Case: M/S. Manalal Prabhudayal Vs. Oriental Insurance Co. Ltd

4. The facts relevant for the purpose are that the appellant herein is a partnership firm and is having its shop in Bhubaneswar. It was insured withCompany. Insurance policy was taken by the appellant in the year 1991 which was continued from time to time. The insurance coverage was to the tune of Rs. 1,50,000/(rupees one lakh fifty thousand only). It was the case of the appellant that due to communal riots in Bhubaneswar in March, 1991, the shop of thewas ransacked, looted and was razed to the ground. The total pecuniary loss sustained by the appellant was to the extent of Rs. 4,00,000/(rupees four lakhs only). Since, however, the liability of the Insurance Company was limited to Rs. 1,50,000/(rupees one lakh fifty thousand only), the appellant lodged a claim of Rs. 1,93,075.00 (rupees one lakh ninety three thousand and seventy five only) on the basis of the amount insured at the rate of 12 per cent per annum. The Insurance Company instead of allowing the claim lodged by the appellant offered an amount of Rs. 50,425/(rupees fifty thousand four hundred and twenty five only) since, according to the Insurance Company, as per thereceived by the Company, the loss was to that extent. As the appellant was not satisfied and the claim could not be settled, it invoked arbitration clause by issuing a notice for appointment of an arbitrator. An arbitrator was appointed who passed an award in Arbitration Case No. 1 of 1998 on June 13, 1999 allowing the claim of the appellant with interest at the rate of 12 per cent per annum. The Insurance Company was directed to pay to the appellant a sum of rupees one lakh fifty thousand "with interest @ 12 per cent per annum from the date of claim till payment. In other words, the arbitrator granted interest to the appellant @ 12 per cent per annum all throughout, that is,period, pendente lite and after the award till the date of payment.5. Proceedings had been initiated for making award a rule of the court by moving the court of Civil Judge, Senior Division, Bhubaneswar. It was registered as O.S. No. 543 of 1999. The Insurance Company also filed Misc. Case No. 279 of 2002 for setting aside the award. After hearing the parties, the Civil Judge, (Senior Division), Bhubaneswar vide order dated October 9, 2002 decreed the suit in favour of the appellant herein. The award dated June 13, 1999 in Arbitration Case No. 1 of 1998 was made rule of the court and theCompany was directed to pay the awarded amount to the appellant within three months from the date of the order.6. Being aggrieved by the award passed by the arbitrator and the decree passed by the trial court, the respondent Company approached the High Court. According to the High Court, no case was made out by the Insurance Company insofar as award passed by the arbitrator regarding claim of thewas concerned. The High Court was also of the view that the award granting interest @ 12 per cent per annum forperiod, that is, from March 21, 1991 to September 19, 1995 was in consonance with law and upheld it. It, however, held that after the award, that is, with effect from September 19, 1995, the Insurance Company would be liable to pay interest @ 6 per cent per annum till the amount is deposited in the court.7. Being aggrieved by the later part of the order reducing interest from the date of award till the date of payment/deposit, the appellant has approached this Court.8. On July 22, 2005, notice was issued by this Court on the application for condonation of delay as also on special leave petition "to show cause why the rate of interest for the period 19.9.1995 to 13.6.1999 and then till realization be not enhanced to 12% per annum". The Insurance Company appeared in pursuance of the notice issued by this Court and has also filedon March 30, 2005.

Court's reasoning:
12. Having considered the rival contentions of the parties, in our opinion, the appeal deserves to be allowed by granting relief to theIt is well settled that award of interest is in the discretion of court. Normally, when interest is granted, appellate, revisional or writ court would not interfere with exercise of discretion unless the discretion has been exercised arbitrarily or capriciously. It is equally well settled that like grant of interest, rate of interest is also in the discretion of the court and in the absence of any agreement between the parties, usually, the court would not interfere with rate of interest unless it is convinced that the direction of the lower court was ex facie bad in law.13. As far as arbitration proceedings are concerned, it is well established that an arbitrator, in absence of any prohibition in an arbitration agreement, has power to award interest. Though it is not a "court" within the meaning of Section 34 of of the Code of Civil Procedure, 1908, an arbitrator has power to grant reasonable rate of interest at all the three stages; i.e.period, pendente lite and post award period.It is, thus, clear that arbitrator has power to award interest at all the three stages, namely,period, pendente lite and post award period provided there is no provision to the contrary in an arbitration agreement and the rate of interest is not unreasonable.16. Once it is conceded that an arbitrator has power to grant interest and has also discretion in granting interest at a particular rate provided it is reasonable, the award of the arbitrator cannot be held to be bad in law or interfered with on the ground that he could not have granted interest or could not have awarded it at a particular rate unless the court is convinced that the grant of interest was not at a reasonable rate. From the record, it is clear that the arbitration proceedings started in 1995 and the award was passed in 1999. The arbitrator had granted uniform interest @ 12 per cent per annum all throughout. The award was made rule of the court and the Court of Civil Judge, (Senior Division), Bhubaneswar did not find illegality therein. The High Court, in our opinion, therefore, should not have interfered with the said order and reduced the rate of interest from the date of award till the date of realization of the amount.17. The High Court, no doubt, referred to M/s Channa Bros. In our opinion, however, the facts in that case were totally different. In that case, the arbitrator passed an award in favour of both the parties and granted interest in favour of one party and refused to award interest to the other party. This court in the light of facts before it, decided the matter. As we have already noted, this Court, in Bhagwati Oxygen Ltd. has held that an arbitrator has power to award interest at reasonable rate. In our considered opinion, the direction of the arbitrator cannot be termed as arbitrary or unreasonable and when it was affirmed by the trial court, it ought not to have been interfered with by the High Court.