P. I. VARGHEESE v. KERALA AUTOMOBILES LTD. — 1998 DIGILAW 151 (KER)

JUDGMENT B. N. Patnaik, J. - The claimant in O.P. (Arbitration) No. 225 of 1986 on the file of the Principal Sub-Judge's Court, Trivandrum has preferred this appeal against the order dated 27-2-1991 challenging the rejection of award of interest at the rate of 12% per annum from the date of award till the date of decree and rejection of appellant's claim of 12% interest from the date of decree till realisation of the amount. 2. The respondent Kerala Automobiles Ltd., Poojapura, Trivandrum accepted the tender of the appellant and awarded the contract by order dated 4-11-1980, for construction of a factory building and other infrastructural facilities etc. The work could not be completed within the time stipulated in the agreement and it was extended from time to time by entering into formal agreements. However, there was a dispute between them for which the appellant/claimant sent a claim statement on 17-7-1983 to the respondent. Since the claim was not satisfied, the matter was referred to the Arbitrator, as per the terms of the agreement. The Arbitrator, by his non-speaking award dated 10-7-1986, granted. (a) 25% increase in respect of all payments (less the cost of cement and steel consumed in the works) covered by bills passed after 5-8-1982; (b) payment of Rs. 2,13,751.56; and (c) Interest at 12% per annum on the above payments, from the date of award to the date of decree. The award was filed before the court of the Principal Sub-Judge, Trivandrum. The appellant filed a petition before the Court below for passing a decree in terms of the Award with interest at 12% per annum from 10-7-1986 (the date of award) till the date of decree and further interest at 12% per annum on items (a) and (b) from the date of decree till the date of realisation. The interest at 12% per annum was sought for on the ground that the transaction between the parties were commercial in nature. The respondent in its counter-affidavit challenged the award on the ground that the Arbitrator has exceeded his jurisdiction and he has misconducted himself in the proceedings. 3. The interest at 12% per annum was sought for on the ground that the transaction between the parties were commercial in nature. The respondent in its counter-affidavit challenged the award on the ground that the Arbitrator has exceeded his jurisdiction and he has misconducted himself in the proceedings. 3. On a consideration of the contentions of the parties, the learned Sub-Judge upheld the Award in respect of items (a) and (b), but modified the award in respect of item (c) by totally disallowing the interest awarded by the Arbitrator on items (a) and (b) from the date of award till the date of decree. The court below granted future interest only at the rate of 6% per annual as against the claim of 12% from the date of decree till the date of realisation. 4. The appellant has contended that the finding of the Court below that the Arbitrator had no jurisdiction to award interest from the date of award till the date of decree or payment, is an error of law. Since the transaction was commercial in nature, future interest should not have been reduced to 6%. 5. The learned counsel for the respondent has contended that the appellant having not claimed interest on the amount in his claim notice dated 17-7-1983, no dispute is deemed to have arisen between the parties as regards the claim of interest. Such a dispute having not been referred to the Arbitrator, award of interest by him was without jurisdiction. 6. The points that arise for consideration are (1) whether the Arbitrator had jurisdiction to award interest from the date of award till the date of decree or till the date of payment, whichever is earlier, and (2) whether the Court below was justified in awarding only 6% future interest as against the claim of 12% from the date of decree till the date of realisation. 7. There is no dispute at this stage that the appellant raised this dispute before the Arbitrator in his claim petition before him. It is true that in the letter dated 17-7-1983 sent to the respondent, he did not make any claim of interest. But, merely because he did not claim interest in his earlier letter dated 17-7-1983, there can be no inference that no such dispute was dispute was raised before the arbitrator. 8. It is true that in the letter dated 17-7-1983 sent to the respondent, he did not make any claim of interest. But, merely because he did not claim interest in his earlier letter dated 17-7-1983, there can be no inference that no such dispute was dispute was raised before the arbitrator. 8. An Arbitrator can award interest if it is claimed before him by the claimant in his written statement. So long as there was a claim for interest before the Arbitrator, he could award it notwithstanding the fact that such a claim was not made prior to entering into reference. This view is supported by the decisions of the Calcutta High Court in Eastern and North East Frontier Railway Co-operative Bank Ltd. v. M/s. B. Gupta & Co. (AIR 1986 Cal. 146 = 1985 Arb. LR 253). Moreover, under Section 2(a) of the Interest Act, 1978, the Arbitrator being also deemed to be a Court, he has the power to allow interest pendente lite and interest from the date of award till the date of decree, under Section 3 of the Interest Act, in awards rendered after the Act came into force, Section 5 of the Act clearly indicates that "Nothing in this Act shall affect the provisions of Section 34 of the Code of Civil Procedure, 1908." 9. Relying on the observation, in paragraph 45 of the decision, in Secretary, Irrigation Department, Govt. of India v. G. C. Roy (AIR 1992 SC 732 = 1992(1) Arb. LR 145), learned counsel for the respondent has contended that since no dispute with regard to the claim of interest was referred to the Arbitrator, he has no power to award interest pendente lite. He has further contended that on that analogy the Arbitrator has also no jurisdiction to award interest from the date of award till the date of decree. 