Nbcc vs M/S. Mobile Kraft
2008 Latest Caselaw 1904 Del

                   Reportable
*          HIGH COURT OF DELHI AT NEW DELHI

+                 OMP No.206/2007

                      Date of decision : October 24, 2008

#     NBCC                       ..... Petitioner
!                 Through : Mr. Saket Sikri, Advocate


                           Versus


$     M/S. MOBILE KRAFT        .....Respondent
^          Through : Mr. B.K.Dewan, Advocate with
                     Mr. Bhavesh Kumar, Advocate.

%
      CORAM:
      HON'BLE MS. JUSTICE ARUNA SURESH

     (1) Whether reporters of local paper may be
         allowed to see the judgment?

     (2) To be referred to the reporter or not?          Yes

     (3) Whether the judgment should be reported
         in the Digest ?                                 Yes

                          JUDGMENT

ARUNA SURESH, J.

1. This objection petition has been filed by the

Petitioner challenging arbitral award dated 6th July,

2006 passed by Retired Justice Ramamoorthy

whereby while awarding the claim to the

respondent, the arbitrator was also pleased to

award interest @ 15% per annum from 30.03.1998

till the date of payment.

2. Petitioner; erstwhile Bharat Heavy Electricals Ltd.

had awarded work to the claimant respondent M/s.

Mobile Craft for furniture and furnishing works of

hotel block of BHEL, HRDI & ESI Complex at Noida

on 10.07.1995. After completion of work in

October, 1995 respondent submitted its final bill on

30.03.1996 for Rs.36,98,764.19, out of which

respondent was paid a sum of Rs.20,98,000/- and

the balance amount of Rs.16,00,764/- was not paid.

Hence, the respondent invoked arbitration clause

and by the order of this court, Justice

Ramamoorthy was appointed as an arbitrator to

adjudicate upon the disputes inter se the parties.

Claim of the respondent as regards issues Nos. 1 to

4 was allowed whereas the other claims were

rejected. The arbitrator was pleased to award

interest @ 15% per annum on the sum of

Rs.3,58,734.41/- from 30.03.1998 till the date of

payment and also fixed the cost of proceedings at

Rs.35,000/-.

3. When Petitioner failed to make the due payment,

Execution Petition No.265/2006 was filed by the

respondent/decree holder for recovery of

Rs.8,88,900/- inclusive of interest. On receipt of

notice of the Execution Petition, Petitioner paid

principal awarded amount of Rs.3,50,683.41/- to

the respondent by way of Account Payee cheque

dated 21.02.2007 after deduction of TDS of

Rs.8,051/- as per the statutory rules. Therefore, the

principal amount as awarded stood paid to the

decree holder/respondent.

4. The award has been challenged by the petitioner

only to the extent of interest and cost awarded by

the arbitrator to the decree holder/respondent.

5. It is submitted by the learned counsel for the

Petitioner that the interest awarded by the

arbitrator is exorbitant and highly onerous on the

petitioner which is a Government of India

Enterprise and the award of interest is baseless

and without any merit. It is further submitted that

the arbitrator did not consider the fact while

awarding interest that the rate of interest has

dropped down and the high rate of interest as

awarded is inconsistent with the prevalent rate of

interest in the banking industry and other financial

institutions as per the law of the land. It is also

submitted that the interest cannot be taken as a

compensation for delayed payment and cannot be

treated as a punitive measure for the judgment

debtor especially when no evidence was adduced

by the claimant which could justify grant of such

high rate of interest.

6. It is further submitted that under the

circumstances, the arbitrator acted arbitrarily in

awarding cost assessed to Rs.35,000/- to the

claimant.

7. Learned counsel for the respondent argued that the

respondent/ decree holder claimed interest @ 18%

per annum but the arbitrator only awarded interest

@ 15% per annum on the awarded amount which

was quite reasonable and therefore cannot be

considered as arbitrary and contrary to the

principles of equity, justice and good conscious. It

is also emphasized that the cost followed the suit

and the arbitrator awarded reasonable cost to the

decree holder and no reason has been assigned in

the objection petition as to why cost should be

waived.

8. The arbitrator while considering the claim of the

decree holder for interest @ 18% per annum as per

the provisions of the Arbitration and Conciliation

Act, 1996 observed:-

"The Claimant is now making a claim of interest @ 18% per annum as per the provisions of the Arbitration and Conciliation Act, 1996. In view of the market conditions and taking into account the attitude of the Respondent in not paying the amount in spite of the claimant accepting the revised bill, I fix the interest @ 15% per annum from 30.3.1998 on the sum of Rs.3,58,734.41 till the date of payment."

9. Section 31 (7) (b) of the Arbitration and

Conciliation Act, 1996 (in short „Act‟) empowers the

arbitrator to award interest on the amount directed

to be paid by an arbitral award and this rate of

interest can be 18% per annum from the date of the

award to the date of payment. In the case in hand,

the arbitrator after considering the facts and

circumstances of the case was pleased to award

interest @ 15% per annum on the principal amount

w.e.f. 30.03.1998 and not from the date of the

award i.e. 6.7.2006.

10. The learned arbitrator however has not justified as

to on what basis he awarded interest @ 15% per

annum to the claimant. Under the circumstances,

this court is within its rights to consider if the

interest awarded to the claimant was in the right

perspective or it needed modification. The learned

arbitrator had to exercise his powers to award

interest in a reasonable manner keeping in view

the rate of interest that was prevailing during the

period for which the same was being awarded. It is

a common knowledge that the rate of interest on

term deposits have been fluctuating for the last

about more than one decade between 6% to 8%.

