1 IN THE HIGH COURT OF BOMBAY AT GOA FIRST APPEAL NO. 70 OF 1996. Union of India. Represented by the Executive Engineer, Goa Central Division, Central Public Works Department,Bambolim, Goa ...... Appellant. Versus M/s. S.N. Associates & Builders (Pvt. ) Ltd. Mukund, Gr. Floor, Opp. Vidhya Bhavan, Comba, Margao, Goa. ....... Respondents. Shri V. P. Thali, Senior Central Government Standing Counsel for the Appellant. Shri C. Mascarenhas, Advocate for the Respondents. Coram: N.A. Britto, J. Date of Reserving the Judgment: 29.03.2004 Date of Pronouncing the Judgment: 10.06.2004 J U D G M E N T: This appeal is filed under Section 39 of the Arbitration Act, 1940 (Act , for short) against the Order dated 18.9.95 of the learned Civil Judge, Senior Division at Panaji (Civil Judge, for short) by which the learned Civil Judge, has modified the Award of the Arbitrator dated 31.10.91. 2. Some facts need to be narrated for getting hang of the case and the issues of law raised. The appellant and the respondent had entered into a contract for the construction of residential quarters for R.I.M. at Margao. The 2 said contract commenced on 18.4.1983 and the works of the said contractor completed on 12.2.86 and in terms of the said contract the appellants were required to pay the final bill within 7 months of the conclusion of the works i.e. on 11.9.86. Certain disputes and differences having arisen between both the parties in connection with the said construction, the same were referred to arbitration on 9,4,1989 in terms of clause 85 of the contract. The first Arbitrator did not initiate any proceedings but the second entered upon the Reference on 23.8.1991 and made an Award dated 31.10.91. 3. By virtue of the said Award, the respondents were held entitled to Rs.34,855 /- (Under Claim No.1), Rs.83,398.82 (Under Claim No.3), Rs.9000 /- (Under Claim No.5), Rs.500/- (Under Claim No.6). The claim No.14 pertained to interest claimed by the respondents at the rate of 18% from the date when all claims became due to date for payment. 4. As regards this last claim, the Arbitrator awarded pre- reference interest on Rs.43,855/- at the rate of 12% (for the period from 12.9.86 to 9.4.89 on Claims No.1 and 5 of Rs.34,855 /- and Rs.9000/- ). The Arbitrator also awarded future interest on the amount of Award from the date of the Award i.e. 31.10.91 to the date of payment or Decree (19.9.95) whichever is earlier, at the rate of 12%. In other words, the Arbitrator did not award pendente lite interest (for the period from 10.4.89 to 30.10.91). 3 5. After the Award was filed before the learned Civil Judge, and after notices were issued to the parties of the filing of the said Award, the respondents filed an application dated 12.2.92, styling the same as an application under Sections 15, 16, 17 and 29 of the Act. In the said application the respondents prayed for: (a) Modification of the Award dated 31.10.91 so as to include therein pre- arbitration and pendente lite interest from 31.10.91 on the sum of Rs.1,27,753.82 at the rate of 18%; and (b) For post- decretal interest at the rate of 18% on the total amount after the modification as was prayed above including costs of arbitration. 6. The learned Civil Judge, proceeded to examine whether the respondents were entitled to pendente lite interest on Claim No.14 by way of modification of the Award dated 31.10.91, and, after relying on the case of G.C. Roy (A.I.R. 1992 S.C., 632) concluded that the Arbitrator had jurisdiction to award pre- reference, pendente lite or (sic and) future interest from 12.9.86 to 31.10.91 on the sum of Rs.1,27,753.82 at the rate of 18% with other costs and as such the Award called for modification. 4 The grant or refusal to grant interest is generally divided into or spread over the following four periods: (i) Pre- reference - for the period commencing from the date of dispute till the date the arbitrator enters upon reference; (ii) Pendente lite –- for the period commencing from the date the arbitrator enters upon the reference till the date of making the Award; (iii) Post- award – For the period commencing from the date of making of the Award till the Award is made the rule of the Court or till payment, whichever is earlier; (iv) Post- decree – for the period commencing from the date of decree till the date of payment. The Award of the Arbitrator shows that the Arbitrator granted pre- reference interest at the rate of 12% only and only on the sum of Rs.43,855 /- and not on the entire sum of Rs.1,27,753.82. The Award further shows that the Arbitrator did not at all grant pendente lite interest (from 10.4.89 to 30.10.91) on any amount to the respondents. The Award also shows that the Arbitrator granted post- award interest at the rate of 12% (from 31.10.91 to 18.9.95) on the amount of the award. 