MI6H COURT OF CMMATTIS6ARH AT BILASPUR E>ivisioh Bench: Moh ble Shri bhirerfdfa Mishrd & Hon'ble Shri Pritinker Diwaker. JJ M.A.N0.8260F 2006 ^ fe. APPELLANT M/s Bastdr Oil Mills and Industries Ltd., Kurandi Road, Jdgdalpur, bistrict Versus RESPONDENTS ^•Sy The State 6f Chhattisgarh <& Anotlier ORbBt FOR CONSI&ERATION HON'BLE SHRI PRITINKE^ DIWAKER. J ,:/. Sd/- Dhirendra Mishra Judge Sd/- Pritinker Diwaker Judge ^ POST ON —^ ? APRIL,, 2009 Sd/- JU b6E ci^.4i20d& ".;.- l-t^) MI6H COURT OF CHMATTISGARM AT BII-ASPUR (Sivision Bench: Hori'ble Shri bhireHdrd Mishra & Hoh'ble Shr'i Pritihker'biwaker'. JJ APPELLANT M.A.NO. 826 OF 2006 M/s Bastar Oil Mills and Industries Ltd., a company incorporated under tHe Companies Act, 1956 having its registered office oit Kui-andi Rodd, Jagddlpur, DistriGt Bastar'(C6) VerSLtS RESPONDENtS 1. The State bf Chhattisggrh, Through Chief Secr'etttry, Goyiernment af Ghhattisgarh, Mantrdldya, D.K.S. Bhdwdn,Rdipui''(C^.) 2. The Principle Secretdry, Sovemment of c.6., Ministry of Forest, Mantralayd, D.K.S. ;Bhawan, Rdipur (C-&-) Preserit: . ,' . : ::: : ,' ...'.::1: Mr. AAdnihdra Shrivadtava, Sr; Advocate with AAr.VishnuKostha <& Mr. A. bas, Advocates for the dppellant. Mr. Vinay Harit, bepufy Advocate Seneral with Mr'. P.K. BKaduri; Pdnel Ldwyer fdl- the State. OR&ER (Passedon<29>/04/2009) bhirendrd Mishra. J 1) Theappellant hds filedthe instdnt dppeal against the iitipugnedorder dated 14.3.2006 passed in Arbitratiort Case^l6.51A/2005 whereby learned District Judge, Rdipur has rejected the application of the appellant filed under Section 34 of tlie Arbitrdtiqh & Concilidtion ^.Act, 1996 ( for short 'the Act of 1996') for Settingaside theaward dated 07.11.2005 pdssedbythe learned Sole Arbitrdtor. 2) Briefly stated facts of the cdse dre that the State of Madhya Pradesh;videdgr'eet'nentdated 05.10.1979 agreedtosupplySdl Seeds to Bastar' Vikas Udyog, acting through Shri Prithvirdj Agarwdl ^LJ.ii.. W!^^^^^^M!^s^s^^^'^s!v^^s^^-^W^ :^^^':ss: as its Managing Director, to be used as raw tnaterial for its Solveht ExtractionPlant, agreed to beerected and established dt Jagdalpur Theappellarit company set-up and estdblished its Solvent Extraction PlahT at Jagddlpur and vide assignment deed ddted 28.10.1980 the Stdte ©overnmerit assigned all its rights, title and interest dnd obligdtions totheappellantcotnpdnydndthus, the appellant company becciftte the purchasing pdrty under'thedgr'eementdated 05.10.1979. The agr'eement was for d periodof 12 years ending on 04.10.1991. Accordihg to renewal clause df the agr'eement it was further renewed for a period of 12 yearsendingon 4.10.2003, however', it met stdtutory termination ori 31.12.1988 under the M.P. Vahopaj Ke Kctr'aybn KaPunirikshan Adhiniyani, 1987. In accorddhce with the dr'bitration clause in the agrfeement, the High rCourt of Madhyd Pradesh vide its order dated 12.5.2000 referr'edthedispute between the parties under Section 11 the Act of 1996 tb the Sole Arbitrator Mr. Justice K.AA. Agarwal (Retired) for settletneht and adjudication. Subsequently upon withdrawal of the Sole Arbitrator from the drbitration proceedings, Mr. JusticeR.C. Shrivastava, (Retired) Was appbinted as Sole Arbitrator by the High Court of Judicature at Bildspur vide orderddted 21.3.2002. 3) The cldim of the appellant before the arbitrdl tribunal wds that dur'ingsubsistence of two agreements, the respondents recovered from the appellant expenses at a<j-hoc notified rates with an understahding that in case the amounts recovered dt the ad-hoc hotified rdtes wdS less than the actual expenses incurred by the Stdte (Sbvemment during the relevant yedrs, the appellant shall be liable to [iay differentidl arndunts to the reSpondents but ihcdse the ~tamaunts of said ad-hoc expenses incurred by the respondents during the relevarit years was more thdn the experises incurred by the respondents, the differential amount shdll be refunded to the appellant. Right from 1982-83 to 31.12.1988 the respbndents recovered year after yedr on ad-hoc basis aiDpunt in excess of the ^- <^ ^J actual expenses incurred by them towards expenses component of price and settlement of excess recovery was kept pending by the respondehts. Accordingly, the dppelldnt submitted detailed statement of claim before the arbitral tribunal and also laid claim for interest in respectof each year separately. 