Case: Assam State Electricity Board &amp; Others Vs. Buildworth Pvt. Ltd

doing is ascertaining a pecuniary liability which already existed. The Court in the first place must decide that the defendant is liable and then it proceeds to assess what that liability is. But till that determination there is no liability at all upon the defendant."63. The legal position, however, underwent a change after the enactment of the Interest Act, 1978. Sub-section (1) of Section 3 of the said Act provided that a court (as also an arbitrator) can in any proceedings for recovery of any debt or damages, if it thinks fit, allow interest to the person entitled to the debt or damages at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say, -"3. (1)(a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings;(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings:"64. Sub-section (3) of Section 3 made it clear that nothing in that section shall apply to any debt or damages upon which interest is payable as of right, by virtue of any agreement; or to any debt or damages upon which payment of interest is barred, by virtue of an express agreement. The said sub-section also made it clear that nothing in that section shall empower the court to award interest upon interest. Section 5 of the said Act provides that nothing in the said Act shall affect the provisions of Section 34 of the Code of Civil Procedure, 1908.65. The position regarding award of interest after the Interest Act, 1978 came into force, can be stated thus:(a) Where a provision has been made in any contract, for interest on any debt or damages, interest shall be paid in accordance with such contract.(b) Where payment of interest on any debt or damages is expressly barred by the contract, no interest shall be awarded.(c) Where there is no express bar in the contract and where there is also no provision for payment of interest then the principles of Section 3 of the Interest Act will apply in regard to the pre-suit or pre-reference period and consequently interest will be payable:(i) where the proceedings relate to a debt (ascertained sum) payable by virtue of a written instrument at a certain time, then from the date when the debt is payable to the date of institution of the proceedings;(ii) where the proceedings is for recovery of damages or for recovery of a debt which is not payable at a certain time, then from the date mentioned in a written notice given by the person making a claim to the person liable for the claim that interest will be claimed, to date of institution of proceedings.(d) Payment of interest pendente lite (date of institution of proceedings to date of decree) and future interest (from the date of decree to date of payment) shall not be governed by the provisions of the Interest Act, 1978 but by the provisions of Section 34 of the Code of Civil Procedure, 1908 or the provisions of the law governing arbitration as the case may be.66. Therefore, even in regard to the claims for damages, interest can be awarded for a (sic period) prior to the date of ascertainment or quantification thereof if (a) the contract specifically provides for such payment from the date provided in the contract; or (b) a written demand had been made for payment of interest on the amount claimed as damages before initiation of action, from the date mentioned in the notice of demand (that is from the date of demand or any future date mentioned therein). In regard to claims for ascertained sums due, interest will be due from the date when they became due. In the present case, interest has been awarded only from 3-9-1990, the date of the petition under Section 20 of the Act for appointment of arbitrator. We find no reason to alter the date of commencement of interest."22. The judgments on the point have been considered in a decision of three Judges of this Court in Union of India v. Ambica Construction, 2016(2) R.C.R.(Civil) 638 : 2016(2) Recent Apex Judgments (R.A.J.) 526 : 2016 (6) SCC 36 in the context of a bar of jurisdiction to award interest for the period of the pendency of the arbitration under the 1940 Act if there is an express bar under the contract. The decision notes and affirms the powers of the arbitrator to award interest in the absence of a specific power or prohibition contained in the contract.23. The contract in the present case contains no bar or prohibition against the award of interest. However, it has been submitted on behalf of the Board that the claimant was paid a sum of Rs. 9,16,825/- towards escalation, which was the amount contemplated under Clause 2.3.1 of the Contract. However, as we have noted, this provision in the contract was correctly held by the arbitrator to apply only during the scheduled term of the contract and not in respect of the extended period. The respondent in its initial demands dated 7 March 1986 and 23 April 1986 made claims on account of price escalation and submitted a consolidated bill on 9 June 1986. On 20 April 1987 the claimant addressed a legal notice, claiming a sum of Rs. 10,73,416/- together with interest at the rate of 18 per cent per annum. In the circumstances upon the issuance of the above notice, the claimant was clearly entitled to claim interest with effect from 20 April 1987. The High Court was hence in error in setting aside the award of interest.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]12. The arbitrator has taken the view that the provision for price escalation would not bind the claimant beyond the scheduled date of completion. This view of the arbitrator is based on a construction of the provisions of the contract, the correspondence between the parties and the conduct of the Board in allowing the completion of the contract even beyond the formal extended date of 6 September 1983 up to 31 January 1986. Matters relating to the construction of a contract lie within the province of the arbitral tribunal. Moreover, in the present case the view which has been adopted by the arbitrator is based on evidentiary material which was relevant to the decision. There is no error apparent on the face of the record which could have warranted the interference of the court within the parameters available under the Arbitration Act, 1940. The arbitrator has neither misconducted himself in the proceedings nor is the award otherwise invalid.The award comports with principles of law governing price escalation firmly established by decisions of this Court. For these reasons, we find merit in the contention of learned counsel appearing on behalf of the claimant that the award does not suffer from any error apparent on the face of the record insofar as the aspect of price escalation ispoint of the matter is that the arbitrator has duly borne in mind the circumstance that "the claimant also contributed to a certain extent and must share responsibility for causing delay in completion of the project". The award does indicate that the contributory delay on the part of the claimant was present to the mind of the arbitrator and has been duly taken into consideration in computing the extent of the claim under the award. This is not a case where the arbitrator has failed to take into account a relevant consideration or has taken into account extraneous material or consideration. Once the aspect of contributory delay was present to the mind of the arbitrator, as is reflected in the reasons in the award, and this has been taken into consideration in the assessment of damages, the award does not fall forview of the High Court does not warrant interference.The basis on which the High Court set aside the award of interest is hence contrary to the decisions of the Constitutionthis aspect of the matter is, in our view, no longer res integra. The arbitrator has power to grant interest on damages under Section 3(1)(b) of the Interest Act, 1978, from the date mentioned in this regard in a written notice claiming such interest. The position which prevailed prior to the Interest Act, 1978 (to the effect that interest on damages would be payable only after ascertainment of damages) has undergone a change after the enactment of the Act. Interest on damages could be claimed from the date of the written notice as contemplated in the law.The contract in the present case contains no bar or prohibition against the award of interest. However, it has been submitted on behalf of the Board that the claimant was paid a sum of Rs. 9,16,825/towards escalation, which was the amount contemplated under Clause 2.3.1 of the Contract. However, as we have noted, this provision in the contract was correctly held by the arbitrator to apply only during the scheduled term of the contract and not in respect of the extended period. The respondent in its initial demands dated 7 March 1986 and 23 April 1986 made claims on account of price escalation and submitted a consolidated bill on 9 June 1986. On 20 April 1987 the claimant addressed a legal notice, claiming a sum of Rs. 10,73,416/together with interest at the rate of 18 per cent per annum. In the circumstances upon the issuance of the above notice, the claimant was clearly entitled to claim interest with effect from 20 April 1987. The High Court was hence in error in setting aside the award of interest.