5 7. The Order dated 18.9.95 of the learned Civil Judge, shows that the Award has been modified and the rate of interest has been increased from 12% to 18% for pre- arbitration period, not only on the said sum of Rs.43,855 /- but on the entire sum of Rs.1,27,753.82 and pendente lite interest which was refused has also been granted on the said total sum of Rs.1,27,753.82 at the rate of 18%. Arguments have been heard. Three points arise for my consideration, though the appeal is restricted only to one. 8. There is no dispute now, and nor there could not be any that an Arbitrator has power to grant interest for pre- reference period (vide Abnadutta Jena's case – A.I.R. 1988 S.C., 1520), for pendente lite period (vide G.C. Roy's case – A.I.R. 1992 S.C., 732) and post award period (vide B.N. Agarwalla's case – 1997 (2) S.C.C ., 469). There is also no dispute that under Section 29 of the Act the Court can grant interest of post- decretal period. The learned Civil Judge framed one question i.e. “ Whether the claimant was entitled for pendente lite interest pertaining to Claim No.14 as to modify the Award dated 31.10.1991 “, but answered more questions than one and proceeded to enhance the interest awarded by the Arbitrator from 12% to 18% without assigning any reason as to why 6 he was enhancing the same and that too at a time when the respondents had made a very tall and unrealistic claim that at the relevant time the nationalised banks on their commercial loans were charging interest at the rate of 24% to 30%. The respondents' application dated 12.2.92 filed before the learned Civil Judge did not even show whether the respondents had placed any material before the Arbitrator to prove that the current rate of interest at the relevant time was 18% or 24% to 30% and inspite of that the Arbitrator had declined to award the same. 9. The learned Civil Judge appears to have ignored the basic principles of law relating to arbitration which are well settled by a number of decided cases and it is desirable to reiterate at least some of them. When parties choose their own Arbitrator, they cannot dispute his decision either upon law or on facts when the Award is good on the face of it; and even if an Arbitrator makes mistakes either in law or in fact while deciding the matter referred to him, a Civil Court cannot disturb the Award nor remit the case unless the mistakes are apparent on the face of the award and the documents incorporated in the award. An Arbitrator is under no obligation to give reasons in support of his decision reached by him unless the arbitration agreement is required to give such reasons and if the Arbitrator chooses to give reasons in support of his decision, it is open to the Court to set aside the award if it finds that an error of law has been committed by the Arbitrator on the 7 basis of the record on going through such reasons. Even in a case where there is an obligation to give reasons in support of the decision reached by him, an Arbitrator is not required to give detailed reasons. An Arbitrator is the final judge of questions both of law and fact and is the sole Judge of the quality as well as quantity of evidence and it is not open to the Court to re- examine and re- appriecate the evidence considered by the Arbitrator to hold that the conclusion reached by the Arbitrator is wrong as the Court does not sit in appeal over the decision of the Arbitrator. In a case where there are two views possible the Court is not justified in interfering with the award by adopting its own interpretation. There is a presumption of validity of award and the objection not taken specifically, must be ignored inasmuch as an objection not taken before the Arbitrator cannot be taken for the first time in Court. Normally, the Court must lean in favour of upholding the award and the jurisdiction of the court is minimal and is circumscribed by the provisions of the Act. 10. The first point which needs consideration is whether the learned Civil Judge was at all justified in enhancing the interest from 12% to 18% ? 