4) Ledrned Sole Arbitrator w/hile quantifying the actual dmount of excess recovery year-wise, restricted the period of interest to 4 years &3 months preceding date of award bytreating 12.6.1999 as cut-off date for accrual of cause of action forentire year-wise claim and only simple interest was awarded ©18% in place of conipourid interest. 5) The appetlant, aggrieved by that part of ar'bitrat'award whereby the arbitral tribunal declined to awardcompound iriteresf ©18% and restricted the period of interest to 4 years <& 3 months, preferred an applicatioh under Section 34 of the Actof 1996 before the District Judge, Raipur and the same was also dismissed vide impugned order dated 14.3.2006. 6) Mr. Manindra Shrivastava, learned Senior Advocate for the dppellant submits that the learned District Judge failed to appreciate that both the parties in their claims and counter claims have claimed compound interest @ 18% per annufn dnd the arbitral tribunal erred in awardingsimple interest ©187o on the principal amount to the appellant without assigning any reason therefor. Thelearned District Judge also ignored that the Sole Arbitrator had restricted the period of interest for each year, elaimed independently and separately, to 4 years <& 3 months preceding date of award by .^tr'eating 12.6.1999 as the cut-off date for accrual of cause of action without assigning any reason for refusal of grant of compound interest for pre-reference period and thus, the learned Sole Arbitrator as well as learned District Judge have failed to exercise the jurisdiction vested in them by not awarding cbmpound interest © 187o for pre-reference period. Reliance is placed on the judgments A., y.. ffl of the Hoh'ble Supreme Court in the mdtters of Executive Engineer, Dhenkanal Minor Irrigatioh &ivision, Orissa Qnd others Ver'sus N.C. Budharaj (Deceased) By LRs and others; Bhagawdti Oxygen Ltd. Vs. Hindustan Cdpper Ltd. <&M/s Manalal Prabhuddyal Vs. Oriehtal Insurance Co Ltd. 7)0n the other hand, Mr. Vihay Harit,lear'ned Deputy Advocate General for the respondents referring to Section 34 of the Act of 1996 contended that the appellant had no ground available to challenge the impugned awdrd of the Sole Arbitr'dtor. Learried Sole Arbitrator exercising his discretion underSection 31 (7) of the Act of 1996 has awarded simple interest © 18% pet- drinum by tredting 12.6.1999 as the ddte on which cause of dction arose to the cippelldnt-claimants. Award of interest by the ^ole Arbitrdtbr and rejection of the applicdtion under Section 34 of the Actbf 1996 df the appelldht bythe ledrned District Juclgeisstrictlyin accbrdance With law dnd thesamedoesnOt call fordny inter'fer'ence. 8) We have heard learned counsel for the parties. 9) The learned Sole Arbitrator in Para-47 of its awdrd has categorically observed that Party No.l uvas to pay compoynd inTerest on the total priceof Sal Seeds fronithedueddtefordelayedpayments©18% per annum;but both the agreemerits are silerit on the question of pdyment of interest to the party No;l on theambunt of excess recovery, if any, by the pcirty No.2. The agreements, however did not say that interest would ndt be payable to the Party No.l oh that amount. The agreements are silent on the question of iriter-est to the claiinant. In Pardgraphs No.43 & 48 of the dwardit has been . further Observed thdt right accrued on r'eceipt of respondents' letter dated 9.6.1999 wherebytheclaimant's claim wds rejected. Theletter was received by the cldimant on 12.6.1999 and thereafter ' (2001) 2 Supreme Gourt Cases 721 2 AIR 2005 SC 2071 3AIR2006 SC3026 ,2.^ c\% A:: _^ •"r?/- /• the claimant requested the respondents to refer the dispute fo The drbitration videnotice dated 22.10.1999 dndthus, the cduse 6f action arose on dr about 12.6.1999 and dccbrdingly, simple interest @ 187o per annum for a period of 4 years <& 3 months preceding dateof award has been allowed. 