Delhi High Court
Indian Oil Corporation Ltd. vs G.S. Jain & Associates on 7 September, 2012
Author: Sanjay Kishan Kaul
* IN THE HIGH COURT OF DELHI AT NEW DELHI
Reserved on: 07.08.2012
% Date of decision: 07.09.2012
+ EFA (OS) No.17/2010
INDIAN OIL CORPORATION LTD. ..... Appellant
Through: Mr. Abhinav Vashisht, Sr. Adv. with
Mr.Raman Kumar, Mr.Sumit Singh Benipal
and Ms. Amrita Jayan, Adv.
versus
G.S. JAIN & ASSOCIATES ..... Respondent
Through: Mr.Sandeep Sharma and Mr.Vikas
Sharma, Advocates.
AND
+ EFA (OS) No.18/2010
INDIAN OIL CORPORATION LTD. ..... Appellant
Through: Mr. Abhinav Vashisht, Sr. Adv. with
Mr.Raman Kumar, Mr.Sumit Singh Benipal
and Ms. Amrita Jayan, Adv.
versus
G.S. JAIN & ASSOCIATES ..... Respondent
Through: Mr. Sandeep Sharma and Mr.Vikas Sharma,
Advocates.
CORAM:
HON'BLE MR. JUSTICE SANJAY KISHAN KAUL
HON'BLE MR. JUSTICE VIPIN SANGHI
SANJAY KISHAN KAUL, J.
1. The appellant invited offers for construction of skirted granular piles
foundation for 1 MCO Tank and 3 FO tanks at its ongoing work at
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Haldia Refinery. A second NIT was issued for construction of skirted
granular pile foundation for 1 Fire Water Tank within the precincts of the
same refinery. Disputes regarding payments of amount to the respondent-
contractor, who was awarded the work, arose and these disputes were
referred to the sole arbitration of Sh. N.Guha Roy, a retired General
Manger of IOC/appellant, who published two awards both dated
14.10.1987, dealing with similar issues.
2. The awards were non-speaking awards. The awards were made in favour
of the respondent (barring one claim for the payment of mobilization
charges in respect of four additional rigs, which was rejected) concluding
that recoveries made by the appellant were unjustified. The appellant laid
a challenge to the awards by filing I.A. No. 987-988/1988 in CS(OS)
2502-A and 2503/1987, predicated on bias and mala fide of the arbitrator.
The learned Single Judge, however, found against the appellant while
dismissing the objections of the appellant and making the awards ‗rule'
of the court vide judgment dated 15.12.2006 under the Arbitration Act,
1940 (‗the Old Act' for short). The relevant para 71 reads as under:
―71. Awards dated 14.10.1987 published by Sh.N.Guha
Roy are made a rule of the Court. Decree shall follow. Post
decretal interest is awarded to the contractor and against
Indian Oil Corporation @ 8% per annum from date of
decree till payment.‖
The judgment was confirmed by the Division Bench of this Court on
20.07.2009.
3. The respondent, in order to effect complete recovery of the decretal
amount filed Execution Petitions - 1/2010 and 2/2010. It may be noted
that the appellant made its own calculations post the order of the Division
Bench and took into account the amount already deposited by the
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appellant in the Delhi High court and thereafter sent a cheque for
Rs.74,75,840.17 under cover of the letter dated 18.09.2009 which was
encashed by the respondent. However, according to the respondent, this
did not satisfy the claim under the decree and the Executing Court was
thus required to look into the matter as per the impugned judgment dated
17.05.2010. In the Executing Court, both the counsels agreed that the
only issue which remained to be examined was arising from the
interpretation of Section 29 of the Old Act in the light of the judgment
and decree of this Court dated 15.12.2006. The bone of contention was
that while making the awards ‗Rule' of Court, the learned Single Judge
had observed that the post decretal interest was being awarded at 8 per
cent per annum from date of decree till the date of payment. This,
according to the appellant, was the interest payable only on what was
determined under the award as the principal amount while according to
the respondent, the interest was payable both on the principal and interest
as determined under the awards as, for purposes of decree, that would
constitute the total principal amount. The learned Single Judge opined
that the judgment and decree dated 15.12.2006 left him in no doubt that
the interest was being required to be paid on the principal sum as
adjudged by the award and confirmed by the decree. The award was
confirmed in its entirety including the pure principal sum and interest and
thereafter interest had been award and thus the learned Single Judge
opined that the post decretal interest would mean interest on the amount
as adjudged in the award and confirmed by the decree while rejecting the
contention of the appellant.
