Entral Warehousing Corporation vs Uppal Engine Const. (P) Ltd.
1995 Latest Caselaw 844 Del

JUDGMENT

M. Jagannadha Rao, C.J.

(1) Having regard to the affidavits filed and the facts stated in the application for condensation of, delay, we condone the delay of 66 days in filing the appeal. The application is allowed.

(2) FAO(08)38/95 The respective powers of the,arbitrator and of the Court to award interest fall for consideration in this appeal. The point urged. before us with regard to the interest awarded by the learned Single Judge from the date of the award till the date of payment. Learned counsel for the appellant contends that so far as the Court is concerned, it has jurisdiction to go into the question of interest only for the period subsequent to the date of decree in view of section 29 of the Arbitration Act.

(3) In the award under claim No. 6, the arbitrator held that the descision was done on 18-8-81 and normally the final bill would have been paid by 18-2-82. Therefore, the amounts allowed under the award will bear interest at 9% from 18-2-82 to the date. of award and 6% interest from the date of award to the date of payment. The learned single judge however modified the interest increasing the rate of interest to 9% from the date of award till realisation, following the Judgment in Vishawanath Sood vs. Union of India, that the Court has power to award interest for the period during which the arbitration was pending in Court and up to payment.

(4) The discussion can be split up into two parts.

(5) We shall first deal with situations where the Court can, apart from Section 29, deal with interest for the period prior to the decree, i.e. during pendency of arbitration proceedings and before the commencement of arbitration proceedings. 1(a) If after the award the objections filed by parties in the Court relate to the interest awarded or not awarded by the arbitrator, the Court has, while disposing of the objections, deal with the question whether interest should have been granted/not granted by arbitrator prior to Commencement of arbitration proceedings up to date of decree by court of course. While dealing with objections on the question of interest, the Court has of course to bear in mind well settled principles. For the period prior to the commencement of proceedings before arbitrator, the question of payment of interest depends upon the terms of contract or Section 130 of the Negotiable Instruments Act, Section 60 of Sale of Goods Act or Interest Act, 1968 or other substantive right to interest. The Interest Act 1978, in Section 3 read with Section 2(a) no doubt permits grant of interest but this is only for the period prior to day of commencement of the arbitration proceedings. The arbitrator could go into these aspects in his award if bids decision on interest prior to commencement of arbitration process is bad in law and if the point is raised in objections to the award, the Court can go into the interest aspect for period before commencement of arbitration process. Again if discretion has been wrongly exercised by the arbitrator in granting or refusing interest for the period during which the arbitration proceedings are pending, and the point is raised in the objections, the Court has seisin of the question and can consider whether interest should have been granted for period during which the arbitration proceedings were pending. Normally, discretion exercised by the arbitrator in regard to interest during the period of pendency of arbitration proceedings and up to date of decree is rarely interfered with. 1(b) In matters where a regular suit has been filed which includes a claim for money and pending suit parties agree to go to .arbitrator and an award is given, the Courts power to award interest during the whole period when the suit was pending is, of course, covered by Section 34 Civil Procedure Code and even there, the Court may not interfere with the discretion of the arbitrator for the period during which the award proceedings were pending. In fact, Vishwanath Sood vs. Union of India relied upon by the respondents counsel and in the impugned order, comes under this category. Ii In matters which do not fall in the above categories and where there is reference to arbitrator straightaway or through Court under Section 20 of the Arbitration Act, 1940, the question of interest can be split up into three periods (i) period prior to commencement of arbitration proceedings (ii) period during which arbitration proceedings are pending and up to date of decree and (iii) from date of decree.

(6) Taking the last period first. Section 29 of the Arbitration Act governs the situation. Section 29 of the Arbitration Act clearly states that Court may award interest from the date of decree at such rate as the Court deems reasonable up to date of payment. As pointed in the decision of the Supreme Court in Union of India vs. Jain Associates and another Court has no power to grant any interest for the period prior to the date of decree. This is what is stated by the Supreme Court in para 4 of the above said case:- "THE first question that arises for consideration is whether the Court could award interest pendente lite. Section 29 of the Act says that in so far as award is for the payment of money, the court may in the decree order interest from the date of the degree at such rate as it deems reasonable, to be paid on the principal sum adjudged by the award and confirmed by the decree. In Srikantia & Co. vs. Union of India it was held that Section 29 carries with it the negative import that it shall not be permissible to the Court to award interest on the principal sum adjudged in the award for a period prior to the date of the passing of the decree. The same principle was reiterated in Ram Singh v. Ram Singh, Section 29 of the Act empowers the Court that where the award is for payment of money, to grant reasonable rate of interest on the principal amount adjudged and confirmed in the decree, only from the date of the decree, Section 34 Civil Procedure Code empowers the Court , where there is a decree for payment of money to grant interest pendente lite and future, till the date of realisation. Since Section 29 of the Act enables the court to grant interest on the principal amount adjudged in the award and confirmed in the decree only from date of the decree, it carries a negative import with it that the court has no power to grant interest pendente lite. The High Court, therefore, was no right in granting which interest pendente lite, with the arbitrator himself and not granted."

