Sankari Prasad Kundu Vs Union of India (UOI) and Others

Prabir Kumar Majumdar, J.@mdashIn or about July 1972 an agreement was entered into by and between the Coal Board and the appellant for protective work of excavation at the Lodna-Bagdigi Collieries. According to the respondent the appellant failed to execute the work in accordance with the terms of the said agreement D/- 21st July, 1977 in spite of repeated extensions of time. By reason of the alleged failure of the appellant to execute the work in terms of the said agreement, the said agreement D/- 21st July, 1977 was rescinded by the Coal Board on or about 30th July, 1977 and the security deposit furnished by the appellant was forfeited. The Coal Board under Coal Mines (Conservation and Development) Act, 1974 has now been vested in the Union of India.

2. The disputes and differences having arisen between the parties, one R. P. Khosla was appointed as the sole arbitrator in terms of the arbitration agreement contained in the said agreement entered into by and between the parties. The said arbitrator entered into the reference on 2nd May, 1977 and published his award on 22nd April, 1980. The said award upon being challenged in this Court was set aside by an order of this Court made on 13th Feb. 1981. Thereafter, on an application by the appellant the authority of the said R.P. Khosla was revoked by an order of this Court on 1st Sept., 1981 and Mr. K. J. Sengupta, a retired Judge of this Court was appointed as an arbitrator to adjudicate the disputes arising between the parties under the said agreement D/- 21st July, 1977. The said arbitrator K.J. Sengupla made and published his award on 24th Nov.. 1982.

3. The respondent made an application to this Court under Sections 30 and 33 of the Arbitration Act, 1940 challenging the said award of the said arbitrator K.J. Sengupta on several grounds. But at the time of hearing of the said application before the learned Judge of the Court of first instance the respondent pressed only on one ground that the said arbitrator had exceeded his jurisdiction in awarding interim interest on and from May 2. 1977. It was contended on behalf of the respondent in the Court of the first instance that the reference before the said R.P. Khosla came to an end with the making of his award on April 22. 1980. After said award was set aside on Feb. 13, 1981, according to the respondent, a new reference started before the said arbitrator K.J. Sengupta. Therefore. as contended by the respondent, the new arbitrator had no jurisdiction to award interim interest for the period of pendency of the first reference before the said arbitrator R.P. Khosla from May 2. 1977 to Feb. 13. 1981 and in doing so the new arbitrator had acted without jurisdiction.

4. The learned Judge relying on the decisions reported in Juggilal Kamlapat Vs. General Fibre Dealers Ltd. (And Connected Appeal), and The Baranagore Jute Factory Co. Ltd. Vs. Hulaschand Rupchand, held that the reference which started before the said R.P. Khosla remained pending from May 2, 1977 until the award made by the present arbitrator on Nov. 24, 1982.

5. Regarding the jurisdiction of the new arbitrator K.J. Sengupta to award interim interest for the period from May 2, 1977 to the date of his making the award, the learned Judge came to a finding that the arbitrator exceeded his jurisdiction in awarding interim interest as there was no claim for interim interest before the arbitrator. In making such a finding the learned Judge observed that the award allowing interim interest was upheld by the Supreme Court in the case reported in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., on the basis of the earlier decision reported in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, which laid down the principle that if the dispute regarding claim for interim interest was made then the arbitrator would have jurisdiction to award such interest. The learned Judge also negatived the contention of the appellant that where the claim for interest was made, a claim for interim interest was also made by implication. The consideration weighed with the learned Judge was that when the interest prior to suit or reference, the interest under the Interest Act and the interest pendente lite were payable on different considerations, then the claim in respect of the same must be made distinctly and separately because one did not include the other. In the result, the learned Judge held that the arbitrator had clearly exceeded his jurisdiction in allowing interim interest as the said dispute was not referred to him, and the said award was to that extent set aside. The rest of the said award was upheld.