11. At the outset it may be stated that the appellants in their memo of appeal have clearly and unequivocally stated that there was no justification for the learned Civil Judge to grant interest at the rate of 8 18% and that in any case the judgment and decree awarding interest at the rate of 18% and beyond 12% is bad in law and is liable to be set aside. In other words, the appellants have challenged the rate of interest as bad in law only to the extent that it exceeds 12%. 12. On behalf of the respondents, learned Advocate Shri Mascarenhas, contends that a distinction must be made between the nature of pre- reference interest and interest after the date of institution of proceedings. It is submitted that awarding pre- refernce interest is a matter of substantive law, whereas interest pendente lite and post decretal interest is matter of procedural law found in Section 34, C.P.C. and section 29 of the Act, respectively. It is further submitted that as far as pendente lite interest is concerned, there is no doubt that the present case arose out of a commercial transaction between the parties and being so, the Court or the Arbitrator was entirely within his discretion to fix the appropriate rate of interest i.e. rate at which monies are lent by nationalised banks in relation to commercial transactions, and, that it is common knowledge that during the period when the present case was pending before the Arbitrator, such rate was 18%. It has been submitted on behalf of the respondents that in an almost identical case of Pan Constructions v. State of Goa (First Appeal No.37/92 decided on 27.7.92), this Court had awarded pendente lite interest at the rate of 18% and likewise in the case of State of Goa v. K. Hassainer (Appeal No. 6/95 decided on 18.2.2001), this Court had 9 upheld the award of the Arbitrator at 18% even for pre- arbitration period, inter alia, by relying on the judgment of the Apex Court in Paradip Port Trust and others v. Unique Builders reported in 2001 (1) ( Arb.LR . 505 (SC). It is further submitted that the new Arbitration and Conciliation Act, 1996, by virtue of Section 31(7)(b) provides that if an award for payment of money does not mention rate of future interest, the sum shall carry interest at the rate of 18% per annum and therefore the position of law that emerges is that the matter of pendente lite interest is left to the discretion of the Trial Court and the same will not be interfered with unless it could be shown that the discretion has been used perversely or in a patently illegal manner and that no such case has been made out in the present appeal. 13. On the other hand, on behalf of the appellants, Learned Govt. Advocate Shri Thali contends that the learned Civil Judge had no jurisdiction to substitute the discretion of the Arbitrator and increase the rate from 12% as given by the Arbitrator to 18% for the pre- reference period inasmuch no reasons have been given by the learned Civil Judge for increasing the rate of interest. It is submitted on behalf of the appellants that in any event the rate of interest could not be more than the current rate of interest, which was not more than 10% during the relevant period and that, in fact, the Arbitrator by grant of 12% had granted a higher rate which the learned Civil Judge in no case could have increased to 18%. 10 14. On behalf of the appellants, reliance has been placed on the cases of U.P. Cooperative Federation Ltd. v. M/s. Three Circles (2000 (3) Bom. C.R.360 , Oil and Natural Gas Commission v. Macqreqor – Navire Port Equipment & Ors. (2002 (1) Bom. C.R. 278, Oil and Natural Gas Corporation v. Essar Steel Ltd. (2002 (2) Bom. C.R. 79, and Delcon Engineering v. State of Goa (Civil Revision Application No. 218/2001). 15. In the case of Pan Constructions (F.A. No.37/92) decided on 27.7.92 the Arbitrator had not awarded pendente lite interest from 4.10.89 to 20.9.1990 without any special reasons and the Division Bench of this Court granted the said interest at the rate of 18% per annum. The judgment does not reflect what was the interest awarded by the Arbitrator for other periods and presumably the Division Bench awarded 18% of pendente lite interest for the said period because the Arbitrator had awarded interest at the same rate for other periods. 