The fluctuating rate did range upto 10% or so since

the year 1987 but again this rate of interest came

down from 6% to 8% after about few years. Similar

situation arose before the Division Bench of this

court in „Delhi Development Authority v. Anand

and Associates, 2008 (1) ARB LR 490 (Delhi)'

wherein it was observed:-

"7. Coming then to the question whether the arbitrator was legally right in awarding interest @ 18% per annum for a period of 17 years or so, the arbitrator has justified the same on the authority of Santok Singh Arora v. Union of India and Ors. MANU/SC/0343/1992. There can be no quarrel with the proposition stated in the said decision which recognises the right of a claimant to be compensated for denial of its legitimate dues during the period the claim remained under adjudication. Having said that, we are of the opinion that the rate of interest awarded by the arbitrator appears to be excessive. As noticed earlier, the arbitrator has directed payment of interest @ 18% per annum from 25/4/87 subject to the condition that in case the award amount is paid with interest and cost within a period of two months from the date of award, the DDA would pay interest @ 12% per annum only for the entire period. Higher rate of interest thus awarded by the arbitrator appears to us to be in terrorem only to ensure that DDA pays as quickly as possible the amount held payable. The alternative rate at which the arbitrator stipulated in the event of payment is indeed more realistic though still on the higher side. In the

circumstances, therefore, we are inclined to interfere with the award made by the arbitrator but only to that limited extent. While the power of the arbitrator to award interest is not under challenge before us the said power has to be exercised in a reasonable manner keeping in view the rate of interest that was prevailing during the period for which the same is being awarded. It is common knowledge that the rate of interest on term deposits has for the last decade fluctuated between 6 to 8 per cent. It is true that for the period of a decade after April, 1987 the rate of such deposit ranged up to 10% or so, yet keeping the totality of the facts and circumstances of the case in view and especially the long period for which the interest is being awarded, we are of the opinion that interest @ 9% per annum instead of 18% per annum from 25/4/87 till date of deposit of the amount in this Court on the principal amount of Rs. 20,32,358/- would meet the ends of justice. We may in this regard draw support from the decision of the Hon'ble Supreme Court in State of Rajasthan and Anr. v. Nav Bharat Construction Co. MANU/SC/0747/ 2001, where the Hon'ble Supreme Court had, in similar circumstances, reduced the rate of interest from 18% per annum to 6% per annum".

11. In this case, this court modified the rate of interest

awarded @ 18% per annum for pre-arbitration

period, for the pendent lite period and future

interest to 9% per annum.

12. Similarly, in 'Krishna Bhagya Jala Nigam Ltd. v.

G. Harischandra Reddy and Anr., AIR 2007 SC

817', the Supreme Court was pleased to reduced

rate of interest awarded by the arbitrator from 18%

to 9% and it was observed:-

"On the merits of the claims made by the contractor we find from the impugned Award dated 25.6.2000 that it contains several Heads. The Arbitrator has meticulously examined the claims of the contractor under each Page 0711 separate Heads. We do not see any reason to interfere except on the rates of interest and on the quantum awarded for letting machines of the contractor remaining idle for the periods mentioned in the Award. Here also we may add that we do not wish to interfere with the Award except to say that after economic reforms in our country the interest regime has changed and the rates have substantially reduced and, therefore, we are of the view that the interest awarded by the Arbitrator at 18% for the pre-arbitration period, for the pendent lite period and future interest be reduced to 9%."

13. In 'State of Rajasthan and Anr. V. Nav Bharat

Construction Co., AIR 2002 SC 258', the only

issue for consideration was whether the arbitrator

had awarded interest contrary to the conditions in

the agreement. In the said case, the arbitrator had

granted interest on the principal amount of

different claims from different dates at the rate of

18% and the district court had awarded interest @

15% from the date of the decree. That part of the

award and decree was modified and the rate of

interest was reduced from 15% to 6% only.

14. Similarly, this court in Delhi Development

Authority v. Harbans Singh and Sons, 2008 (3)

ARBLR 276 (Delhi)', in similar circumstances was

pleased to reduced rate of interest awarded by the

arbitrator from 12% to 8.25% per annum keeping

in mind the rate as was admissible for Fixed

Deposits and the interest was paid from the date of

award.

15. Mr. B.K. Dewan, learned counsel for the

respondent has referred to 'Union of India v.

Harbans Singh Tuli & Sons Builders (P) Ltd.,

2001 (1) Arb. LR 234 (Punjab & Haryana)', to

emphasise that the learned arbitrator has rightly

awarded interest @ 18% on the principal sum. He

has also referred to „M/s. Krishan Kumar

Madhok v. Union of India, AIR 1982 Delhi

332'. These two cases under the circumstances of

this case are of no help to the respondent.

16. Respondent has also referred to „Delhi Jal Board

v. Subhash Pipes Ltd., 2005 (2) Arb. LR 213

(Delhi)'. In the said case, the court upheld the

findings of the arbitrator in awarding interest @

18% per annum on the amount found due and

observed that the interest awarded to the claimant

in the said case was in accordance with the

statutory provisions of law.

17. Since there is no specific and serious challenge to

the cost as awarded by the learned arbitrator, I

find no reason to interfere in the quantum of cost

awarded by the arbitrator.

18. Under the facts and circumstances of the case and

keeping in mind the rate of interest which was

legally permissible at the relevant time, the

impugned award dated 6th July, 2006 is modified to

the extent that the judgment debtor/petitioner shall

pay interest @ 9% per annum on the principal

amount of Rs.3,58,734.41 for the period as

awarded. It is pertinent to mention here that the

principal amount has already been paid by the

Petitioner.

19. Petition stands allowed to the extent as stated

above. There are no orders as to costs.

ARUNA SURESH (JUDGE) OCTOBER 24, 2008 vk