10. The Supreme Court overruled the earlier decision in Executive Engineer Irrigation Balimala v. Abnaduta Jena (AIR 1988 SC 1520 = 1988(2) Arb. LR 356), which laid down contrary to the previous decisions that the Arbitrator to whom the reference is made without the intervention of the Court does not have jurisdiction to award interest pendente lite. But, on a consideration of various principles of law, while overruling the decision in Abnaduta Jena's case (supra), the Supreme Court laid down in G. C. Roy's case (supra) as follows (at pp. But, on a consideration of various principles of law, while overruling the decision in Abnaduta Jena's case (supra), the Supreme Court laid down in G. C. Roy's case (supra) as follows (at pp. 748-49) : "The question still remains whether arbitrator has the power to award interest pendente lite and if so on what principle. We must reiterate that we are dealing with the situation where the agreement does not provide for grant of such interest now does it prohibit such grant. In other words, we are dealing with a case where the agreement is silent as to award of interest. On a conspectus of aforementioned decisions, the following principles emerge : (i) A person deprived of the use of money to which he is legitimately entitled has a right to be compensated for the deprivation, call it by any name. It may be called interest, compensation or damages. This basic compensation is a valid for the period the dispute is pending before the arbitrator as it is for the period prior to the arbitrator entering upon the reference. This is the principle of Section 34 C.P.C. and there is no reason or principle to hold otherwise in the case of arbitrator. (ii) An arbitrator is an alternative form for resolution of disputes arising between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties, if the arbitrator has no power to award interest pendente lite the party claiming it would have to approach the Court for that purpose, even though he may have obtained satisfaction in respect of other claims from the Arbitrator. This would lead in multiplicity of proceedings. (iii) An arbitrator is the creature of an agreement. It is open to the parties to confer upon him such powers and prescribe such procedure for him to follow, as they think fit, so long as they are not opposed to law. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (The proviso to Section 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and Indian Courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas, AIR 1985 SC 468, has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jen's case (supra) almost all the court in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre-reference period). For doing complete justice between the parties, such power has always been inferred. (44) Having regard to the above considerations, we think that the following is the correct principle which should be followed in the behalf; (45) Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and therefore, when the parties refer all their disputes - or refer the dispute as to interest as such - to the arbitrator, he shall have the power to award interest. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view. This does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view. (46) For the reason aforesaid we must hold that the decision in Jena (supra), insofar as it runs counter to the above proposition did not lay down correct law." In Hindustan Construction Co. Ltd. v. State of J & K (AIR 1992 SC 2192 = 1992(2) Arb. LR 412) the Supreme Court held that the principle of Section 34 of C.P.C. is applicable to proceedings before the Arbitrator, though the section as such may not apply. It is laid down as follows (Para 5) : "The arbitrator is competent to award interest for the period commencing with the date of award to the date of decree or date of realisation, whichever is earlier. This is also quite logical for, while award of interest for the period prior to an arbitrator entering upon the reference is a matter of substantive law, the grant of interest for the post award period is a matter of procedure. Section 34 of C.P.C. provides both for awarding of interest pendente lite as well as for the post-decree period and the principle of Section 34 applicable to proceeding before the arbitrator, though the section as such may not apply.' While affirming the aforesaid two decision in G. C. Roy's case (supra) and Hindustan Construction Co. Ltd. case (supra) the Supreme Court reiterated the law in State of Orissa v. B. N. Agarwala (AIR 1997 SC 925 = 1996(1) Arb. LR 1), that the Arbitrator has jurisdiction to award interest pendente lite and future interest from the date of award till the date of decree and laid down as follows : "From the date of passing off the award, future interest can be awarded by the arbitrator. The correct procedure which should be adopted by the arbitrator is to award future interest till the date of the decree or the date of payment, whichever is earlier. The correct procedure which should be adopted by the arbitrator is to award future interest till the date of the decree or the date of payment, whichever is earlier. The effect of this would be that if the award is voluntarily accepted, which may not result, in a decree being passed, then payment of interest would be made from the date of award till the date of payment." The decisions in AIR 1967 SC 1032 and AIR 1972 SC 1507 relied on by the learned counsel for the respondent being those rendered prior to the coming into force of the Interest Act are not of any assistance. This Court in State of Kerala v. Mythri Constructions ((1990)2 Ker LT 735 = 1990(2) Arb. LR 337), relied upon the decision of the Supreme Court in Jena's case (supra) which was subsequently overruled by the Supreme Court in G. C. Roy's case, (supra) and as such the finding that the arbitrator has no power to award pendente lite interest or future interest from the date of award till the date of decree is no longer good law. 11. Admittedly in this case the terms of agreement did not prohibit claim of interest. Hence, we are of the view that the rejection of the claim of interest by the Court below from the date of award till the date of decree awarded by the Arbitrator is not justified. The appellant is, therefore, entitled to interest awarded by the arbitrator from the date of award till the date of decree. 12. There is no dispute that the transaction in question is commercial in nature. The award of future interest at the rate of 6% per annum by the Court below does not appear to be just and reasonable. On the contrary, we are of the view that interest at the rate of 12% per annum on the amount awarded from the date of decree till payment would be just and reasonable, under Section 3 of the Interest Act. 13. We, therefore, modify the decree of the Court below by allowing 12% interest per annum from the date of award till the date of decree and future interest at 12% per annum till the date of payment. 14. For the reasons stated above, the appeal is allowed with costs to the appellant. Appeal allowed.