(7) It is therefore clear that the Court has no power to award interest for the period prior to the date of passing of the decree. Nor can it alter the rate of interest,

(8) Coming to the first period, i,e. up to the commencement of the arbitration proceedings, the parties can claim interest if it is a matter of contract, or if it is covered by Section 130 of Negotiable Instruments Act or Section 60 of Sale of Goods Act or Section 3 of the Interest Act, 1978 or other law under Substantive law. As already stated Interest Act, 1978 deals with the statutory or substantive right to interest for the period prior to commencement of arbitration proceedings. This is clear from Section 3 of the said Act which specifically deals with interest prior to the proceedings. Under Section 2(a), Court is defined as including an arbitrator. In other words, in the case of a regular civil suit, the Court can grant interest for any period prior to the commencement of the suit, provided such interest can be awarded under the terms of the contract or under Section 130 of the Negotiable Instruments Act or section 60 of the Sale of Goods Act or of the .procedure for claiming interest under Interest Act, 1978 .for the period prior to suit has been followed. Likewise, the arbitrator can, for the period prior to commencement of arbitration proceedings, grant interest under the aforesaid provisions or under the Interest Act, 1978 for the period up to the commencement of arbitration proceedings, if the procedure under Interest Act, 1978 had been followed.

(9) So far as the second period, namely, the period during which the proceedings are pending before the arbitrator and up to date of decree, it is for the arbitrator to exercise discretion in awarding interest. After considerable legal debate, the power of the arbitrator to grant interest during the pendency of the matter before him and up to date of decree was restored by the Supreme Court in Secretary, Irrigation Department, Government of India and others Vs. G.C. Roy . The arbitrator's power to grant interest during the pendency of arbitration proceedings flows from the general law relating to discretion of arbitrator but not from Interest Act, 1978.

(10) In the present case, the arbitrator awarded interest up to the date of payment at a particular rate. If the contractor desired to have that rate increased, he should have filed objections before the Court so that while dealing with the objections, the Court could have decision of the period prior to the date of decree and considered the question whether the rate of interest awarded by the arbitrator for the period which the proceedings were pending before him, and up to date of degree could have increased or not. In the present case admittedly the contractor had cot filed any objections in the court contending that the rate of interest awarded by the arbitrator was wrong. Therefore the interest as well as the rate awarded by the arbitrator had become final. So far as period up to the date of decree is concerned, it is not open to the court to exercise power under Section 29 of the Arbitration Act to grant of increased interest for the period prior to the date of decree. Further, as there were no objections before the court contending that the rate of interest for the period prior to date of decree should be increased,' the Court car not go into the question of interest prior to the date of decree.

(11) Learned counsel raised a contention that the arbitrator can award the interest during the pendency of the proceedings before him in the Interest Act, 1978. This is not correct. As already stated and as is clear from Section 3 of the Act and substituting the word arbitrator for the word court in Section 3, in view of Section 2(a) of that Act, the question of awarding interest under the Interest Act would arise only uptil the period when the proceedings were filed before the arbitrator. For the period during which the proceedings were pending before the arbitrator, the power of the arbitrator to grant interest is relatable not to the Interest Act, 1978, but to his general power as recognised by the Supreme Court in the judgment in Secretary, Irrigation Department, Govt. of Orrisa and others Vs. G.C. Roy .

(12) Even in the present case before us the arbitrator could have awarded interest only up to the date of decree but not up to the date of payments, if. the date of payment is after the decree. So far as Court is concerned, it had power to grant interest from the date of decree till payment.

(13) In the result, we set aside the order of the learned single judge increasing the rate of interest to 9% in so far as the increase is for the period up to the date of decree. For the period prior to the date of decree, the rate of interest as granted by the arbitrator, shall stand. For the date of decree the rate of interest will be 9% as directed by the learned single judge. The Appeal is disposed of accordingly. October 18,1995.