Bombay High Court
Zee Entertainment Enterprises ... vs 400 102 on 5 December, 2013
Bench: S.J. Vazifdar, G.S. Patel
OSAPL57-13-F
agk
IN THE HIGH COURT OF JUDICATURE AT BOMBAY
ORDINARY ORIGINAL CIVIL JURISDICTION
APPEAL (L) NO. 351 OF 2013
IN
ARBITRATION PETITION NO. 556 OF 2012
IN
AWARD DATED 21st OCTOBER 2011
Zee Entertainment Enterprises Limited,
135, Continental Building, Dr. Annie Besant
ig Appellant
Road, Worli, Mumbai - 400 018 (Orig. Petitioner)
versus
Klassic Studios & Films Private Limited,
havint its Office at 109, 3rd Floor, Link
Plaza, Next to Oshiwara Police Station, Link
Road Extension, Andheri (West), Mumbai -
400 102 Respondent
A PPEARANCES
FOR THE APPELLANT Mr. Sumit Raghani i/by PDS &
Associates
FOR THE RESPONDENTS Mr. Mayur Khandeparkar i/by Kanga &
Co., Advocates & Solicitors
CORAM : S.J.Vazifdar &
G.S. Patel, JJ.
DATED : 5th December 2013
JUDGMENT : (Per G.S. Patel, J.)
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1. By consent, heard finally at the stage of admission.
2. This appeal is directed against the order and judgment dated
8th January 2013 passed by the learned Single Judge dismissing the
appellants' petition under Section 34 of the Arbitration &
Conciliation Act, 1996 ("the Arbitration Act, 1996"). Before the
learned Single Judge, the Appellant challenged an award dated 21st
October 2011, which allowed in part the respondents' claims in
arbitration.
3.
The only point canvassed before us in appeal is that the
learned Single Judge was in error in upholding the arbitral tribunal's
grant of interest at the rate of 18% per annum. Other submissions
were made before the learned Single Judge, but this was the only
point pressed before us.
4. The arbitration arose out of an agreement dated 15th
November 2006 for the production of a Hindi television serial. The
respondents commissioned the production of this serial at
Rs.4,70,000/- per episode. The serial was telecast by the appellants.
Disputes arose over a request for an increase in the per-episode
consideration. The appellant terminated the agreement on 19th June
2008. The Association of Motion Pictures and TV Programme
Producers intervened and attempted a resolution, but without
success. The parties went to arbitration. The respondent claimed
Rs.4,62,45,364/- with interest. The arbitral proceedings culminated
in an award against the appellants in the sum of Rs.1,34,57,574 with
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interest at 18% per annum from the date of termination till payment
or realisation. The other claims made by the respondent were
rejected.
5. Briefly stated, the appellants' submission is that the learned
arbitrator was in error in awarding interest at the rate of 18% per
annum from the date of termination of the agreement in question till
payment. The appellants' contentions before the learned Single
Judge were that since Section 31(7)(a) of the Arbitration Act, 1996
leaves it to the discretion of the Arbitrator to award interest at such
rate as he deems reasonable, the arbitrator is, therefore, required to
give reasons for the rate of interest awarded, particularly when there
is no contractual specified rate of interest. To this end, the
Arbitrator ought to have called for evidence "to prove the rate of
interest". Therefore, in the appellants' submission, the absence of
any evidence as to interest and of any reasons for granting interest at
18% per annum, renders the award vulnerable.
6. For the reasons that follow, we are unable to accept this
submission.
7. Section 31 of the Arbitration Act, 1996 deals with the form
and contents of an arbitral award. Section 31(7) has two sub-
sections. Those read as follows.
"31. Form and contents of arbitral award. -
(7)(a) Unless otherwise agreed by the parties, where and
insofar as an arbitral award is for the payment of money, the
arbitral tribunal may include in the sum for which the award is
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made interest, at such rate as it deems reasonable, on the
whole or any part of the money, for the whole or any part of the
period between the date on which the cause of action arose
and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at the rate of
eighteen per centum per annum from the date of the award to
the date of payment."
8. On a plain reading of Section 31(7)(a), the arbitral tribunal has
a discretion to award interest at such rate as it deems reasonable for
the whole or any part of the period between the date on which the
cause of action arose and the date on which the award is made. The
question is what is, or may be deemed to be, a "reasonable" rate of
interest.