6. This appeal is directed against the said judgment and decree DA June 29, 1983.

7. The learned Counsel appearing for the appellant has drawn our attention to the statement of claim filed by the appellant as claimant before the arbitrator. It would appear that the claimant claimed, inter alia, the following amounts (a) refund of the amount deducted from the bills of the claimant on account of penalty and forfeiture and water charges amounting to Rs. 4,38,240.51 along with interest thereon at the rate of 12% per annum; (b) a sum of Rs. 64,290/- on account of work done together with interest thereon at the rate of 12% per annum; and (c) a sum of Rs. 3,50,000/- on account of damages for breach of contract along with interest thereon at the rate of 12% per annum. The respondent in its counter-statement filed before the arbitrator denied and disputed that the appellant was entitled to the said amounts or any one of them or any interest.

8. According to the learned Counsel for the appellant these were the disputes including the questions of interest before the arbitrator for adjudication. In the submission of the learned Counsel for the appellant the word ''interest'' in the statement of claim was not for the period prior to the reference only but was wide enough to cover interest for the entire period from the date it became payable until realisation.

9. The learned Counsel also argues that even if the claimant has not specifically asked for interim interest and further interest, the arbitrator has power in his discretion to award such interest. He submits that claim for interest pendente lite or further interest need not be claimed as such in the plaint. Under Order 7. Rule 7 of the Civil P.C.. every plaint shall state specifically the relief which the plaintiff claims, but it shall not be necessary to ask for general or other relief which may always be given as the Court may think just to the same extent as if it had been asked for. The learned Counsel contends that the claim for interest in the statement of claim follows precedent of Form 1 of Appendix A to the First Schedule to the Civil P.C. It is stated in para 6 of the said Form 1 that the plaintiff claims .....rupees with interest at..... percent from ..... the .....day of..... 19..... Relying on the decisions reported in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., and State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., , the learned Counsel submits that the arbitrator has power to award interest pendente lite and also from the date of the award to the date of the decree.

10. Regarding the contention of the respondent raised in the Court of the first instance that the present arbitrator had no jurisdiction to award interim interest for the period in reference before R. P. Khosla from May 2, 1977 to February 13, 1981, the learned Counsel for the appellant referring to Section 19 of the Arbitration Act, 1940 argues that setting aside of the award of the said R.P. Khosla does not by itself terminate the reference, except obviously where the award is set aside on a finding that the reference itself was invalid. He submits that in other words after the award is set aside, the reference has to be superseded by a further order, if it is desired 10 terminate it. The learned Counsel submits that in the present case the reference has not been superseded by any order of Court and therefore the reference continued after the revocation of the authority of the said R.P. Khosla. The learned Counsel also argues that in terms of Sub-section (3) of Section 12 of the Arbitration Act, 1940. the said arbitrator K.J. Sengupta appointed after revocation of authority of R.P. Khosla had the like power to act in the reference and to make an award as if he had been appointed in accordance with the arbitration agreement.

11. The learned Counsel appearing for the respondent submits that if the claim for interim interest is specifically made before the arbitrator then only the arbitrator will have jurisdiction to award interim interest just as a Court can do u/s 34 of the Civil P.C. In support of his said submission he relied on -the decisions of the Supreme Court in Seth Thawardas Pherumal Vs. The Union of India (UOI), , Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, and State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., . The learned Counsel supported the reasonings of the learned Judge in the judgment under appeal.

12. The only question involved in this appeal is : Has the arbitrator any power to award interest pendente lite even if such interim interest is not specifically claimed? It is held by the Supreme Court in the case of State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., that if all the disputes are referred to arbitration, the arbitrator has power to award interest pendente lite i.e., during the pendency of the arbitration proceedings. The Supreme Court in this ease found as a fact that "in this case before us there is no controversy that all the disputes including the claim for payment of the amount with interest was referred to.the arbitrator". The learned Judge of the Court of the first instance observed "that the award allowing interim interest was upheld by the Supreme Court in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., on the basis of the earlier decision reported in Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, which laid down in principle that if the dispute regarding the claim for interim interest was made then the arbitrator would have jurisdiction to award such interest."

13. With respect to the learned Judge we do not agree with the said observation of the learned Judge. We shall now examine the question in the light of the decisions of the Supreme Court on the point.

