EXECUTIVE ENGINEER (R AND B) AND OTHERS VERSUS GOKUL CHANDRA KANUNGO (DEAD) THR. HIS LRS.

EXECUTIVE ENGINEER (R AND B)  AND OTHERS VERSUS GOKUL CHANDRA KANUNGO (DEAD)  THR. HIS LRS.

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले

REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION 

CIVIL APPEAL NO. 8990 OF 2017

EXECUTIVE ENGINEER (R AND B) 

AND OTHERS           ...APPELLANT(S)

VERSUS

GOKUL CHANDRA KANUNGO (DEAD) 

THR. HIS LRS. ...RESPONDENT(S)

J U D G M E N T

B.R. GAVAI, J.

1. The appellants have challenged the judgment dated

18th  April 2012 passed by the learned Single Judge of the

High Court of Orissa in Arbitration Appeal No. 25 of 2007,

thereby dismissing the appeal filed by the appellants.

2. The facts in brief giving rise to the present appeal are

as under:

The   respondent   was   awarded   the   contract   for

construction   of   3   kilometers   missing   link   on   NH­6   from

Kanjipani to Kuntala on 16th December 1971.  The work was

to be completed within one year that is before 15th December

1972.   The contract amount was Rs.4,59,330/­.   However,

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the work could not be completed by the stipulated date and it

was completed only on 30th August 1977, by which date, the

respondent was already paid an amount of Rs.3,36,465/­. 

3. The respondent, on 25th July 1989, issued a notice

to the appellant regarding his claim.   The said notice was

replied   to   by   the   appellant   on   10th  August   1989   stating

therein   that,   as   against   the   claim   of   Rs.3,34,744/­,   the

respondent had been paid an amount of Rs.3,36,465/­.  The

respondent thereafter filed a suit being O.S. No. 206 of 1989

before   the   Court   of   Civil   Judge   (Senior   Division),

Bhubaneswar   (hereinafter   referred   to   as   the   “trial   court”)

under Section 20 of the Arbitration Act, 1940 (for short, “the

1940 Act”) seeking reference of the dispute to arbitration. By

order of the trial court dated 14th  February 1990, the suit

was decreed in favour of the respondent and he was directed

to file the original F­2 agreement in the court for referring the

dispute to arbitration.  However, the respondent did not file

the original F­2 agreement as directed.  In the meantime, the

1940 Act was repealed and the Arbitration and Conciliation

Act, 1996 (for short, “the 1996 Act”) came into force.

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4. The respondent thereafter filed an application in the

disposed   of   suit   before   the   trial   court,   praying   for

appointment  of   an   arbitrator  under   the  provisions  of  the

1996 Act.  The same was rejected by the trial court vide order

dated   4th  February   2000   for   lack   of   jurisdiction.     The

respondent thereafter moved an application being MJC No.

36 of 2000 under Section 11 of the 1996 Act before the High

Court for appointment of an arbitrator.  The learned Single

Judge of the High Court, vide order dated 15th October 2001,

allowed   the   said   application   and   appointed   Shri   S.K.

Mohanty,   former   Judge   of   the   same   High   Court   as   the

Arbitrator. 

5. On 15th March 2002, the respondent filed his claim

of Rs.1,45,28,198/­ under 15 heads of claim and demanded

19.5% interest from 1st April 1976 to 15th March 2002.  The

learned   Arbitrator,   vide   award   dated   24th  August   2004,

awarded a sum of Rs.9,20,650/­ in respect of head Nos. 1 to

14.   The learned Arbitrator also awarded interest  pendente

lite with effect from 1st April 1976 to the date of the award at

the rate of 18% per annum which came to Rs. 46,90,000/­.

The learned Arbitrator further directed the future interest to

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be paid at the rate of 18% per annum on the total of the

aforesaid two amounts till actual payment.  Being aggrieved

thereby,   the   appellants   filed   a   petition   being   Arbitration

Petition No. 153 of 2004 before the Court of District Judge,

Cuttack under Section 34 of the 1996 Act for setting aside

the award.   The same was rejected by an order dated 25th

July 2007. Being aggrieved thereby, the appellants filed an

appeal under Section 37 of the 1996 Act before the High

Court.   The same was also dismissed vide the impugned

judgment.  Being aggrieved thereby, the present appeal.

6. We have heard Shri Sibo Sankar Mishra, learned

counsel   appearing   on   behalf   of   the   appellants   and   Shri

Ashok Panigrahi, learned counsel appearing on behalf of the

respondents.

