IN THE HIGH COURT OF JUDICATURE AT MADRAS Date: 16.06.2010 Coram The Honourable Mrs. Justice PRABHA SRIDEVAN and The Honourable Mr. Justice G.M.AKBAR ALI O.S.A.No.68 of 2010 --- M/s.Mekala Traders rep. by its Proprietrix S.Mekala Devi No.214, G.C.Road, Thoothukudi-1. .. Appellant vs. 1. Tamil Nadu Civil Supplies Corporation Ltd. rep. by its Chairman and Managing Director Head Office No.42, Thambusamy Road Kilpauk, Chennai 600 010. 2. The General Manager (Marketing) Tamil Nadu Civil Supplies Corporation Ltd. Head Office No.42, Thambusamy Road Kilpauk, Chennai 600 010. 3. Hon'ble Mr.Justice P.Thangavel Judge (Retd.) High Court, Madras/Arbitraror No.3 (Old No.2), Dr.Mu.Va.Street Arumbakkam, Chennai 600 106. .. Respondents Original Side Appeal preferred under clasue 15 of the Letters Patent against the order of this Court dated 26.3.2008 and made in OP No.700 of 2007. For Appellant : Mr.K.Premkumar For Respondents : Mr.V.Selvanayagam Standing Counsel for R1 & R2. --- https://hcservices.ecourts.gov.in/hcservices/ JUDGMENT (Judgment of the Court was delivered by PRABHA SRIDEVAN, J.) The question in this Original Suit Appeal is whether the rate of interest that is awarded by the Arbitrator ought to have been reduced in the petition filed under Section 34 of the Arbitration and Conciliation Act, 1996. 2. The sale of discoloured rice issued by the first respondent was subject of the tender conditions issued on nil-10-1999. The tender was awarded to the appellant. On 14.10.1999 and 22.10.1999, the appellant was declared as successful tenderer. An agreement was entered into on 15.11.1999, containing an arbitration clause. 3. On 06.01.2000, the appellant sold 135 bags of rice to a Trader in the State of Kerala under the cover of valid records including permit from the Special Tahsildar, Civil Supplies, Tuticorin. But, these rice bags were seized by the Tahsildar, Palayamkottai on 06.01.2000 and a case was registered against the appellant's husband and the appellant's godown was sealed and her entire business came to a standstill. On 09.01.2000, the appellant gave a representation to the first respondent praying for release of seized goods, since they were subject matter of the agreement referred to above. On 10.01.2000, another petition was given to the District Collector. On 24.01.2000, the appellant received a telegram from the Regional Manager of the respondents Corporation calling upon the appellant to pay the cost of 83.500 mts. of discoloured rice. Even though the payment was offered, the respondent refused to receive it. So, though the appellant was ready to lift the stock, she was unable to do so. Then, the appellant gave a representation on 09.03.2000 that the amount may be refunded. This was followed by several telegrams. On 03.08.2000, the first respondent issued a show cause notice as to why the Earnest Money Deposit and Security Deposit should not be forfeited invoking the relevant clauses of the agreement. The first respondent forfeited the Earnest Money Deposit and Security Deposit. The appellant gave her explanation. Then the arbitration clause was invoked. The claim was made for the following reliefs: https://hcservices.ecourts.gov.in/hcservices/ "1. Refund of E.M.D. and Security Deposit (Rs.2,00,000/- + Rs.3,29,900/-) - Rs.5,29,900.00 2. Interest on the EMD & Security Deposit at 24% p.a. from 24.01.2000 to 28.04.2005 (5 years & 3 months) - Rs.6,67,674.00 3. Refund of the amount paid, but stocks not released. - Rs.4,35,261.38 4. Interest on the amount of Rs.4,35,261.38 from 24.01.2000 to 28.04.2005 at 24% p.a. (5 years and 3 months) - Rs. 95,213.42 5. Loss due to the stoppage of supply of rice resulting/loss of profit. - Rs.4,74,196.39 6. Personal Damages (Loss of reputation, mental agony, pain and suffering and others) - Rs.2,00,000.00 ------------------ Total Rs.24,02,245.15 ========== with interest at the rate of 24% p.a. from the date of claim petition till the date of award. 4. The matter was contested and the learned Arbitrator passed an award as follows: "Claim Nos.1 and 3 allowed with interest at the rate of 18% p.a. from 24.01.2000 to 28.04.2005 and with future interest till payment for both amounts at the same rate. Costs of Rs.60,000/- was awarded. But the learned Arbitrator disallowed the claim on the following heads:- Claim No.5: Loss of Profit of Rs.4,74,196.39. Claim No.6: Personal damages Rs.2,00,000/- The interest was awarded by the learned Arbitrator at the rate of 18% p.a. from 24.01.2000 to 28.04.2005 and future interest. 5. Against the disallowed heads of claim, the appellant filed a petition under Section 34 of the Arbitration and Conciliation Act. https://hcservices.ecourts.gov.in/hcservices/ The respondent Corporation also filed a petition under Section 34 of the Act. The appellant's O.P.No.489 of 2007 was dismissed. The respondents' O.P.No.700 of 2007 was partly allowed reducing the rate of interest from 18% p.a. to 9% p.a. The present appeal is only against the direction in O.P.No.700 of 2007 reducing the rate of interest. 