10)Learned District Judge referrihg to Section 31 (7) (a) of the Actof 1996 has observed thdt in the dbsence of any agreettieht between the parties, the arbitral tribunal may dward inter'est on the total amount of award or any part thereof from the date 6f accrual of cause of dction till the ddte bn which the awdrdis made. The fihding of the arbitral triburial that the cause of action arose to the claimant/dppellant 6n 12.6.1999 is based on the pleddings df the respective pdrties dhd the tribunal in exercis^ of its jurisdiction under Section 31 (7) of the Act of 1996 has gwarded interest to The appellant. Thedppellant has n6grouhd;as enumerated under Section 34 of the Act of 1996, to challenge the dward and accordihgly, dismissedthe dpplication videimpugned order. ll)In the matter of Executive Engineer, Dhenkanal1 the Cohstitutioh Bench bf the Hon'ble Supreme Court vide its fflajority judgmerit answered the reference made to the Constitution Behch thus:- "26. For all the reasons stdted dbove, we answer the reference by holding that the arbitrator' dppointed with or without the iritervention of the court; has jurisdiction to award interest, on the sums found due and payable, for the pre-reference period, in the absence of dny specific stipulatiori or prohibition in the contract toclaim or grdnt ^ any such interest. The decision in Je/w cas'e^ tdking a contr'aview does not lay down thecorrect position and stdnds overruled, prospectively, which means that this decisionshall not entifle dny party nor shnll it empdwer any court fo ^ 11' \./ •"^casss*- reopen proceedings which havealready become final, ahd apply only to ahy pending proceedings. No costs." 12)In the Bhagawati Oxygen Ltd. the Hon'ble Supreme Gourt relying upon the judgment in Executive Engineer, bhenkdridl hds held that "an arbitrafor has power to grant interest for pr'e-reference period provided there is ho prohibition in the drbitrdtion agreenient excluding his jurisdiction to graiit interest. The forum of arbitrdtion is created by the consent of parties and is a substifute for conventional civil court.It is, therefore, of undvoidable necessity tliat the parties be deeined to have cyreed by iiilplication that the Arbitrator would have power to dward int^rest ih the sarne way and Same mahneras a court" 13)In M/S Manalal Prabhudayal's case also it has 6een held that "a» arbitrator hcs power di^ Jur'isdiction to grant infere^ for a^^ three Stages i.e. pre-reference period, pendente life and post-award 14)The principle of lawf laid down in the aforesdid judgmehts is that the arbitral trlbunal has the power to award interest for all the three stages i.e. pre-reference period, pendente lite and post-awardperiod and the questions for consideratioh befbre this Cour't in theinstant mdtterare; • Whether the ledrned Sole Arbitrdtor, while awdrding simple interest © 18% per annum to the claiindnt frdm the date of accrudl of cause of action, has committed any illegdlity in exercise of its discr'etionary jurisdiction under Section 31 (7) of the Actof 1996? "' -- Jt Whether the learned District Judge has faNed to exercise the jur'isdictioh under Section 34 of the Act of 1996 by rejecting the application of the dppellant against the award of the Sole Arbitrator? .^ '•• .'f ^-s: •^:i' 15)The grounds for setting aside the drbitrdl awdrd under Sectiori 34 of the Actof 1996 are enumerated under sub-sectiori (2) <& (3) of the Sectioh 34. Learned &istrict Judge, after- carefully goirig through the impughedaward, has categoricdlly held thatthe learned Sole Arbitrator in exercise of ifs jurisdiction under Section 31 (7) of the Act of 1996 awarded simple interest @ 18% per annum and the interest has been awdrded while exercising discretion under TKe law. Learhed Senidr Counsel for the dppellaht cbuld not indicdteany ground available under sub-Sections (2) & (3)of Section 34 of the Act df 1996 for challenging the arbitralaward passed by thearbitral tribunal. Therefore.in the considered opinion of this Court the reasons dssigned by the learhed District Judge for rejecting the application under Section 34 of the Act 6f 1996 is strictly iri accordance with law and there is ho grouhd available to the appellcint to assail the findings of the ledrned Sole Arbitrator ih the impugned award; > 16)For the aforesaid reasons, the appeal being devoid df any fnerit deserves to be dismissed and is accordihgly dismissed. No order as to costs. Sd/. Dtlna^' ^ge Sd/- pritmkerDiwaker Judge IRoshan/- 1'AJ \y\