14. In the case of Seth Thawardas Pherumal Vs. The Union of India (UOI), . the arbitrator awarded interest on unliquidated damages for a period before the reference to arbitration and also for a period subsequent to the reference. The High Court set aside the award regarding interest on the ground that the claim for interest was not referred to arbitration and the arbitrator had no jurisdiction to entertain the claim. The Supreme Court rejected the contention of the appellant that the arbitrator had statutory power under the Interest Act, 1889 to award the interest and in any event he had power to award interest during the pendency of the arbitration proceedings u/s 34 of the Civil P.C. The Supreme Court observed that Section 34 did not apply because the arbitrator was not a court within the meaning of the Code nor did the Code apply to arbitrators and, but for Section 34 even a Court would not have power to give interest after the suit. It may be noticed that the judgment in Thawardas'' case is silent on the question whether the arbitrator can award interest during the pendency of arbitration proceedings if the claim regarding interest is referred to the arbitrator. This case is very often cited as in this case also in the aid of the argument that the arbitrator had no power to award pendente lite interest if no such claim is laid before the arbitrator.

15. It has, however, been observed by the Supreme Court in a later case that observations in Thawardas case were not intended to lay down such a broad and unqualified proposition.

16. In the case of Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , all the disputes in the suit were referred to the arbitrator for his decision and one of the disputes in the suit was whether the respondent was entitled to pendente lite interest. The Supreme Court held in that case that the arbitrator could decide the dispute and he could award pendente lite interest just as a court could do so u/s 34 of the Civil P.C. It is further observed by the Supreme Court that though, in terms, Section 34 of the Civil P.C. does not apply to arbitration, it was an implied term of the reference in the suit that the arbitrator would decide the dispute according to law and would give such relief with regard to pendente lite interest as the Court could give if it decided the dispute and this power of the arbitrator was not fettered either by the arbitration agreement or by the Arbitration Act, 1940. It may be noted that in this case there was a reference from a pending suit.

17. Section 34 of the Civil P.C. empowers the Court to award interest at reasonable rate on the principal sum adjudged for the period (i) prior to the institution of the suit, (ii) during the pendency of the suit, and (iii) from the date of the decree to the date of payment. It is well settled that the award of interest from date of suit to date of decree is entirely discretionary. (See The State of Madhya Pradesh and Others Vs. Nathabhai Desaibhai Patel, ) and the discretion is not excluded even if there was an agreement that interest should run up to realisation nor it is excluded even if no interest is claimed in the plaint (see ILR (1931) 55 Bom 657 : ( Chaturbhuj Tulsiram Marwadi Vs. Ambarsing Harji, ) and Apurba Krishna Mitra Vs. Ram Bahadur and Others, ). Therefore, grant of pendente lite interest is clearly a discretionary relief which the court may or may not grant whether it is claimed or not. In our view this is a part of general or other relief which may not be specifically asked for and the court may grant it to the same extent as if it had been asked for. (see Order 7, Rule 7 of the Civil P.C).

18. In the case of Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., it has been held by the Supreme Court that the arbitrator has the authority to grant interest from date of award to the date of decree. In this case after reiterating and accepting the view expressed by the Supreme Court in the case of Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, , the Supreme Court proceeds to observe as follows :

"Though, in terms, Section 34 of the Civil P.C. does not apply to arbitration proceedings, the principle of that Section will be applied by the arbitrator for awarding interest in cases where a Court of law in a suit having jurisdiction of the subject matter covered by Section 34 could grant a decree for interest. In Edwards Y. Great Western Rly (1851) 11 CB 588 one of the questions at issue was whether an arbitrator could or could not award interest in a case which was within Section 28 of the Civil Procedure Act, 1833. It was held by the court of Common Pleas that the arbitrator under a submission of all matters in difference'', might award the plaintiff interest, notwithstanding the notice of action did not contain a demand of interest and, further, that, assuming a notice of action to have been necessary, the want or insufficiency of such notice could not be taken advantage of, since the 5 and 6 Vict. C. 97, Section 3. unless pleaded specially. In the course of his judgment Jervis, C.J. observed :

A further answer would be, that this is a submission, not only of the action, but of all matters in difference; and the interest would he a matter in difference, whether demanded by the notice of action or not. If the arbitrator could give it, he might give it in that way, notwithstanding the want of claim of interest in the notice.''

