Case: State Of Orissa Vs. B.N. Agarwalla Etc

18. Civil Appeal No. 9233 of 1994 :— In Civil Appeal No. 9233 of 1994, the appellant had invited tenders for construction of certain quarters. The respondent Durga Parshad had submitted his tender which was accepted. The work was completed by him on 31.5.1977. As certain differences had arisen between the parties. Durga Parshad, the respondent herein, requested the appellant to make a reference of the disputes to an arbitrator as provided by the agreement. As no reference was made, Durga Parshad filed an application under Section 20 of the Arbitration Act whereupon the Court appointed an arbitrator as per the terms of the agreement and disputes between the parties were referred to the said arbitrator.19. The arbitrator after hearing the parties and considering the evidence adduced before him made his award whereby the appellant was held to be liable to pay a sum of Rs. 2,73,136,82/- to the respondent Durga Parshad. The arbitrator further held that the appellant was liable to pay simple interest @ 15% per annum from 31.8.1977 till the date of payment on the aforesaid amount or the date of decree, whichever is later.20. On the award being filed in the Court, the appellant filed objections. One of the objections was that the arbitrator had awarded interest but there was a clear stipulation in the agreement that no interest was payable on the amount withheld under the agreement. The objections were not accepted and with regard to the claim of interest, the trial Court held that this was not a case where interest was awarded on any amount having been withheld. It was, however, found that the claim for interest was referred to the arbitrator and, therefore, the award of interest was held to be valid.21. In the appeal before the High Court, with reference to the award of interest, the contention which was raised on behalf of the appellant was that the arbitrator had no jurisdiction to award interest for the pre-reference period and that the rate of interest granted was excessive. In support of this contention, reliance was placed on the decision of this Court in the case of Abhaduta Jenas case (supra). The High Court, by its judgment under appeal relied upon the decision of this Court in the case of Unique Erectors case (supra) and came to the conclusion that interest for the period prior to initiation of the proceedings could be granted in cases in which reference to arbitration was made after the commencement ofthe Interest Act, 1978. The High Court, therefore, restricted the grant of interest for the pre-reference period only w.e.f. 19.8.1981, on which datethe Interest Act, 1978 had come into force. The Judgment and decree of trial court was, accordingly, modified with the result that the respondent Durga Parshad, instead of being awarded interest for pre-reference period w.e.f. 31.8.77, was as a result of judgment under appeal, awarded interest w.e.f. 19.8.1981 till the date of payment.The parties in both these cases are the same and the material facts are not very dissimilar. In appeal arising out of S.L.P (C) No. 3630/87, the respondent was entrusted with some civil work by the agreement made in the year 1974-1975. Some disputes had arisen and an arbitrator was appointed on 4.7.1979. The arbitrator on 11.3.1981 gave an award for Rs. 1,82,860/- including interest. As is evident from the judgment of the High Court the arbitrator had awarded a sum of Rs. 99009/- as principal and interest of Rs. 68635/- for the period 1.6.1975 to 10.3.1981 was also awarded.27. This award of interest has been upheld by the trial court and the High Court.28. The present appeal is confined only to the award of interest by theappeal arising out of S.L.P.(C) No. 15995 of 1987, an agreement between the parties was entered some time in the year 1966-1967. Work was completed on 31.12.1970 and thereafter the respondent gave notice to the Chief Engineer raising some claims. On 19.10.1976, the Chief Engineer appointed a sole arbitrator. The arbitrator entered upon the reference and thereafter on 12.5.1981 gave an award of Rs. 1,56,073.74/- plus interest @ 7% from 1.4.1971 till the date of payment or decree. The award was made the rule of the Court and the High Court dismissed the appeal filed by the appellant.Civil Appeal No. 9234 of 1994 : On 27.5.1979, an agreement was entered into between the State Government, the appellant herein, and the respondent for improvement of Salai-Manoharpur Road. This was followed by a supplementary agreement dated 30.4.1982 for carting earth. The respondent made claims against the appellant in respect of above work allegedly done under the said agreements. On 19.5.1987, the respondent filed an application in the trial court for appointment of an arbitrator under Section 8 of the said Act. This application was allowed by the Court on 19.5.1987 and an arbitrator was appointed who entered upon the reference on 10.6.1987. The arbitrator gave an award on 28.2.1988 and directed the payment of Rs. 30,21,047/- towards the principal claim and interest @ 6% from 2.1.1984 to 25.2.1988 amounting to Rs. 8,26,811/- and future interest @ 13% from the date of the award till the date of realisation. In this way, the arbitrator awarded interest in respect of all the three periods, namely: pre-reference, pendente lite and future interest.30. When the award was filed in the Court, the appellant herein, filed objections to the same. With regard to interest in the objection which was filed, the appellant only challenged the decision of the arbitrator in allowing pendente lite interest. The trial Court came to the conclusion that reference to the arbitration had been made in the course of a suit and the arbitrator was justified in allowing pendente lite interest.31. In appeal filed before the High Court it was contended that the claim of the respondent in respect of escalation of price had not been referred to arbitrator and, therefore, he could not have given the award in respect of the said claim. The second contention which was raised, with which we are concerned in the present case, was that the arbitrator had no power to grant pendente lite interest. While upholding the decision of the trial Court, in making the award the rule of the Court and passing the decree in terms thereof, with regard to pendente lite interest the High Court referred to the decisions of this Court in the cases of Saniokh Singh Arora v. Union of India and others (1992) 1 SCC 492  and Lalchand Kapani case (Supra) and came to the conclusion that pendente lite interest could be granted by the arbitrator underthe Interest Act, 1978.

