award to the date of the decree. It may be doubtful whether this can be done in cases arising before the Interest Act, 1978, in view of the restricted scope of Section 29 of the Arbitration Act. It may be doubtful whether this can be done in cases arising before the Interest Act, 1978, in view of the restricted scope of Section 29 of the Arbitration Act. But there can be no doubt the court's power to grant this interest in cases governed by the Interest Act, 1978 as Section 3(1)(a) which was applied by Abhaduta Jena to arbitrators will equally apply to enable this Court to do this in these proceedings". Finally in paragraph 16, the Supreme Court said : "We would, however, delete the interest awarded by the arbitrator for the period from 22.8.1984 till the date of award and confine the interest on the Principal sum of Rs. 57,65,273/- to interest at 9% from 6.8.1981 till 21.8.1984 (which has been worked out at Rs. 29,82,443/-). However, in exercise of our powers under Section 3 of the Interest Act, 1978 and Section 29 of the Arbitration Act, 1940, we direct that the above principal sum or the unpaid part thereof should carry interest at the same rate from the date of the award (19.7.1985) till the date of actual payment". 22. We also adopt that the Supreme Court has observed in the above quote. Though we hold that the arbitrator has no power or jurisdiction to award interest from the date of award till date of decree following the observations made by the Supreme Court, we modify the award by making it clear that from the date of award, till date of decree, respondent will be entitled to get on the principal sum interest at the rate of 9% per annum. By the decree passed by the lower court from the date of decree the respondent is entitled to interest at the rate of 6% per annum on the principal sum till realisation. 23. In the result, in regard to Rs. 2,63,185/- we delete interest for the period between 15.11.1984 to 24.5.1986, we also delete interest on "all other amounts" from 15.11.1984 to 24.5.1986. We make it clear that the claimant is entitled to interest at the rate of 12% per annum from 25.11.1981 to 15.11.1984 on Rs. 2,60,185/-. We also modify the award by making it clear that from the date of award, viz. 24.5.1986 till date of decree, (25.3.1988) the claimant is entitled to interest at the rate of 9% per annum on the principal amounts. 2,60,185/-. We also modify the award by making it clear that from the date of award, viz. 24.5.1986 till date of decree, (25.3.1988) the claimant is entitled to interest at the rate of 9% per annum on the principal amounts. The decree at the rate of 6% per annum on the principal amount. We confirm that part of the decree as such. Appeal is disposed of as above.