4. On the appeals being filed, they were admitted on 18.10.2010. It may be
noticed that even prior to admission of appeals, execution proceedings
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had been stayed on 07.07.2010. In the course of hearing of the appeal on
25.07.2012, this Bench took note of the operative paragraph 71 of the
judgment dated 15.12.2006 making the award ‗rule' of the Court and the
rival plea as to its interpretation. We were of the view that the operative
portion of the judgment dated 15.12.2006 while specifying the rate of
interest at 8 per cent per annum from date of decree till date of payment
left open the question as to what is the base on which such interest is to
be calculated i.e. it stopped short of saying ‗on principal amount' or ‗on
decretal amount'. As to what would be the principal amount under the
decree was a question which would arise for consideration only if interest
would have been awarded on the decretal amount, but the order dated
15.12.2006 did not say either way. We, thus, considered it appropriate
that the two original suits being CS(OS) Nos.2502-A/1987 and
2503/1987 be placed before the same learned Judge who had passed the
order dated 15.12.2006 along with a copy of our order dated 25.07.2012,
to have the benefit of his opinion seeking a clarification/completion of
the last paragraph of the order as to whether 8 % per annum interest had
been awarded (from date of decree till date of payment) on the decretal
amount i.e. (on the principal and interest amount under the award), or on
the principal amount awarded in terms of the award.
5. The learned Single Judge thereafter in terms of the order dated
01.08.2012 passed in the suit opined that he could not review the order
passed by the learned Single Judge while deciding the execution
objections and its interpretation of the decree, while adding that he had
directed interest at 8% per annum on the decretal amount and not 15%
per annum as awarded by the learned arbitrator because he had in mind
the same view which had been taken by the Executing Court i.e. the
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decretal amount would be the sum awarded by the arbitrator which would
obviously include interest awarded by the arbitrator and that is what
influenced him to scale down the rate of interest from 15% per annum to
8% per annum.
6. Learned counsel for the appellant, however, urged thereafter that his plea
would now be confined to a purely legal aspect arising from
interpretation of Section 29 of the Old Act i.e. what would be the
meaning of the expression ‗principal sum as adjudged by the award and
confirmed by the decree'. In order to appreciate this contention, we
reproduce Section 29 of the Old Act:
―29. Interest on awards. Where and in so far is an award
is for the payment of money the Court may in the decree
order interest, from the date of the decree at such rate as
the Court deems reasonable, to be paid on the principal
sum as adjudged by the award and confirmed by the
decree.‖
7. The submission of learned counsel for the appellant, thus, was that the
only provision which has referred to post decretal interest is Section 29
which empowered the Court alone to grant post decretal interest. Section
29 empowers the Court to grant interest from the date of the decree at
such rate as the Court deems reasonable. As to on what amount such
interest is to be granted is specified by the last part of the Section after
the comma ‗to be paid on the principal sum as adjudged by the award and
confirmed by the decree.' It was, thus, his submission that the legislature
made a distinction between principal sum which may be adjudged under
the award and any other sum which may be adjudged under the award
inclusive of interest. The expression ‗and confirmed by the decree' was
to take care of the situation where, while looking into the merits of a
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petition, the Court may vary the principal sum. Thus, naturally interest
would be payable only on such portion of the principal sum which
formed both a part of the award and is confirmed by the Court while
passing the decree. He pleaded that if the expression ‗principal sum' was
to include both the principal and interest awarded under the award, and
both together were to constitute the principal for purposes of the decree
and award, then the use of the word principal would be otiose. He, thus,
submitted that the last sentence should then have read ‗to be paid on the
sum as adjudged by the award and confirmed by the decree'. The
submission, thus, was that no part of a statute can be made redundant by
an interpretation when the wordings of the provision are quite clear. In
order to support this line of reasoning, learned counsel has relied upon
the judgment of the Supreme Court in Gurudevdatta VKSSS Maryadit vs
State of Maharashtra; (2001) 4 SCC 534(para 26) which discussed the
cardinal principle of interpretation of statutes emphasizing the golden
rule that the wordings of a statute must be given their original meaning.