Court's reasoning:
In the instant case, the claim for interest even for the pre-reference period had arisen afterthe Interest Act, 1978 had come into force and, therefore, the arbitrator could award interest for all the three periods.From the facts enumerated hereinabove it is clear that the reference in this case was made to the arbitrator by the Court on an application having been filed under Section 20 of the Arbitration Act. As interest was one of the claims made by the respondent, the said dispute was referred to arbitrator. The arbitrator, therefore, had the jurisdiction to decide this issue. In as much as reference to the arbitration was made afterthe Interest Act, 1978 had come into force w.e.f. 19.8.1981, the High Court rightly came to the conclusion that at least with effect from that date, interest could be awarded for the pre-reference period under Section 3 ofthe Interest Act,can be no doubt that if the terms of the Contract expressly stipulate that no interest would be payable then, notwithstanding the provisions ofthe Interest Act,1978, an arbitrator would not get the jurisdiction or right to award interest. In the present case, however, no such contention based on clause 4 was raised before the High Court. The judgment does not show that any argument was raised before the High Court to the effect that the contract prohibited the award of interest. It is no doubt true that reference to this clause was made before the trial Court but, in appeal, the only contention which was raised before the High Court was that the arbitrator had no jurisdiction to award interest for pre-reference period. This contention was accepted and the judgment and decree was modified to the effect that interest was awarded not from 31.5.1977, as had been granted by the award and the decree of the trial Court, but with effect from 19.8.1981 from which datethe Interest Act,1978 came into force. The contention based on clause 4 having been given up before the High Court the appellant would normally not have been allowed to be agitate it in this appeal but we find that there is no merit in this contention and the, same had been rightly rejected by the trial Court. According to clause 4, interest was not payable on the amount which was withheld. The learned counsel for the respondent has rightly contended that the said clause refers to the amount withheld by the appellant towards retention money for the defect liability period. It was submitted that the appellant had received a sum of Rs. 30,000/- as security for the fulfillment of the contract to the satisfaction of the company and the respondent Durga Parshad has not claimed any interest on this amount as under aforesaid clause 4, no interest was payable on the amount so withheld. The claim which was made by Durga Parshad before the arbitrator was for the non-payment of the full amount as per final bill submitted by him. The claim on this account before the arbitrator was for a sum of Rs. 5,86,381.50/- being the balance amount payable out of the final bill, and interest thereon was claimed with effect from the date of completion of work (31.5.1977) till the date of payment. The claim of the respondent for a sum of Rs. 5,86,381.50/- was upheld by the arbitrator only to the extent of Rs. 2,73,136.82/- and the respondent was awarded interest on this amount. The interest so awarded is clearly not covered by the aforesaid clause 4 of the contract.24. The decision of the High Court awarding pre-reference interest with effect from the date whenthe Interest Act,1978 had come into force i.e. , 19.8.1981 and the award of pendente lite interest, therefore, calls for nofar as pre-reference interest is concerned, in view of the settled legal position, pre-reference interest could not be awarded for the period prior to corning into force ofthe Interest Act,1978 especially when the agreement between the parties did not provide for payment of interest. In other words, neither by contract nor under law was the respondent entitled to receive pre-reference interest for the period 1.6.1975 to 10.3.1981 which had been awarded to him. As far as future interest is concerned, it was within the jurisdiction of arbitrator to award theis clear from the principle enunciated herein above that pre-reference interest could not have been awarded in favour of the respondent in the present case becausethe Interest Act,1978 was not applicable and there was no term in the contract nor was it established that under any, law or usage any interest was payable. Applying the ratio of decisions of this Court in Abahduta Jenas case (supra) and other cases, the appeal is allowed to the extent that the award of the arbitrator, insofar as it awards interest for the pre-reference period, is setFrom the facts enumerated herein above, it is clear that though the arbitrator had awarded interest in respect of all the three periods, the objections which were filed, and the contentions raised before the trial court as well as the High Court, related only to the award of pendente lite interest. In fact, the decision of the High Court upholding the award of pendente lite interest was not seriously challenged by Mr. Sanyal, obviously in view of the decision of the Constitution Bench of this Court in G.C. Roys case (supra), Ordinarily, we would not be inclined to allow the appellant to raise a new point relating to the grant of post award interest for the first time in this Court, but as this is a pure question of law and in order to finally decide this issue we allowed the learned counsel to raise the same. We, however, do not find any merit in this submission.