M/S S.A. Builders Ltd. vs Municipal Corporation Of Delhi
2017 Latest Caselaw 1898 Del

         IN THE HIGH COURT OF DELHI AT NEW DELHI
%                                            Judgment delivered on: 19.04.2017

+      EX.P. 99/1998
M/S S.A. BUILDERS LTD.                                    ..... Decree Holder

                              versus

MUNICIPAL CORPORATION
OF DELHI                                                  ..... Judgement Debtor
Advocates who appeared in this case:
For the Decree Holder       : Mr Nidhesh Gupta, Senior Advocate with
                              Mr Tarun Gupta, Advocate.

For the Judgment Debtor                : Mr Sunil Goel, Standing counsel for Nr.
                                         DMC along with Mr Rajesh Kumar
                                         Sharma, Executive Engineer, MCD.

CORAM
HON'BLE MR JUSTICE VIBHU BAKHRU
                                     JUDGMENT

EA(OS) No.34/2016

VIBHU BAKHRU, J

1. M/s S A Builders Ltd., the Decree Holder, (hereafter 'SAB') has filed the above captioned petition for enforcement of an arbitral award dated 16.12.1997. SAB has filed the present application seeking directions, inter alia, praying that the Judgment Debtor (hereafter 'MCD') be directed to pay the balance decretal amount of ₹9,10,43,399.53 (as on 31.12.2015) along with pendente lite and future interest at the rate of 18% per annum.

2. The controversy involved in the present application is whether SAB is

entitled to future interest on pre-award interest. In view of the decision in the case of Hyder Consulting (UK) Ltd. v. Governor, State of Orissa:(2015) 2 SCC 189, the question whether pre-award interest would be included for the purposes of calculation of post-award interest under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996 (hereafter 'the Act') is no longer res integra. Indisputably, unless the award directs otherwise, post-award interest would also be payable on any pre-award interest included in the sum awarded. However, in the present case, the controversy is limited to examining whether the arbitral award excludes post-award interest on the pre-award interest as awarded in favour of SAB.

3. SAB was awarded the work of construction of a flyover at the level crossing of New Rohtak Road, New Delhi and a contract dated 11.11.1983 was entered into between the parties. Certain disputes arose in relation to the said contract which were referred to the sole arbitrator. The sole arbitrator delivered an award dated 16.12.1997 awarding an aggregate sum of `1,70,70,720.80 (which was subsequently rectified to `1,70,40,720.80) along with interest at the rate of 18% per annum (except on the amount as awarded in respect of claim no. 23(b)). The relevant extract of the said arbitral award relating to award of interest reads as under:-

"I have summarized the Claims & Counter Claims as a result of my reasoning and award as above and deducting the payment already made to the Claimant in the enclosed Annexure-1. The Annexure -2 deals with the calculations with respect to labour escalation. I direct the respondent to pay the net amount concluded in Annexure 1 as enclosed to the Claimant.

It is a fact that the contractor has been deprived of the use of blocked money arrived at in the above said award resulting in

financial suffering towards his business. The contractor is entitled for compensation & I award a simple interest @ 18% p.a. on the award amount from 1.4.90 to the date of actual payment made to the claimant except on claim No.23 (b). "

4. On a plain reading of the above, it would be difficult for SAB to sustain its claim that the sole arbitrator had contemplated that post-award interest would also run on the amount of pre-award interest. However, SAB's contention must be considered in the light of further developments.

5. It is SAB's case that since the arbitrator had awarded both pre-award interest and post-award interest; thus, by virtue of Section 31(7)(b) of the Act, post-award interest would run on the entire awarded amount along with interest from 01.04.1990 to 16.12.1997, upto the date of payment. In view of the above contention, this Court felt that an important issue had been raised which required to be addressed by a Division Bench. Accordingly, by an order dated 26.08.2004, this Court framed the following question for consideration of a larger Bench:-

"Whether post award interest under Section 31(7) of the Arbitration and Conciliation Act, 1996 would be calculated on the principal sum adjudged' or would it be calculated on the principal sum plus interest on the principal sum which has accrued from the date of cause of action to date of passing of award, as under the new 1996 Act, award is enforced as a decree of the Court."

6. In view of the above order, the present petition came to be considered by a Division Bench of this Court. At a hearing held before the Division Bench on 03.01.2005, SAB sought permission of the Court to approach the sole arbitrator for an express clarification on the issue as there was no clarity

whether the pre-award interest was awarded in terms of Section 31(7)(a) of the Act. In other words, to seek a clarification whether the arbitrator intended the pre-award interest to be included as a part of the sum awarded for the purposes of computing post-award interest.