Thus, where the words of the statute are clear, plain and unambiguous,
the courts are bound to give effect to that meaning irrespective of the
consequences and the words must be understood in their natural, ordinary
and popular sense construed according to their grammatical meaning.
The subsequent view of the Supreme Court in High Court Of Gujarat &
Anr vs Gujarat Kishan Mazdoor Panchayat; 2003 4 SCC 712 is to the
same effect.
8. Learned counsel for the respondent really does not dispute the rules of
construction of statute, but contends that judicial pronouncements of
High Courts have given a meaning to the provisions of Section 29 of the
Old Act and the decree which is drawn up on an award being made
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‗Rule' of the Court is the base on which interest has to be calculated.
Thus, according to him, the expression ‗principal sum' refers to the
amount confirmed by the decree which includes both principal and
interest element and the whole thus becomes the principal on which
interest has to be calculated. He further submits that whatever doubt may
have arisen regarding the interpretation of the judgment dated 15.12.2006
while making the award ‗Rule' of the Court on account of para 71, stands
not only clarified/interpreted by the Executing Court, but even by the
learned Judge who had made the award ‗Rule' of the Court.
9. Within the narrow contours of the aforesaid controversy, learned counsel
for both the parties relied upon a catena of judgments. Since the
respondent seeks to support the reasoning adopted by the Executing
Court, we proceed first to consider the judgments referred by the
respondent.
THE RESPONDENT RELIED UPON FOLLOWING JUDICIAL
PRONOUNCEMENTS
Union of India v. Roshni Devi; 2005 (1) Arb.L.R. 363 (J&K)
10.In the facts of the case, there was a separate claim for interest and the
principal amount. Both the claims were separately granted. It was held
that once the claim of interest was allowed by the arbitrator, it became
part of the sum awarded under the award and thus had to be considered
as part of the principal. Reliance was placed on the observations in Oil
and Natural Gas Commission v. M.C. Clelland Engineers S.A.; AIR
1999 SC 1614. The plea against grant of interest on interest was
predicated on Section 3 of the Interest Act, 1978. The Supreme Court
observed that there cannot be any doubt that the arbitrators had power to
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grant interest akin to Section 34 of the Code of Civil Procedure (‗CPC'
for short) which is the power of the Court in view of Section 29 of the
Old Act. Thus, interest was not granted upon interest awarded, but upon
the claim made. The claim in turn was under two heads - all that was
claimed under the invoices and paid by the appellant therein and the
interest on account of delayed payment and that is how the claim for
interest on delayed payments stood crystallized by the time the claim was
filed. The award of interest on the amount of interest was, thus, termed as
really interest on damages or compensation for delayed payment which
would also become part of the principal and thus Section 3 of the Interest
Act, 1978 was held not to aid the case of the party. The Division Bench
also relied upon the pronouncement in Union of India v. Harbans Singh
Tuli and Sons Builders (P) Ltd; AIR 2000 P&H 313 concluding that the
principal sum adjudged was the amount which was awarded by the
arbitrator under all the claims, one of which was interest, being the
amount payable under the award. Hence, the contractor therein was
entitled to claim future interest on the pendent lite interest awarded to the
contractor under one of the claims.
Union of India v. Harbans Singh Tuli, (2000) ILR 2 P&H 397
11.This judgment referred to aforesaid has relied upon the principles as set
out in Oil and Natural Gas Commission v. M.C. Clelland Engineers
S.A.'s cas (supra), Mehar Chand v. Tulsi Ram; AIR 1981 Orissa 32, M/s.
Andhra Civil Construction Company, Hyderabad v. State of Orissa; AIR
1982 Ori 263 and Executive Engineer, Rural Engineering Division,
Dhenkanal v. Biswanath Agarwalla; AIR 1982 Orissa 263.
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The reliance of the appellant on the judgment of the High Court of
Orissa in the case of Executive Engineer, Rural Engineering Division,
Dhenkanal V. Biswanath Agarwalla; AIR 1982 Orissa 263, according to
the respondent, is stated to be misplaced.
