The Supreme court, recently, in a civil appeal, comprising of the Division bench Justice B.R. Gavai and Justice B.V. Nagarathna observed that the Interest rate awarded by the Arbitral Tribunal needs to be reasonable and Justified. (EXECUTIVE ENGINEER (R AND B) AND OTHERS V. GOKUL CHANDRA KANUNGO (DEAD) THR. HIS LRS.)
Facts of the case:
The respondent herein was awarded the contract for construction of 3km missing link on NH6 from Kanjipani to Kuntala on 16th December 1971 in which the work was be completed within one year but the same was completed on 30th august 1977. The contract amount was Rs.4,59,330/ and the respondent was already paid an amount of Rs. 3,36,465/-. On 25th July 1989, respondent issued a notice regarding its claim. Followed by the reply of appellant, respondent filed a suit before the court of civil Judge (Senior Division) Bhubaneshwar u/s 20 of the Arbitration Act, 1940 seeking reference of the dispute to arbitration. The decree was in favour of the respondent and was asked to file the original F2 agreement. But they did not file the same and in the meantime, the 1940 Act was repealed and the Arbitration and Conciliation Act, 1996. Thereafter, the respondent filed an application in the disposed of suit before the trial court, which was rejected because of lack of jurisdiction. The respondent further moved an application before the HC u/s 11 of the Arbitration Act, 1996 act which was allowed and a former judge of the high court was appointed as an arbitrator. The respondent filed his claim of Rs.1,45,28,198/- with a want of 19.5% interest from 1st April 1976 to 15th March 2002. The arbitrator awarded a sum of Rs.9,20,650/¬- and an interest pendente lite with effect from 1st April 1976 to the date of the award at the rate of 18% per annum which came to Rs. 46,90,000/. Aggrieved by the same, appellants filed an Arbitration petition before the district judge Cuttack u/s 34 of the 1996 act for set aside of the award but it was rejected and also filed an appeal u/s 37 of the 1996 act before the HC which was also dismissed. Hence, the appellant filed the present appeal.
Contentions of the Appellant:
The counsel for Shri Mishra submitted that the learned arbitrator erred in awarding the interest for the period 1977 to 1989 inasmuch as the respondent was in deep slumber for a period of 12 years and did not take any step for raising his claim. The learned arbitrator also erred in awarding interest for the period from the year 1990 to 2000 as the respondent was directed to file the original F-2 agreement but they did not do so. It was further added that the interest rate of 18% per annum is totally unreasonable the interest amount and referred the cases of Rajendra Construction Co. v. Maharashtra Housing & Area Development Authority and Others1, Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy and Another2 and Mcdermott International Inc. v. Burn Standard Co. Ltd. and Others while stating the exorbitant amount of interest awarded would be contrary to the interest of justice.
Contentions of the Respondent:
The counsel for the respondent summitted that there is no reason to interfere with the awarded rate of interest which has been upheld by the district judge as well as the HC. He further submitted that in view of the provisions of the sub¬section (7) of Section 31 of the 1996 Act, while referring to the case of Hyder Consulting (UK) Limited v. Governor, State of Orissa Through Chief Engineer, no interference would be warranted in the present case.
Court’s observation and Judgement:
The court while referring to the cases Hyder Consulting (UK) Limited v. Governor, State of Orissa Through Chief Engineer observed that the Arbitral Tribunal is vested with a discretion to decide the interest rate as well as the time period for which it should be applicable on but it must be reasonable and justifiable by the tribunal. the arbitrator without assigning any reason has awarded the interest at the rate of 18%. It was further observed that, after the final measurement was done, the respondents did not take any step to raise his claim for 12 years. So, he would not get the interest during the said period. Moreover, the respondent was directed to file the original agreement, to which, he took no step, and after the Arbitration Act of 1996 came into force, he filed an application in the disposed of suit which was dismissed continuing which he filed an application before the HC which was allowed. During the same, the respondent was silent for a period of 10 years. So, he won’t get the interest for the period between 1990 and 2000. Moreover, the respondent would not get the interest between 1990 and 2001 because after the commencement of 1996 act, the respondent could not have moved an application in the disposed suit, he chose to do so and only after dismissal of the said application on the ground of lack of jurisdiction, did he move an application for appointment of an arbitrator under Section 11 of the 1996 Act before the High Court. So, while referring to the Rajendra Construction Co. (supra) and Mcdermott International Inc. case, the SC reduced the rate of interest from 18% to 10% and further while exercising its jurisdiction u/A 142, the SC reduced the rate of interest to 7.5%.
The appeal was partly allowed the following order was passed:
“(i) The respondent would not be entitled to any interest for the period between 30th August 1977 and 25th July 1989 and for the period between 14th February 2000 and 15th October 2001;
(ii) In respect of the remaining period at all the three stages, that is pre-reference period, pendente lite and post-award period, the respondent would be entitled to interest at the rate of 9% per annum.”
Case: EXECUTIVE ENGINEER (R AND B) AND OTHERS V. GOKUL CHANDRA KANUNGO (DEAD) THR. HIS LRS.
Bench: Justice B.R. Gavai and Justice B.V. Nagarathna
Date: 30-09-2022
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