7. By an order dated 03.01.2005, the Division Bench permitted SAB to approach the sole arbitrator for the said clarification and remitted the matter to the Single Judge. Clearly, the import of the order was to enable SAB to ascertain whether the arbitrator intended post-award interest to run on the component of pre-award interest as well; this Court was to consider the same and proceed further.

8. Being aggrieved, MCD sought to appeal against the aforesaid order dated 03.01.2005 and filed a Special Leave Petition (S.L.P. (C) No. 17021/2007) before the Supreme Court, which was dismissed on 09.07.2007.

9. In view of the above, the question whether SAB had any right to approach the sole arbitrator for any clarification and whether any such clarification could be considered as a part of the award is no longer open to debate. The Act does not permit any of the parties to approach the arbitral tribunal for any clarification or correction except under Section 33 of the Act. It is also open for the Court to adjourn any matter in a proceeding under Section 34 of the Act to enable the parties to approach the arbitral tribunal. However, it is doubtful whether any party could approach the arbitral tribunal after the stage of Section 34 of the Act. However, it is not open to examine that question in this case since the Division Bench had expressly

permitted SAB to seek a clarification from the arbitrator and the said decision was not interfered with by the Supreme Court.

10. In terms of the permission granted, SAB approached the sole arbitrator who after hearing the parties, issued a clarification dated 15.03.2005; the relevant extract of which reads as under:-

"While awarding the interest, I have held in my award that "contractor has been deprived of the use of blocked money arrived at in the above said award resulting in financial sufferings towards his business." Therefore, I have no doubt and clarify that post award interest in the said award shall be payable on the awarded sums i.e. the amounts of claims awarded plus the interest for the pre-reference period and pendente lite upto the date of award at the rate mentioned therein till it is paid. "

11. According to SAB, the controversy stood settled by the clarification issued by the arbitrator. This issue was considered by this Court and by an order dated 19.02.2008, this Court held that the arbitrator had become functus officio and had no authority to entertain an application for clarification. Accordingly, the clarification issued by the arbitrator was set aside.

12. The said order dated 19.02.2008 was carried in appeal before a Division Bench of this Court (EFA (OS) No. 16/2008). However, the Division Bench did not consider the appeal on merits as it held that in view of the decision of the Supreme Court in State of Haryana and Ors v S.L. Arora and Company: (2010) 3 SCC 690, post-award interest on interest was not permissible and therefore the issue whether the Single Judge was correct in setting aside the clarification issued by the arbitrator was academic. The

relevant extract of the said order dated 23.02.2012 reads as under:-

"Learned counsel for the appellant cannot dispute before us that the settled legal position which now prevails, is that, compound interest under the said Act cannot be granted in view of the judgment in State of Haryana and Ors. Vs. S.L. Arora and Company (2010) 3 SCC 690. The result is that this amount is not payable.

We are thus of the considered view that the appeal is an academic exercise, as the appellant is not entitled to the compound interest on the short ground that such compound interest would not be payable in the absence of any provision for such interest in the contract in view of the judgment in S.L. Arora and Company (supra). We are thus not called upon to go into the reasoning of the learned Single Judge.

The appeal is accordingly dismissed for the reasons set out in our order and not on the basis of the reasons contained in the impugned order."

13. SAB sought to appeal against the decision of the Division Bench before the Supreme Court (S.L.P. (C) No. 18614/2012). This petition was tagged with SLP (C) No. 29407/2010 titled Hyder Consulting (UK) Ltd. v. Governor, State of Orissa (supra).

14. The Supreme Court by its judgment dated 25.11.2014 in Hyder Consulting (UK)(supra) differed from its earlier decision in State of Haryana and Ors v S.L. Arora and Company (supra) and held that interest under Section 31(7)(b) would also run on any interest included in the sum awarded under Section 31(7)(a) of the Act. After the decision by the Bench of three Judges, the Special Leave Petition preferred by SAB was listed

before the concerned bench of two judges of the Supreme Court for adjudication in terms of the decision in Hyder Consulting (UK) (supra). The Supreme Court considered the Special Leave Petition filed by SAB and after granting leave, passed the following order:-

"Leave granted.

The present appeal is preferred against the judgment and order dated 23rd February, 2012, passed by the Division Bench of the High Court of Delhi, in E.F.A. (OS) No. 16 of 2008, wherein it has been held thus:

"Learned counsel for the appellant cannot dispute before us that the settled legal position which now prevails, is that, compound interest under the said Act cannot be granted in view of the Judgment in State of Haryana Ors. vs. S.L. Arora and Company (2010) 3 SCC 690. The result is that this amount is not payable.