State of Haryana v. S.l. Arora; (2010) 3 SCC 690
12.The Supreme Court in the context of the Arbitration and Conciliation
Act, 1996 (‗the New Act' for short) has held that compound interest can
be awarded only if there is a specific contract or authority under a statute
for compounding of interest and thus such compound interest ought not
to be granted. In that context, Section 3 of the Interest Act, 1978 has been
referred to, which enables the Court and the arbitral tribunal to award
interest from date of cause of action to date of institution of legal
proceedings or initiation of arbitration proceedings. It has been
specifically stated in sub Section 3(c) of Section 3 of the Interest Act,
1978 that nothing in the said Section would empower the Court or the
arbitrator to award interest on interest.
13.We may note that this provision was incorporated by the 1976
amendments in pursuance to the recommendation of the Law
Commission of India vide its 63rd Report specifically recommending that
there should be no interest on interest and the same should be expressly
provided.
14.The Supreme Court took note of its earlier judgment in Renusagar Power
Co. Ltd v. General Electric Co.; Supp. (1) SCC 644 opining that the
award of interest on interest was not opposed to public policy of India but
could be awarded only if authorized by a contract or statute, a view
followed in Central Bank of India v. Ravindra; 2002 (1) SCC 367. The
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Old Act did not have any provisions dealing with power of arbitral
tribunal to award interest and Section 29 provided for only post decretal
interest, vesting said power with the Court. Thus, the power of arbitral
tribunal to award interest was held to be governed by the provisions of
the Interest Act, 1978 and the law enunciated by the Courts. However,
the New Act contains a specific provision dealing with power of an
arbitral tribunal to award interest in Section 31(7), which provision made
no reference to payment of compound interest or payment of interest on
interest. Clause (a) and (b) of Section 31(7) of the New Act makes the
distinction between pre-award period and post-award period respectively.
The pre-award interest is to be awarded as is specified in the contract or
in the absence of the same, as per the discretion of the arbitral tribunal
while in respect of the post award interest, the same is at the discretion of
the arbitral tribunal. If such discretion is not exercised then it has to be
mandatorily 18% per annum. Thus compounding of interest in the pre-
award period if it is so provided in the contract is permissible.
Saraswati Construction Co. V. Delhi Development Authority; 112
(2004) DLT 736
15.The views of the learned Single Judge of this Court in this case were
based on a judgment in Oil and Natural Gas Commission v. M.C.
Clelland Engineers S.A.'s case (supra). However, it was held that not
only the amount of a claim upheld by the arbitrator or the Court but the
pre-suit and pendente lite interest awarded in favour of the decree holder
crystallized into the decretal amount and thus future interest became
payable on the entire amount comprising of claim as well as pre-suit and
pendente lite interest. However, this view has been over-ruled by a
Division Bench of this Court in Pt. Munshi Ram and Associates v. DDA
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(2011) 163 PLR 20, which has been discussed subsequently in this
judgment.
Blue Star Ltd. V. India Tourism Devp. Corp., Ex. Case No. 194/2002,
Decided on 3/9/2002
16. In this case, interest was held payable both on the principal amount and
on the interest component of the award.
Madnani Construction Corporation v. Union of India; 2009 (14)
SCALE 399
17. In this case, the issue was whether the arbitrator to whom reference was
made by the parties had jurisdiction and authority to award interest
pendente lite. The principle of Section 34 of CPC i.e. a person deprived
of the use of money to which he is legitimately entitled having a right to
being compensated for such deprivation for both the pre reference period
as well as the period when the dispute is pending before an arbitrator,
was held applicable even in case of an arbitrator, by the learned Single
Judge, regardless of whether it is called interest, compensation or
damages. The Supreme Court placed reliance on its earlier view in
Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v.
N.C.Budharaj (D) by LRs; (1999) 9 SCC 514 where the majority view
was expressed after taking into consideration the Constitution Bench
judgment of the Supreme Court in Secretary, Irrigation Department,
Government of Orissa and others v G.C.Roy; ( 1992 ) 1 SCC 508. It was
held that as long as there is nothing in the arbitration agreement to
exclude the jurisdiction of the arbitrator to entertain a claim for interest
on the amounts due under the contract, or any prohibition to claim
interest on the amounts due and become payable under the contract, the
jurisdiction of the arbitrator to consider and award interest in respect of
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all periods subject only to Section 29 of the Arbitration Act, 1940 and
that too the powers of the court thereunder, has to be upheld.