16. In the case of State of Goa v. K. Hassainer (Appeal No. 6/95 decided on 18.10.01) the appeal filed was dismissed by observing that:- “ There can be no dispute about the proposition of law that the award of pre- arbitration interest is covered by Section 3 of the Interest Act, 1978. However, it is nowhere laid down that any particular rate of interest has to be awarded in each and every case. The question of rate 11 of interest applicable would depend upon the facts of each case. In the case of U.P. Coop. Federation Ltd. ( 2000 (3) Bom. C.R. 360), rate of 10% per year was agreed upon by the parties. Section 3 of the Interest Act, 1978 does not fix any ceiling on the rate of interest to be awarded. In the present case, interest has been awarded under Claim No.11 and the learned Arbitrator has given specific reasons and relied upon specific material in awarding interest of 18%. The said materials are in the form of documents of nationalised banks and therefore relevant for determining rate of interest to be awarded for pre- arbitration period. In the case reported in 2000 (1) Arb. LR 505, the Supreme Court specifically approved the award of interest at the rate of 18% per annum for the pre- arbitration period. At page 18 of the said judgment, the Court held as follows :- “ Unless there appears to be a mistake on the face of the Award and the documents appended or incorporated thereto which forms part of the award it cannot be set aside even with respect to interest part of it. “ 17. In the case of U.P. Cooperative Federation Ltd. v. M/s. Three Circles (supra) it was observed that:- “The parties are agreed that the maximum rate permitted by the Reserve Bank of India on public deposits during the period 1987- 89 was 10% per annum. Thus, the appellants' contention was justified to this extent and we hold that the Arbitrator acted in excess of jurisdiction and contrary to law in awarding 12 interest in excess of 10% for the period of 1987- 89 “. The Court also observed that the Arbitrator has no power to award interest at a rate higher than the current rate of interest, as far as pre- reference period was concerned. 18. In the case of Oil and Natural Gas Commission v. Macqreqor- Navire Port Equip. & Ors. (supra) this Court observed that in a case where the contract does not provide for any interest or there is no substantive law awarding interest between the parties and the Interest Act is applicable, interest for pre- reference, reference and post- reference can only be awarded at the current rate of interest. Current rate of interest would be interest as defined in Section 2(b) of the Interest Act. A Division Bench of this Court in the case of pre- reference interest has followed the principle in the case of U.P. Cooperative Federation Ltd. v. M/s. Three Circles (supra). The issue of grant of interest is an issue pertaining to jurisdiction of the Arbitrator in awarding interest. The Arbitrator can only award interest which in law he can award. He cannot award interest contrary to the provisions of the Interest Act, 1978. If he so awards the interest as awarded would be an exercise without jurisdiction to the extent of the interest beyond the current rate of interest and, therefore, would be subject to challenge under Section 30 of the Act which even if not pleaded can be considered by the Court in suo motu exercise of power as was ''''''recognized by a Division Bench of this Court in Union of India v. M/s. Ajit Mehta and Associates (A.I.R. 13 1990 Bombay, 45) placing reliance on the judgment of the Apex Court. The Court further observed that as noted in the case of U.P. Coop. Federation Ltd., this Court recognized that the current rate of interest for the period 1987- 1989 on public deposits was 10% and the Arbitrator therefore could not have awarded interest of more than 10% and the awarding of interest at the rate of 12.5% therefore had to be set aside and substituted by 10%. 19. In the case of Delcon Engineering (C.R.A. No.218/2001) decided on 11.1.2002 this Court held: “ Our Court has recognized that during the period the current rate of interest was 10% per annum. In the light of that from the date of decree the amount will carry simple interest at the rate of 10% till payment. Considering that the interest is not arising from a commercial transaction but on the ground of damages, interest would be simple interest in terms of the Interest Act, 1978 “. 