6. Learned counsel appearing for the appellant submitted that when the Arbitrator had given his reasons for awarding interest at a certain rate, the same cannot be interfered with unless there are justifiable grounds. When the learned single Judge has agreed with all the conclusions of the Arbitrator, there was even less reason for reducing the rate of interest. He has also referred to Section 31 (7) of the Arbitration and Conciliation Act and to the judgments relied on by the learned Arbitrator (2001) 2 SCC 721 (Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and others vs. N.C.Budharaj (deceased) by lrs. and others) and AIR 2005 SC 2071 (Bhagawati Oxygen Ltd. vs. Hindustan Copper Ltd.). Learned counsel submitted that (2007) 2 SCC 720 (Krishna Bhagya Jala Nigam Ltd. vs. G.Harischandra Reddy), which was relied on by the learned single Judge, does not lay down the law that interest should be reduced to 9% in all cases. That case related to an award of the year 1993 and in those circumstances, the Supreme Court took note of the reduction in interest rates and therefore, it cannot be automatically applied to the present case. 7. Learned counsel for the respondents-Corporation on the other hand would submit that the learned single Judge had rightly relied on (2007) 2 SCC 720 (cited supra) and the interest awarded by the learned Arbitrator cannot be restored. 8. The narration of facts would show that in spite of repeated requests and representations made by the appellant, the discoloured rice was not released. The sum of Rs.4,35,261.38 deposited by her was also not refunded to her. On facts, the Arbitrator found that the respondents-Corporation ought to have either supplied the rice or refunded the amount deposited by the appellant. But, without justification did neither. With regard to point no.3, the following paragraphs in the award of the Arbitrator are relevant: 46. Point No.3:- Admittedly, the claimant had deposited a sum of Rs.4,35,261.38 for supply of boiled discoloured rice and raw rice in the Regional Offices of the Corporation at Madurai and Darmapuri. Admittedly, the Corporation had not permitted the claimant to lift the discoloured rice in the godown of Regional Office at Madurai or at Regional Office at Darmapuri. The claimant has sent fax message to the Managing Director-cum-Chairman, Chennai as seen in https://hcservices.ecourts.gov.in/hcservices/ Ex.C-14 dated 9.3.2000 and telegrams Ex.C-15 dated 31.3.2000 and Ex.C-16 dated 11.4.2000, Ex.C-19 dated 30.8.2000 reply notice to the show-cause notice Ex.C- 18 dated 3.8.2000, Ex.C-22 dated 11.6.2002 and Ex.C-23 dated 14.5.2003 letters by the claimant to the Managing Director-cum-Chairman of the Corporation for refund of the amount of Rs.4,35,261.38 deposited by the claimant with the Regional Offices of the Corporation for delivery of discoloured boiled rice and raw rice." 47. ... "48. As already pointed out, the criminal case pending on the file of the Judicial Magistrate No.I, Thirunelvei is not against the claimant or its proprietrix or her agent. Therefore, there is no justification for retaining the sum of Rs.4,35,261.38 on any ground. In view of the said circumstances, it is hereby ordered to refund the sum of Rs.4,35,261.38 by the respondent to the claimant immediately. The point No.3 is answered accordingly in favour of the claimant and against the respondent." 9. Thereafter, the learned Arbitrator held that since the claimant is engaged in selling paddy and rice, if the amount deposited had been released in time, the appellant could have used it in her business. Learned Arbitrator also found that the respondents- Corporation had no right to retain such a huge amount "preventing the claimant from utilising the said sum in her business to get benefited." 10. In this connection, it is apt to extract Section 31(7) of the Arbitration and Conciliation Act, 1996, hereunder: "Section 31: Form and contents of arbitral award: ... ... (7) (a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment." https://hcservices.ecourts.gov.in/hcservices/ The Arbitrator therefore held as follows: "In the said circumstances, the respondent Corporation is bound to compensate the claimant by payment of interest. The Hon'ble Apex Court in a commercial transaction of this nature had held that ordering interest at 18% per annum is a justifiable one. If the principles laid down in the cases cited above are taken into consideration, it is clear that the claimant is entitled to interest at 18% per annum on Rs.4,35,261.38 from 24.1.2000 to 28.4.2005 and also till the payment of the said amount by the respondent Corporation to the claimant. This point No.4 is answered accordingly in favour of the claimant and against the respondent." 