U.P. Cooperative Federation Ltd. V. Three Circles, (2009) 10 SCC
18. The Supreme Court relied upon its earlier judgment in McDermott
International Inc. v. Burn Standard Co. Ltd, and Ors; 2006 (11) SCC 181
to observe that interest on interest is payable. However, McDermott
International Inc.'s case (supra) has no reference to award of compound
interest or interest from the date of award on the interest that had accrued
due up to the date of the award. The said judgment only dealt with rate of
interest and jurisdiction was exercised under Article 142 of the
Constitution to set right the anomalies regarding the rate of interest. The
Judgment in UP Cooperative Federation Ltd. V. Three Circles's case
(supra) actually extracted a portion of the judgment of McDermott
International Inc.'s case (supra) as it was neither a finding or conclusion
of the Supreme Court nor the ratio decided of the case, instead they were
only the submissions of the counsel. This position has been explained in
State of Haryana v. S.L. Arora's case (supra).
THE APPELLANT RELIED UPON FOLLOWING JUDICIAL
PRONOUNCEMENTS
State of Rajasthan v. Nav Bharat Construction; (2005) 11 SCC 197
19.The controversy about the issue of payment of compound interest has
been noticed under the Old Act and the rival submissions as to whether
interest on interest ought to be granted. However, there appears to be no
conclusion on this aspect as the Supreme Court opined that Section 29 of
the Old Act empowered the Court to order payment of interest at such
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rate as the Court deems reasonable, to be paid on the principal sum as
adjudged by the award and confirmed by the decree. Central Bank of
India v. Ravindra's case (supra) was held to have no direct application to
the rate of future interest payable on the principal sum awarded by the
arbitrator in the proceedings under the Old Act. The interest fixed was
not held to be unreasonable under Article 136 of the Constitution of
India.
The plea of interest on interest component under the Award was raised
which was objected to by reference to Section 29 of the Old Act. The
Supreme Court did not grant the prayer for interest on interest on the
aggregate amount.
Central Bank of India v. Ravindra and Ors. (2002) 1 SCC 367
20.The observations of the Supreme Court qua the powers exercisable under
Section 34 of CPC have been relied upon to contend that the expression
―principal sum adjudged‖ would be the sum actually loaned plus the
amount of interest on periodical rests which according to the contract
between the parties or established banking practice stood capitalized. The
pendente lite future interest would be payable on the principal sum
adjudged on the date of the suit.
21.The distinction between a suit filed by the Bank and a suit filed by the
other creditors qua application of Section 34 of CPC was held to be valid
and thus the requirement of compound interest either specifically
provided in the contract or should be in vogue in the field of banking
business. Since the present contract did not contain any such clause, nor
was there any prevalent practice, it was pleaded that compound interest
would not be payable.
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State of Haryana v. S.L. Arora; (2010) 3 SCC 690
22.This case has been discussed while dealing with judgments referred to by
the respondent. The reference to interest is a reference to simple interest
payable on the principal amount unless there is a contract to the contrary
or a statute provides so. It has been held that there is no discretion in the
court or tribunal to award compound interest or interest on interest.
Section 29 of the Old Act provides for post-decretal interest on the
principal sum and thus it was pleaded that the power of arbitral tribunal
to award interest was governed by the provisions of the Interest Act,
1978. Section 31(7) of the New Act made no reference to payment of
compound interest and thus it was held that the said provision only
provided for payment of simple interest.
Executive Engineer, Rural Engineering Division, Dhenkanal v.
Biswanath Agarwalla; AIR 1982 ORISSA 263
23. There are observations to the effect that the claimant should get interest
only on the principal amount as permissible under Section 29 of the Old
Act and not interest on interest.
CONCLUSION
24.We have noticed these catena of judgments cited by both the sides.
However, the question which confronts us has not been directly dealt
with in any of these judgments. The nearest which one can get to is the
discussion on the issue of compound interest in State of Haryana v. S.L.