9. An important aid to the correct interpretation of Section 31(7)
(a) may be found in Section 31(7)(b). That section says that interest
from the date of the award to the date of payment is to be at 18% per
annum on any sum awarded by the arbitral panel, unless otherwise
directed. In other words, for the period from the date of the award
to the date of payment, the statutory stipulation of the rate of
interest is 18% per annum. A different rate may be awarded, but if no
rate is specified at all, the rate applicable for this period is to be 18%
per annum.
10. It is to be noted that Section 31(7)(a) does not use the
language of Section 3 of the Interest Act, 1978 ("the Interest Act")
or of the proviso Section 34 of the Code of Civil Procedure, 1908
("CPC"). The relevant portion of Section 34 of the CPC reads
thus:
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34. Interest
(1) Where and in so far as a decree is for the payment of
money, the Court may, in the decree, order interest at
such rate as the Court deems reasonable to be paid on
the principal sum adjudged, from the date of the suit to the
date of the decree, in addition to any interest adjudged on
such principal sum for any period prior to the institution of
the suit, with further interest at such rate not exceeding six
per cent, per annum as the Court deems reasonable on
such principal sum from the date of the decree to the date
of payment, or to such earlier date as the Court thinks fit:
Provided that where the liability in relation to the sum
so adjudged had arisen out of a commercial
transaction, the rate of such further interest may
exceed six per cent, per annum, but shall not exceed
the contractual rate of interest or where there is no
contractual rate, the rate at which moneys are lent or
advanced by nationalised banks in relation to
commercial transactions.
Explanation I.--In this sub-section, "nationalised bank"
means a corresponding new bank as defined in the
Banking Companies (Acquisition and Transfer of
Undertakings) Act 1970 (5 of 1970).
Explanation II.--For the purposes of this section, a
transaction is a commercial transaction, if it is connected
with the industry, trade or business of the party incurring
the liability.
(emphasis supplied)
11. Section 3 of the Interest Act says:
3. Power of court to allow Interest.--
(1) In any proceeding for the recovery of any debt or
damage or in any proceedings in which a claim for interest
in respect of any debt or damages already paid is made,
the court may, if it thinks fit, allow interest to the
person entitled to the debt or damages or to the
person making such claim, as the case may be, at a
rate not exceeding the current rate of interest, for the
whole or part of the following period, that is to say;-
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(a) If the proceedings relate to a debt
payable by virtue of a written instrument at a
certain time, then from the date when the
debt is payable to the date of institution of
the proceedings;
(b) if the proceedings do not relate to any
such debt, then, from the date mentioned in
this regard in a written notice given by the
person entitled orthe person making the
claim to the person liable that interest will be
claimed to the date of institution of the
proceedings:
Provided that where the amount of the debt or damages
has been repaid before the institution of the proceedings,
interest shall not be allowed under this section for the
period after such repayment.
(2) Where in any such proceedings as are mentioned
in sub-section (1):--
(a) judgment, order or award is given for
a sum which, apart from interest on
damages, exceeds four thousand rupees,
and
(b) the sum represents or includes
damages in respect of personal injuries to
the plaintiff or any other person or in respect
of a person's death. then, the power
conferred by that sub-section shall be
exercised so as to include in that sum
interest on those damages or on such part of
them as the court considers appropriate for
the whole or part of the period from the date
mentioned in the notice to the date of
institution of the proceedings, unless the
court is satisfied that there are special
reasons why no interest should be given in
respect of those damages.
(3) Nothing in this Section:--
(a) shall apply in relation to:--
(i) any debt or damages upon
which interest is payable as of right,
by virtue of any agreement; or
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(ii) any debt or damages upon
which payment of interest is barred,
by virtue of an express agreement;
(b) shall affect:-
(i) the compensation recoverable
for the dishonour of a bill of
exchange, promissory note or
cheque, as defined in the Negotiable
instrument Act, 1881: or
(ii) the provisions of rule 2 of
Order II of the First Schedule to the
Code of Civil Procedure, 1908;
(c) shall empower to court to award interest
upon interest.
