THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.839 of 2005 20.10.2009 Between: Amadalavalasa Cooperative Sugar Ltd., (No.A 300) Amadalavalasa, Srikakulam District, Andhra Pradesh, Represented by its Managing Director … Appellant AND The Nizam Sugars Ltd., P.B.No.1, Fateh Maidan Road, Hyderabad, represented by the General Manager …Respondent THE HON’BLE SRI JUSTICE V.V.S. RAO AND THE HON’BLE SRI JUSTICE B.N.RAO NALLA CIVIL MISCELLANEOUS APPEAL No.839 of 2005 ORDER: (Per Hon,ble VVSR,J) This appeal under Section 37(1)(b) of the Arbitration and Conciliation Act, 1996 (the Act, for brevity), is against the order dated 16.4.2005 in O.P.No.237 of 2002 passed by the Court of X Additional Chief Judge, City Civil Court (Fast Track Court), City Civil Court, Hyderabad. By the impugned order, learned Chief Judge confirmed the Award passed by the Hon’ble Arbitrator dated 30.4.2001. The respondent supplied sugar manufacturing equipment to appellant as per latter’s purchase order. The cost of equipment is Rs.41,40,000/-, which is paid in five instalments including 10% advance amount. Be it noted, the appellant is a cooperative sugar society manufacturing and marketing sugar. They paid an amount of Rs.41,40,000/- towards 10% of the cost of machinery and equipment and failed to pay balance amount. Therefore, respondent sent notice invoking arbitration clause being clause No.7 of the purchase order/agreement nominating their arbitrator. In reply thereto, appellant did not deny arbitration clause but sought time till return of their Managing Director, who appears to have gone elsewhere. After waiting for some time, respondent moved an arbitration application before this Court. The same being A.A.No.23 of 1998 was allowed by this Court appointing Hon’ble Sri Justice T.N.C.Rangarajan, as sole arbitrator. Learned Arbitrator passed award on 30.4.2001. The operative portion thereof reads as under. In the circumstances I award a sum of Rupees Ninety Lakhs seventy two thousand nine hundred and sixty eight and paise forty only to be paid to the respondent to the claimant. However considering that both parties are public undertakings which have eventually to be financed by the Government, if the respondent pays Rs.50,00,000/- (Rupees fifty lakhs only) to the claimant on or before 31st July 2001, this award shall be deemed to be fully satisfied. Otherwise the amount of Rs.90,72,968.40 awarded shall be paid within further interest at 18% p.a. compounded quarterly from 01.4.2001 until the date of payment. Aggrieved by the same, appellant filed petition under Section 34 of the Act to set aside the same. By impugned order, learned Chief Judge dismissed the petition. Before the civil court, it was inter alia contended that no dispute existed between the parties and in the absence of such arbitrable dispute, reference to arbitrator itself is bad. It was also contended that when the award was passed taking into consideration the status of the parties that they are public undertakings, the conditional order is unwarranted. Both these contentions did not find favour with learned Chief Judge. This Court heard learned Counsel for appellant and learned Counsel for respondent. Both the Counsel reiterated their respective position as was taken before the arbitrator as well as the civil court. The submission of learned Counsel for appellant that there was no arbitrable dispute, cannot be accepted. Admittedly Clause 7 of purchase order/agreement provides for arbitration. Merely because a party to the contract does not deny its liability but only pleads inability to pay immediately does not mean that an arbitrable dispute does not exist. The very plea of one of the parties that immediately payment cannot be made is itself a dispute when the other party denies such allegation. Further, when the respondent sent notice dated 27.11.1997 invoking arbitration clause appellant not only pleaded absence of their Managing Director and did not seriously demur arbitration or arbitration clause in the agreement. Therefore, we are not persuaded to countenance the submission of the appellant. The other contention with regard to the award is also without any merit. Learned Arbitrator indeed passed an award for Rs.90,72,968.40 ps. However taking into consideration that both the parties to the arbitration are financed by the Government, gave an opportunity to appellant to pay reduced amount of the award within a stipulated time, in default of which entire amount awarded was directed to be paid with interest at 18% per annum. We do not find any infirmity or error apparent on the face of the record in the approach of the Hon’ble Arbitrator. When an award was passed for the entire amount of Rs.90,72,968.40 ps and the party liable to pay was given an opportunity to pay reduced amount towards full and final satisfaction, awarding interest in default of such reduced payment does not amount to penalty even if default attracted liability to pay full amount. Lastly with regard to payment of compound interest at 18% per annum with quarterly rests from 01.4.2001 till the date of payment, the decision of Supreme Court in Krishna Bhagya Jala Nigam Ltd. v G.Harischandra Reddy[1] has been brought to our notice. In the said judgment, Supreme Court held that awarding simple interest at 9% per annum would be reasonable. Following the same and having regard to the fact that the appellant has become sick a decade ago and is not in working condition, we modify the award directing the appellant to pay a sum of Rs.90,72,968.40 ps (Rupees Ninety lakhs seventy two thousand nine hundred and sixty eight and paise forty only) with simple interest at 9% (nine) per annum from the date of the award till the date of reaslisation. The civil miscellaneous appeal is accordingly partly allowed. There shall be no order as to costs. _______________ (V.V.S.RAO,J) ______________________ (B.N.RAO NALLA,J) October 20, 2009 YS [1] (2007) 2 SCC 720