Arora's case (supra) whereby under the New Act which is law for the
proposition that Section 31(7) of the New Act admits of only simple
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interest and compound interest is not to be granted unless it is
specifically provided so in the contract or a statute. The question would,
thus, arise whether the same principle on parity has to be applied under
the Old Act and what should be the construction of the provision of
Section 29 of the Old Act.
25. We may point out at this stage that it has been brought to our notice that
in SLP(C) No.29407/2010 M/s Hyder Consulting (UK) Ltd. v. Governor,
State of Orissa, Through Chief Engineer, a Bench of the Supreme Court
vide order dated 13.03.2012 has referred the view taken by the Supreme
Court in State of Haryana v. S.L. Arora's case (supra) to a larger Bench.
However, till date no opinion has been rendered in this and thus State of
Haryana v. S.L. Arora's case (supra) holds good.
26.We would like to take notice of certain other pronouncements which are
possibly nearer to the matter in issue. In Shri Jai Prakash Narain
Singh v. NBCC; Execution Petition No.26/2007, decided on
18.05.2009, this very view has been examined i.e. the post decretal
interest under the Old Act. The learned Single Judge (Rajiv Sahai
Endlaw, J.) opined that a meaningful construction has to be made of the
expression ―principal sum as adjudged‖ in Section 29 of the Old Act. If
there was no distinction between ‗principal' and ‗interest' then there was
no need to use the expression ‗principal' in Section 29 of the Old Act.
Thus, since Section 29 of the Old Act is the only provision conferring
power on the Court to award interest post-decree, and such interest has to
be calculated on the principal sum adjudged, it must carry with it a
negative import that it shall not be permissible for the Court to award
interest on any sum other than the principal sum adjudged by the award.
In that context, it was observed that in Oil and Natural Gas Commission
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v. M.C. Clelland Engineers S.A.'s cas (supra), the Supreme Court was in
seizin of the dispute and made observations only to the extent of
empowering the Court to award post-decretal interest. The other part of
Section 29 empowering court to award interest only on the principal
amount adjudged in the award had not been discussed.
27.The Division Bench in Pt. Munshi Ram & Asso. P.Ltd. v. DDA's case
(supra) was faced with opinions of two learned Single Judges of the
Delhi High Court, one being by Rajiv Sahai Endlaw,J. in the judgment of
Shri Jai Prakash Narain Singh v. NBCC's case (supra) and a reference
made by Manmohan, J. in Munshi Ram & Asso. P.Ltd.(M/S Pt.) v. Delhi
Development Authority; 2009 X AD (Delhi) 174. One of us, Sanjay
Kishan Kaul, J., was a member of the Division Bench and rendered the
opinion on behalf of the Bench. We reproduce the observations as
under:
11.Section 34 of the said Code deals with interest to be
paid on the principal sum adjudged from date of suit to
date of decree and from date of decree to date of
payment. The judgment in Central Bank of India v.
Ravindra and Ors.'s case (supra) referred to how the
principal sum had to be adjudged where there was a
contract providing for compound interest and thereafter
the pendente lite and future interest to be calculated
thereon. Section 3 of the Interest Act deals with the
period from the date when the debt is payable to date of
institution of the proceedings. Neither Section 34 of the
said Code nor Section 3 of the Interest Act use the
expression ‗compound interest' but both refer to the
concept of interest which has to be understood as
simple interest in view of the judgment in State of
Haryana & Ors. v. S.L.Arora & Company's
case(supra).
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12.We find that the legal position is quite clear in view
of this judgment that unless there is a contract
providing for compound interest or a statute there can
be no question of payment of compound interest. We
may note that in the facts of the present case, it is
undisputed that the contract does not provide for
compound interest. It really also cannot be disputed
that neither Section 29 of the old Act (which deals with
post-decree interest) nor the judicial pronouncements
which assisted in holding that the arbitral tribunal has
the authority to grant interest for other three periods in
view of the provisions of Section 34 of the said Code
r/w Section 41 of the old Act and Section 3 of the
Interest Act give any authority for charging such
compound interest. The position thus is no different
under the old Act in this behalf.
