Delhi High Court
M/S D. Pal & Company Engineers & ... vs South Delhi Municipal ... on 15 May, 2017
* IN THE HIGH COURT OF DELHI AT NEW DELHI
+ FAO No. 40/2015
% 15th May, 2017
M/S D. PAL & COMPANY ENGINEERS & CONTRACTORS &
GENERAL ORDER SUPPLIERS ..... Appellant
Through: Mr. Moni Ginmoy
and Mr. Arvind Kr. Pandey,
Advocates.
versus
SOUTH DELHI MUNICIPAL CORPORATION ..... Respondent
Through: Ms. Mansi Gupta,Adv.
CORAM:
HON'BLE MR. JUSTICE VALMIKI J.MEHTA
To be referred to the Reporter or not?
VALMIKI J. MEHTA, J (ORAL)
1. This first appeal under Section 37 of the Arbitration and
Conciliation Act, 1996 (hereinafter referred to as „the Act‟) is filed
against the judgment of the court below dated 16.10.2014 whereby the
court below has accepted the objections filed by the respondent herein
under Section 34 of the Act and has deleted the relief granted by the
Award of interest at 15% per annum. The relevant observations which
are made by the court below for deleting the grant of interest are
contained in paras 7(i) to 7(vii) of the impugned judgment and these
paras read as under:-
"7.(Ground B) It is stated that the arbitrator has not conducted the
arbitration proceedings on the basis of terms and conditions of the agreement
between the parties and wrongly awarded the pre-suit, pendentelite and
future interest.
(i) The perusal of the award reveals that Ld. Arbitrator has allowed the
claim number 6 of the claimant/respondent, which is reproduced as
under:
"In my opinion the contractor is entitled to interest for delayed
payment on the amount of this bill as paid i.e Rs.3,66,935/- from
01.01.2003 to 03.11.2004 at the rate of 15% p.a. The amount of
interest comes to Rs.1,01,635/- and is awarded accordingly."
(ii) On the issue of grant of pre-suit interest, I have relied upon one
judgment of the Hon‟ble Punjab and Haryana High Court reported as
"AIR 2005 PH 140, (2004) 138 PLR 813, titled as, Balwant Kaur
v/s Life Insurance Corporation of India." In this judgment is held
that:
"It is well settled that the interest may be awarded for the period
prior to the date of institution of the suit, if there is any agreement
for payment of interest at fixed rate or if interest is payable by the
usage of trade having the force of law, or under the provisions of
any substantive law.
It is further held that:
"It can be safely concluded that in terms of express prohibition of
payment of interest in terms of the policy, the plaintiff is not entitled
to interest from the date of death of the policy holder till institution
of the suit, as pre-suit interest is a matter of substantive law. In
substantive law, the plaintiff is not entitled to interest in terms of the
provisions of interest act."
(iii) In view of the settled principle of law and the judgment (supra), it is
clear that a person is not entitled for „pre-suit interest‟ as a matter of
right. The payment of pre-suit interest is dependent upon the
existence of agreement between the parties. In the present case, it is
admitted fact that contract executed between the parties contains the
terms for „prohibition of the payment of interest on delayed payment‟.
It is clear that there is an express prohibition of the payment of pre-
suit interest between the parties.
(iv) In view of the above discussion, I am of the considered opinion that
grant of „pre-suit‟ interest to the claimant by the Sole Arbitrator is
against the policy and substantive law and the award passed by sole
arbitrator on this particular issue is liable to be set aside.
(v) The petitioner has also challenged the payment of pendentelite and
future interest and also the rate of interest above the prevailing bank
rate. A person deprived of the use of money to which he is
legitimately entitled as a right to be compensated for the deprivation
in the nature of interest. The payment of interest is a valid
consideration for the period, for which the dispute is pending before
any form. The payment of pendentelite and future interest is
governed by Section 34 of the CPC. The perusal of the Section 34 of
the CPC reveals that in the absence of any agreement for interest
between the parties, only the statutory interest in terms of the Section
34 CPC can be granted.
(vi) The claimant has failed to prove any agreement regarding rate of
interest or any agreement between the parties regarding payment of
pendentelite and future interest. In the absence of any agreement
between the parties, the matter is governed by Section 34 of the CPC.
I am in agreement with the ld. Counsel for the petitioner that the grant
of interest at the rate of 15% per annum on the decreetal amount is
against the principles of law.
(vii) In the absence of any agreement between the parties or proof of the
fact of any other prevalent rate of interest, the ld. Arbitrator could not
travel beyond the scope and ambit of Section 34 of CPC. Therefore,
the award of Ld. Arbitrator for grant of interest at the rate of 15% p.a
as pendentelite and future interest is against the provisions of law and
the award of the Ld. Arbitrator on this issue is liable to be set aside."
2. The subject contract was a contract granted to the
appellant for construction of drain vide the work order of the
respondent dated 20.3.2002. In this contract there is no clause barring
the payment of interest. An arbitrator is duly empowered to grant
interest in view of the Constitution Bench judgment of the Supreme
Court in the case of Secretary, Irrigation Department, Government of
Orissa and Others Vs. G.C.Roy AIR 1992 SC 732.
3. In the present case the court below has committed a
complete illegality in holding that the contract in question contains a
clause of prohibition of payment of interest on delayed payment
inasmuch as there is no such clause in the contract order of the year
2002 which is pointed out to this Court. In any case, assuming that
there is a clause for denial of interest, I have held in the case of Union
of India Vs. M/s N.K.Garg & Co. (2015) 224 DLT 668 that any clause
by which a person is denied interest on amount due, then such a clause
will be illegal and hit by the provision of Section 23 of the Indian
Contract Act, 1872. Detailed reasons have been given by this Court in
the judgment in the case of N.K.Garg (supra) and are adopted by this
Court and it is held that the arbitrator is not barred from awarding
interest even if there is a clause in the contract that interest cannot be
awarded.
4. In view of the above discussion, this appeal is allowed.
The Award of the arbitrator is restored with respect to awarding of
interest to the appellant. It is however agreed by counsel for the
appellant that the rate of interest granted by the Award at 15% per
annum can be read as interest at 9% per annum simple. Ordered
accordingly.
5. The appeal is accordingly allowed and disposed of in the
aforesaid terms, subject to variation of reducing of the rate of interest
from 15% per annum to 9% per annum simple.
MAY 15, 2017/ib VALMIKI J. MEHTA, J