This clearly decides that, although the Civil Procedure Act, 1833 speaks in terms of a jury, and only confers upon a jury a discretionary right to give interest, none the less, if a matter was referred to an arbitrator a matter with regard to which a jury could have given interest an arbitrator may equally give interest, and that despite the language used in that Act. The principle of this case was applied by the Court of Appeal in Chandris v. Isbrandtsen Moller Co. 1951 1 KB 240 and it was held that though in terms Section 3 of the Law Reform (Miscellaneous Provisions) Act, 1934 giving the Court power to award interest on any debt or damages did not apply to an arbitrator, it was an implied term of the contract that the arbitrator could award interest in a case where the court could award it. It was pointed out by the Court of Appeal that the power of an arbitrator to award interest was derived from the submission to him, which impliedly gave him power to decide ''all matters in difference'' according to the existing law of contract, exercising every right and discretionary remedy given to a Court of law.....".

19. In the case of State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., one of the issues before the arbitrator was "Are any of the parties entitled to interest or any other relief. As noted by the Supreme Court the arbitrator found that the firm was entitled to interest at 9% per annum on the balance of Rs. 1,79,653.18 from June 7, 1958 the date on which the final inspection of the penstocks took place. The interest was to be paid till the date of the decree. It is on the basis of above findings that the arbitrator made the award, (see page 1513 of AIR). On the basis of above finding the Supreme Court observed in that case that "in the case before us there is no controversy that all the disputes including a claim for payment of the amount with interest was referred to the arbitrator". Finally, after reviewing all the case on the point the Supreme Court held that the arbitrator has power to award interest pendente lite i.e. during the pendency of the arbitration proceedings.

20. In our view the learned Judge was not right in observing that "full facts of the case in State of Madhya Pradesh Vs. Saith and Skelton (P) Ltd., have not been set out in the body of the report but a careful reading leaves no doubt that the claim for interim interest was made as otherwise the Supreme Court would not have relied on Firm Madanlal Roshanlal Mahajan Vs. Hukumchand Mills Ltd., Indore, in support of its findings". This view of the learned Judge, in our opinion, is not correct.

21. There is no doubt that award of interest is discretionary relief. This discretionary right of the Court to give interest has been conferred by Section 34 of the Civil P.C. In an arbitration proceeding the arbitrator derives his jurisdiction to award interest from the submission to him which impliedly gives him power to decide "as matters in difference" according to law exercising every right and discretionary remedy given to a Court of law. Further, as observed by Jervis C. J. in Union of India (UOI) Vs. Bungo Steel Furniture Pvt. Ltd., , in ''all matters in difference'' the ''interest'' would be a matter in difference and the arbitrator could give it notwithstanding the want of claim of interest in the notice.

22. In the present case in this appeal the appellant claimed the sums as noted hereinabove together with interest at 12% per annum and the respondent denied and disputed that the appellant was entitled to the sums claimed or the interest claimed thereon. Therefore, the claim for the sums together with the claim for interest were the ''matters in difference''. It is true that claim for pendente lite interest was not made specifically, but all the dispute including a claim for payment of the amount with interest was referred to the arbitrator. In our opinion, and for the reasons set out above the present arbitrator was fully justified in awarding interest pendente lite as also interest from the date of the award to the date of the decree.

23. In the result, this appeal is allowed. The judgment and the decree dt. June 29, 1983 passed by the learned Judge setting aside the part of the award allowing interim interest are hereby set aside. There should he a judgment in terms of the said award dt. 24th Nov., 1982 including the part awarding interim interest, with interest on judgment at the rate of 6% per annum from 29th June, 1983 when the said decree was passed. The decree dt. 29th June, 1983 thus stands modified as indicated above.

24. There will he no order as to costs.

25. As prayed by the learned Counsel appearing for the Union of India for stay of the operation of this order, the order will remain stayed for a fortnight from date.

R.N. Pyne, J.

26. I agree.