11. When the matter was heard by the learned single Judge, the contentions raised by the respondent did not merit acceptance and the learned single Judge held that the Arbitrator had come to the right conclusion regarding the question of refund of the Earnest Money Deposit and Security Deposit and that there was nothing to suggest violation of the terms of the contract and the award could not be interfered with in the jurisdiction conferred under Section 34 of the Act. With regard to the refund of Rs.4,35,261.38, the learned single Judge was pleased to uphold the award passed by the learned Arbitrator in paragraph 22 of the impugned judgment. The learned single Judge also confirmed that interest should be awarded on the amount unjustifiably withheld. 12. As regards the question of interest, the learned single Judge held that the grant of interest is a matter of pure discretion of the Arbitrator and that the Arbitrator exercised his discretion as regards payment of future interest in respect of the refund of earnest money deposit and security deposit holding the view that there was nothing to link the petitioner with the commission of the illegal transportation of the PDS rice nor was there an illegal transportation by the petitioner. With reference to the amount paid as regards the stock to be lifted alone, interest at 18% was granted from 24.01.200 to 28.04.2005. But, however, in view of (2007) 2 SCC 720 (cited supra), the award of interest was reduced. The relevant portion of the above judgment reads as follows: "11. 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 separate head. 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 https://hcservices.ecourts.gov.in/hcservices/ 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 pendente lite period and future interest be reduced to 9%." In the abovesaid decision, the award is of the year 1993 and so, the Supreme Court held that where the Arbitrator has awarded interest at 18%, it should be reduced to 9%. The learned single Judge applied this to the present case in the following words. "25. Applying the said decision to this case, the grant of interest at 18% per annum alone requires interference. Consequently, the award on Rs.5,29,900/- towards earnest money deposit and security deposit as well as on a sum of Rs.4,35,261.38 relating to the payment made for lifting the stock shall however remain undisturbed. However the award granting interest at 18% per annum stands reduced to 9% per annum. The payment of interest on Rs.5,29,900/- shall run from the date of the award to the date of payment and on a sum of Rs.4,35,261.38, the same shall run from 24.1.2000 to 28.4.2005 with future interest till payment is made." On the other hand, in AIR 2005 SC 2071 (cited supra), the Arbitrator had awarded 18%. When the award was challenged, a single Judge of the High Court of Calcutta upheld the award of the Arbitrator, but with regard to payment of interest alone held that the appropriate interest would be 6%. The Division Bench dismissed the appeal. Regarding the payment of interest, the Supreme Court held as follows: "41. In our view, however, a relevant and germane factor weighed with the Arbitrator in awarding eighteen per cent interest that at that rate HCL had given advance to BOL. In view of the said circumstance, in our opinion, even that part of the award passed by the Arbitrator did not deserve interference and learned single Judge and the Division Bench were not right in reducing the rate of interest." In the present case, the learned Arbitrator had given his reasons for awarding 18%. These reasons have not been set aside. 13. In (2009) 6 MLJ 85 (Sayeed Ahmed & Co. vs. State of U.P.), the Supreme Court held as follows: https://hcservices.ecourts.gov.in/hcservices/ "16. ... Unless the award of interest is found to be unwarranted for reasons to be recorded, the Court should not alter the rate of interest awarded by the Arbitrator. The High Court has not assigned any reasons for reducing the rate of interest to 6% per annum. Therefore, such reduction cannot be sustained." 14. We are of the view that the abovesaid judgments of the Supreme Court apply squarely to the facts of the present case and therefore, the award of interest by the Arbitrator is restored. Consequently, this Original Suit Appeal is allowed. No costs. Sd/ Asst.Registrar /true copy/ Sub Asst.Registrar ATR To The Sub Assistant Registrar, Original Side, High Court,Madras. +1cc to Mr.V.Selvanaayagam, Advocate Sr 43314 JRG(CO) km/30.6. O.S.A.No.68 of 2010 https://hcservices.ecourts.gov.in/hcservices/