13. Rajiv S. Endlaw, J., a learned Judge of this Court, in
Jai Prakash Narain Singh v. NBCC Ltd.; 2009 (9) AD
Delhi 23 has examined this issue. It has been noticed
that Section 29 of the old Act is concerned with interest
from date of decree only and does not apply to the
previous periods. Compound interest was not granted
in the said case.
14. Another learned judge of this Court Manmohan, J.
in Munshi Ram & Asso. P.Ltd.(M/S Pt.) v. Delhi
Development Authority; 2009 X AD(Delhi) 174, in
execution proceedings, again held that there was no
compound interest to be granted nor was it admissible
unless there was a provision in the contract for the said
purpose. The judgment has noted the pronouncement
in Central Bank of India v. Ravindra and Ors.'s case
(supra) to the effect that 1956 amendment to Section 34
of the said Code was intended to deprive the Court of
its power to award interest on interest i.e. compound
interest and relied upon para 45 of the judgment in
Central Bank of India v. Ravindra and Ors.'s case
(supra). The said para 45 is once again reproduced as
under:
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―45. The 1956 amendment serves a twofold
purpose. Firstly, it prevents award of interest on
the amount of interest so adjudged on the date of
suit. Secondly, it brings the last clause of Section
34, by narrowing down its ambit, in conformity
with the scope of the first clause insofar as the
expression ―the principal sum adjudged‖
occurring in the first part of Section 34 is
concerned which has been left untouched by
amendment. The meaning to be assigned to this
expression in the first part remains the same as it
was even before the amendment. However, in the
third part of Section 34 the words used were ―on
the aggregate sum so adjudged‖. The judicial
opinion prevalent then was (to wit, see
Prabirendra Mohan v. Berhampore Bank Ltd.51
AIR at p. 295) that ―aggregate sum‖
contemplated the aggregate of (i) the principal
sum adjudged, (ii) the interest from the date of
the suit to the date of decree, and (iii) the pre-suit
interest. Future interest was capable of being
awarded also on the amount of pre-suit interest
-- adjudged as such, that is, away from such
interest as was adjudged as principal sum having
amalgamated into it by virtue of capitalisation.
The amendment is intended to deprive the court
of its pre-amendment power to award interest on
interest i.e. interest on interest adjudged as such.
The amendment cannot be read as intending,
expressly or by necessary implication, to deprive
the court of its power to award future interest on
the amount of the principal sum adjudged, the
sense in which the expression was understood,
also judicially expounded even before 1955; the
expression having been left untouched by the
1956 amendment.‖
15. We may note that the same learned Judge has in fact
made the reference in the present case.
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16. We are of the view that these two judgments
correctly lay down the proposition of law that no
compound interest or interest on interest is admissible
under the old Act unless there is specific provision in
the contract and even there the court is not denuded of
the authority not to grant such interest which is in
conflict with or in violation of the public policy of
India.
17. We are thus of the considered view that the contra
view taken in Kali Charan Sharma(since deceased) v.
New Okhla Industrial Development Authority; 149
(2008) DLT 244 and M/s Saraswati Construction Co. v.
DDA;112 (2004) DLT 736 does not correctly reflect the
legal position.
18. Learned counsel for the decree holder relied upon
the observations in ONGC v. M.C.Clelland Engineers
S.A.; (1999) 4 SCC 327 = AIR 1999 SC 1614. There is
undisputedly a passing reference in the said judgment to
the power of the arbitrators to grant compound interest.
However, the same is really an order passed in the facts
of the case and in view of what has been discussed
above and the authoritative pronouncement of Supreme
Court in the subsequent judgment in State of Haryana
& Ors. v. S.L.Arora & Company's case(supra), there
can be little doubt about the general principle.
19. The reference really arises only in respect of the
entitlement of an arbitral tribunal to award interest on
interest from date of award under the old Act, but we
have explained the legal position aforesaid to set at rest
the controversy in respect of the grant of interest.
20. We are unequivocally of the view that the authority
of an arbitrator to grant compound interest can only be
under a contract as the applicable statutes, as
interpreted by the Supreme Court, permitting grant of
interest by an arbitrator being Section 29 of the old Act,
Section 34 of the said Code r/w Section 41 of the old
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Act and Section 3 of the Interest Act do not permit
specifically the grant of such compound interest. The
position is thus same in respect of the authority to grant
compound interest under the new Act and the old Act.