ig (emphasis supplied)
12. Where there is no agreed (i.e., contractual) rate of interest,
the proviso to Section 34 of the CPC speaks of "the rate at which
moneys are lent or advanced by nationalised banks in relation to
commercial transactions". Section 3(1) of the Interest Act limits the
rate of interest, in the cases to which it applies, to one "not
exceeding the current rate of interest". In the situations
contemplated by these statutory provisions, the question of what is
the rate "at which moneys are lent or advanced by nationalised
banks in relation to commercial transactions" or the "current rate of
interest" must be established. What degree of proof is required will
vary from case to case. The proviso to Section 34(1) of the CPC
carves out an exception to the generality of Section 34(1) for
commercial matters. In other matters, those that are not defined (in
Explanation II) as commercial, further interest, i.e., interest beyond
that adjudged, is not to exceed 6% per annum. There is no such
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limitation for commercial matters. Section 3 does not prescribe any
particular rate of interest.
13. Thus, in the situations contemplated by the proviso to Section
34 of the Code of Civil Procedure, 1908 and Section 3 of the Interest
Act, 1978, evidence as to the then prevailing commercial lending
rate would be required. Reasons might also be necessary to indicate
why that particular rate, or some other rate, is being preferred.
14. In the Arbitration Act, 1996, these considerations play no
role. Under Section 31(7)(a), the arbitral tribunal is conferred with
discretion in awarding interest, the only stipulation being that the
rate of interest awarded must be reasonable. Section 31(7)(b) of the
Arbitration Act, 1996 indicates that interest at 18% per annum was
thought by the legislature to be reasonable. There is nothing in the
wording of Section 31(7)(a) to support the submission that an
arbitral tribunal's discretion is in any way fettered for want of
evidence, or that an arbitral panel or tribunal must necessarily have
before it evidence of commercial interest rates for the period in
question, or even that the arbitral tribunal is required to supply any
special reasons for awarding interest. The Arbitration Act, 1996
takes accepts as reasonable a rate of 18% per annum, but restricts the
statutory stipulation to the period after the date of the award. For
the period from the date of accrual of the cause of action to the date
of the award, it only asks that the interest rate awarded be
'reasonable', i.e., neither exorbitant nor negligible. Further, for that
period preceding the award, the grant of interest is not mandatory:
an arbitrator may decide to award no interest at all, or may award
interest for only part of the period, or for only part of the amount.
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15. Indeed, where an arbitral tribunal has chosen to award
interest at 18% per annum under Section 31(7)(a), i.e., for the period
from when the cause of action arose to the date of award, it cannot
be said to be unreasonable, and no reasons are required to be given
for choosing this rate of interest, for this is a rate that the statute
itself considers reasonable as is evident from the stipulation of this
rate for the post-award period. Where there is no contractual
interest rate, the party against whom interest is awarded up to the
rate of 18% per annum cannot challenge the award on the ground
that no reasons for the same are furnished, for any rate up to and
including 18% per annum is per se reasonable. Only the parking
seeking interest would be entitled to challenge an award on the
ground that no reasons are furnished where less than 18% per annum
interest is awarded.
16. Evidently, Sections 31(7)(a) and 31(7)(b) attempt to bind
parties to commercial terms where an arbitration results in an award
for payment of money. It is true that Section 31(7)(a) makes the
award of interest discretionary and requires it to be reasonable for
the period between the date of accrual of cause of action and the
date of award, and also makes this subject to a contract to the
contrary. That does not, however, mean that it is permissible to read
into Section 31(7)(a) that any additional obligations are cast on an
arbitrator functioning under the Arbitration Act, 1996 to call for
evidence or give reasons for the award of interest at 18% per annum.
The statute itself sees that rate of interest as "reasonable" when
applied to money awards.
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17. The present case arises from a purely commercial
engagement between the parties. The Arbitrator has awarded
interest at 18% per annum for the period from the date when the
cause of action arose to the date of the award. There is no reason
why the interest at 18% per annum should be viewed as
unreasonable, or should separately require evidence or reasons.
18. In our view, the learned Single Judge rightly repelled the
submission that the arbitrator could not have awarded interest at 18%
per annum for the period prior to the award without evidence and
without giving reasons.
19. There is no merit in this appeal. It is, accordingly, dismissed.
(G.S. Patel, J.) (S.J. Vazifdar, J.)
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