We are thus of the considered view that the appeal is an academic exercise, as the appellant is not entitled to the compound interest on the short ground that such compound interest would not be payable in the short ground that such compound interest would not be payable in the absence of any provision for such interest in the contract in view of the judgment in S.L. Arora and Company (supra). We are thus not called upon to go into the reasoning fo the learned Single Judge."

Recently, the decision in S.L. Arora (supra) has been overruled by majority view in M/s. Hyder Consulting (UK) Ltd. vs. Governor, State of Orissa (2015) 2 SCC 189.

In view of the aforesaid, the interest component payable to the appellant shall be computed in accordance with law laid down in M/s. Hyder Consulting (UK) Ltd. (supra) not in accordance with S.L. Arora (supra) as that has been declared not good law.

In the result, the conclusions by the learned Single Judge that has been affirmed by the Division Bench are set aside. It is open to the appellant to seek execution as per the law pronounced by this Court.

The appeal is, accordingly, allowed. There shall be no order as to costs. "

15. It is apparent from the above, that the Supreme Court had set aside not only the decision of the Division Bench dated 23.02.2012 but also the decision of this Court dated 19.02.2008 setting aside the clarification issued by the sole arbitrator.

16. In view of the above, the arbitral award dated 16.12.1997 has to be considered in the light of the decision of the Supreme Court in Hyder Consulting (UK) (supra); that is, an arbitrator would have the jurisdiction to include interest in the awarded sum under Section 31(7)(a) of the Act for the purposes of computation of interest under Section 31(7)(b) of the Act. In the present case, it is plain that the sole arbitrator had awarded pre-award interest as well as post-award interest. The only bone of contention was whether the pre-award interest should be included in the awarded sum for the purposes of computing the post-award interest. A plain reading of the arbitral award indicates that interest would run from 01.04.1990 to the date of actual payment and thus it was possible to accept that the arbitrator had not awarded post-award interest on the pre-award interest component and had limited the same to the sums awarded against various claims (except claim no.23(b), which was expressly excluded). However, in view of the clarification issued by the arbitrator on 15.03.2005, this interpretation is no longer possible; the arbitrator has expressly clarified that pre-award interest

would be included in the sum awarded for the purposes of calculating post- award interest.

17. The contention that such clarification should be ignored is not persuasive for three reasons. First of all, such clarification was obtained in terms of the order passed by the Division Bench of this Court on 03.01.2005. In terms of the said order, the Division Bench had not only permitted SAB to obtain clarification from the arbitrator but had also remanded the matter for this Court without answering the question referred. Secondly, MCD had preferred a Special Leave Petition against the order of the Division Bench which was dismissed on 09.07.2007. At the material time, the clarification issued by the arbitrator was available with MCD. Admittedly, MCD had also sought to assail the order of the Division Bench on the ground that the arbitrator would not have the jurisdiction to issue any clarification. However, the said argument was not entertained by the Supreme Court. Thirdly, the decision of this Court dated 19.02.2008 setting aside the clarification issued by the arbitrator has been expressly set aside by the Supreme Court.

18. In the aforesaid circumstances, SAB would be entitled to post-award interest not only on the claims as awarded (except claim no.23(b)) but also on the pre-award interest. The quantum of pre-award interest would be included in the amount awarded and the post-award interest would run on the said amount. Thus, the amount payable is required to be computed on the said basis.

19. Mr Gupta, learned counsel for SAB has drawn the attention of this

Court to a statement annexed (Annexure-A-11) to the application which indicates the computation for the amount payable. This Court had noticed in the order dated 10.03.2017 that interest from 10.09.2010 to 28.02.2017 has been computed on the amount of `4,65,52,225.75 which was ex facie incorrect as the said sum also included post-award interest of `1,30,17,881.19 on which no interest is payable. Thus, the post-award interest from 10.09.2010 is required to be computed on `3,35,34,344.56.

20. Apart from the above, the learned counsel for MCD has been unable to point out any other flaw in the computation of the amount payable. Accordingly, MCD is directed to verify the calculations and pay the amount to SAB within a period of four weeks from today.

21. The application (EA(OS) 34/2016) is disposed of. The application being EA(OS) 166/2017 also does not survive and stands disposed of.

EX.P. 99/1998

22. List on 10.07.2017 for further proceedings. The hearing scheduled on 03.05.2017 is cancelled.

VIBHU BAKHRU, J APRIL 19, 2017 pkv/RK