We also make it clear that even where there is such a
provision in the contract, the authority of the Court is
not taken away not to grant such compound interest if it
is in conflict with or in violation of the public policy of
India as observed in para 18.3 of State of Haryana &
Ors. v. S.L.Arora & Company's case(supra). As for the
facts of the present case are concerned, as already
noticed, there is no contract for compound interest and
thus compound interest cannot be awarded.
28.The issue is, thus, no more res integra in view of the judgment in Pt.
Munshi Ram and Associates v. DDA's case (supra) where again there
was absence of any contract for compound interest. In Chandigarh
Housing Board v. JMK Associates and Anr.; AIR (2011) NOC 433
(P&H){Civil Revision No.2509 of 2010 decided on 27.05.2011}where it
was observed that the power to grant interest under the Old Act by the
Arbitral Tribunal was to be governed by the provisions of the Interest
Act, 1978, the grant of compound interest in the absence of a contract
was held to be against the principles of law and statute.
29.We may add that there is force in the contention of the learned counsel
for the appellant that the golden rule of interpretation of statute must be
followed and where the wordings of the statute are clear, plain and
unambiguous, the courts are bound to give effect to the meaning
irrespective of the consequences. In Section 29 of the Old Act, it is after
a comma that a complete line comes, ―to be paid on the principal sum as
adjudged by the award and confirmed by the decree‖. This expression
has to be read as a whole. The reference to ‗confirmed by the decree' is,
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thus, in the context of a possible variation in the principal sum which
may arise on account of modification of the award. The word ‗principal'
cannot be irrelevant and has to be understood as per the common
parlance. The ‗principal' is thus distinct from any other amount which
would include interest. Similarly, costs would be a third category. The
provisions of Section 29 of the Old Act thus provide for post decretal
interest by the court only on the principal sum. If one may say, this is
also in consonance with the general view of the legislature as is apparent
from the provisions of Section 34 of the CPC and as to why the
amendment was brought into force in Section 34 pursuant to the
recommendations of the Law Commission of India in its 55 th Report of
1973. The effect of the amendment carried out in 1956 was explained
i.e. prior to the amendment of 1956, the Section left the rate of interest
even for the post decree stage to discretion of the Court, but after the
amendment, it provided for a maximum rate of interest. Moreover, the
rate of interest was previously permissible on the aggregate sum and not
merely on the principal as was the position under the unamended Section.
The Minister of Legal Affairs was quoted in the report giving an
explanation for the amendment of 1956 explaining the objective to be
that interest ought not to be allowed on an amount of interest itself i.e. to
prevent compound interest. Thus, where the expression ‗principal' is
used and continues to be used, it cannot be said that the legislature was
ignorant of the complexity of the issue i.e. whether interest should be
granted only on the principal sum or interest should be granted on the
complete amount inclusive of interest i.e. the compound interest. In fact,
conscious decisions have been taken to remove the concept of compound
interest and exceptions which have been carved out as per the judicial
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interpretation are restricted to cases where there is a specific contract or
statute providing compound interest.
30.In the facts of the present case, it is certainly not pleaded that the contract
provides for compound interest.
31. We are thus of the view that despite the opinion rendered by the learned
Judge qua his decree dated 15.12.2006 and the impugned order
interpreting that order, compound interest could not have been granted
i.e. the interest could not have been granted on the part of the award
which was for interest element. If the statute does not permit it then the
Court would not be able to grant it in the absence of any contract or
statute. We are conscious of the fact that as per the opinion of the learned
Judge dated 01.08.2012, the learned Judge consciously reduced the post
decretal interest to 8% per annum as against the interest rate awarded by
the arbitrator of 15% per annum, but in view of the prohibition in law
that intent cannot be given effect to.
32.The result of the aforesaid is that the appeals are allowed and it is held
that the appellant is liable to pay interest on only the principal component
of the award and not the interest component of the award.
32. The parties are left to bear their own costs.
SANJAY KISHAN KAUL, J.
SEPTEMBER 07, 2012 VIPIN SANGHI, J.
dm
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