20. The appellants have not taken in this appeal a plea that the Arbitrator ought to have awarded interest at the rate of 10%. Their plea is that the rate of interest awarded by the learned Arbitrator in any event ought not to be beyond 12%. In other words, the appellants impliedly concede that there was nothing wrong in the Arbitrator awarding interest at 12% per year and in this situation, the appellants 14 can derive no useful benefit by relying on the judgments relied upon by them, some of which lay down a proposition that the current rate in respect of the periods covered by the said judgments was 10%. In my opinion, the respondents also cannot derive any benefit from the judgments they have referred to in the cases of Pan Constructions (supra) and State of Goa v. K. Hassainer (supra). In the first case, it is presumably the Arbitrator who had awarded interest at the rate of 18% and following suit, this Court had awarded the same rate in respect of pendente lite period. In the case of K. Hassainer also it is the Arbitrator who had awarded interest at the rate of 18% and which got upheld in the process of dismissal of the said appeal. I have already observed that it is not known based on what material the Respondents had claimed interest at 18% before the learned Arbitrator. I have also observed that the respondents had made a tall and unconvincing claim that at the relevant time the nationalised banks were advancing commercial loans at the rate of 24 to 30%. In fact, this claim was made in their written submission dated 13.8.1993 filed before the learned Civil Judge but not in their main application dated 12.2.92 filed for modification of the award. As held by this Court in the case of State of Goa v. K. Hassainer (supra) it is nowhere laid down that any particular rate of interest has to be awarded and such rate would depend upon the facts of each case. Again as held by this Court in the case of State of Goa v. P.B. Nitiyanand (Appeal No.17/95 decided on 9.6.95):- “Section 3 of the Interest Act does not fix any ceiling on the rate of interest to be 15 awarded, he is entitled to award reasonable rate of interest. The only prohibition is that he cannot award interest beyond current rate of interest.“ 21. The contention of the respondents that the transaction was a commercial transaction has got to be rejected. In fact, the interest which was awarded was awarded on damages assessed by the learned Arbitrator. Likewise, the contention of the respondents that the Court or Arbitrator is entirely within its discretion to fix appropriate rate of interest has again got to be rejected because it is the discretion of the Arbitrator to fix reasonable rate of interest and this discretion cannot be substituted by the Court. The submission that the new Arbitration and Conciliation Act, 1996 provides that by virtue of Section 31(7)(b) if an award does not mention any rate of future interest, the same shall carry interest at the rate of 18% per annum is of no assistance to the case of the respondents because the case pertains to an earlier period prior to the said Arbitration and Conciliation Act, 1996 came into force. The learned Arbitrator exercised his discretion looking to the facts of the case and realities of the situation and awarded interest at the rate of 12% which rate he thought fit. In my opinion, the learned Civil Judge was certainly not justified in enhancing the rate of 12% to 18% and that too arbitrarily. The interference in enhancing the said rate by the learned Civil Judge is perverse and illegal. There was no good reason assigned by the respondents to enhance the said rate from 12% to 18%. 16 It was not even the case of the respondents that they had placed any material before the learned Arbitrator to show that the current rate of interest for the year 1986 or thereabout was 18%. The Hon'ble Supreme Court in the case of Pradip Port Trust and Ors. v. Unique Builders (2001 (1) Arb. LR 505) has stated that:- “ Unless there appears to be a mistake on the face of the award and the documents appended or incorporated thereto which form part of the award, it cannot be set aside even with respect to interest part of it (emphasis supplied). I fully concur with the view expressed by the Rajasthan High Court in the case of Alim & Co. v. State of Rajasthan (1998 (4) C.C.C ., 10) when it stated that: “ It is legally settled that if a Court goes beyond the powers conferred by Section 15 of the Act and makes substantial modification because it takes a different view from that held by the Arbitrator as to what was just and fair in this or that set of circumstances, it acts without jurisdiction. In the case on hand, if learned Court below was of the opinion that the rate of interest awarded by the Arbitrator was excessive, than it could (not) remit the part of the Award under Section 16 of the Act to the Arbitrator, but it had no jurisdiction to