7. Shri Mishra submitted that the learned Arbitrator

has grossly erred in awarding interest for the period from

1977   to   1989   inasmuch   as   the   respondent   was   in   deep

slumber for a period of twelve years and did not take any

step for raising his claim.   It is further submitted that the

learned Arbitrator has also erred in awarding interest for the

period from the year 1990 to 2000 inasmuch as, though vide

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decree   dated   14th  February   1990,   the   respondent   was

directed to file the original F­2 agreement for referring the

dispute to arbitration, the respondent did nothing in that

regard.  It is further submitted that the interest awarded at

the rate of 18% per annum is totally unreasonable.     It is

submitted   that   the   interest   amount   of   Rs.46,90,000/­   is

almost   five   times   that   of   the   main   award   amount   of

Rs.9,20,650/­.  He relies on the judgment of this Court in the

cases   of  Rajendra   Construction   Co.   v.   Maharashtra

Housing   &   Area   Development   Authority   and   Others1

,

Krishna   Bhagya   Jala   Nigam   Ltd.   v.   G.   Harischandra

Reddy and Another2

 and Mcdermott International Inc. v.

Burn   Standard   Co.   Ltd.   and   Others3

  in support of the

proposition that the exorbitant amount of interest awarded

by the Arbitrator and upheld by the learned Single Judge of

the High Court would be contrary to the interest of justice.

8. Shri Panigrahi, on the contrary, submitted that there

is no reason to interfere with the rate of interest awarded by

the learned Arbitrator, which has been concurrently upheld

by   the   District   Judge   as   well   as   the   High   Court.     He

1 (2005) 6 SCC 678

2 (2007) 2 SCC 720

3 (2006) 11 SCC 181

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submitted that in view of the provisions of sub­section (7) of

Section 31 of the 1996 Act, which has been construed by a

three­Judges   Bench   of   this   Court   in   the   case   of  Hyder

Consulting   (UK)   Limited   v.   Governor,   State   of   Orissa

Through   Chief   Engineer4

,   no   interference   would   be

warranted in the present case.

9. Section 31(7)(a) of the 1996 Act reads as under:

“31.  Form and contents of arbitral award.

        …………………

(7)(a)  Unless otherwise agreed by the parties,

where and in so far as an arbitral award is for

the payment of money, the arbitral tribunal

may include in the sum for which the award is

made   interest,   at   such   rate   as   it   deems

reasonable, on the whole or any part of the

money, for the whole or any part of the period

between the date on which the cause of action

arose   and   the   date   on   which   the   award   is

made.”

10. The provisions of Section 31(7)(a) of the 1996 Act fell

for consideration before this Court in many cases including

in the cases of Hyder Consulting (UK) Limited (supra) and

Delhi   Airport   Metro   Express   Private   Limited   v.   Delhi

Metro  Rail  Corporation5

.   A perusal of clause (a) of subsection (7) of Section 31 of the 1996 Act would reveal that, no

4 (2015) 2 SCC 189

5 2022 SCC OnLine SC 549

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doubt,   a   discretion   is   vested   in   the   arbitral   tribunal   to

include in the sum for which the award is made interest, on

the whole or any part of the money, for the whole or any part

of the period between the date on which the cause of action

arose and the date on which the award is made. However, it

would reveal that the section itself requires interest to be at

such rate as the arbitral tribunal deems reasonable.  When a

discretion is vested to an arbitral tribunal to award interest

at a rate which it deems reasonable, then a duty would be

cast upon the arbitral tribunal to give reasons as to how it

deems the rate of interest to be reasonable.  It could further

be seen that the arbitral tribunal has also a discretion to

award interest on the whole or any part of the money or for

the whole or any part of the period between the date of cause

of action and the date on which the award is made.  When

the arbitral tribunal is empowered with such a discretion, the

arbitral tribunal would be required to apply its mind to the

facts of the case and decide as to whether the interest is

payable on whole or any part of the money and also as to

whether it is to be awarded to the whole or any part of the

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period between the date on which the cause of action arose

and the date on which the award is made.

11. A perusal of the award as also the judgment and

order of the District Judge as well as the High Court would

reveal that no such exercise has been done.   The learned

Arbitrator, without assigning any reasons, has awarded the

interest at the rate of 18% per annum for the period during

which the proceedings were pending and also at the same

rate after the award was made till the actual payment.

12. The   undisputed   position   is   that   though   final

measurement was done on 30st August 1977, for a period of

twelve years, i.e., till 25th July 1989, the respondent did not

take any step to raise his claim.  It is only on that date, i.e.,

25th  July   1989,   the   respondent   issued   a   notice   to   the

appellants regarding his claim. As such, the very conduct of

the respondent for remaining silent for such a long period

would disentitle him for the interest during the said period.  

13. Similarly,   though   a   decree   was   passed   on   14th

February 1990 and the respondent was directed to file the

original agreement, he took no step till 4th February 2000.  In

the meantime, the 1996 Act came into force.  Thereafter, the

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respondent filed an application in the disposed of suit which

came to be dismissed on 4th February 2000.  Thereafter, he

moved an application being MJC No. 36 of 2000 before the

High Court for appointment of arbitrator under Section 11 of

the 1996 Act which came to be allowed on 15th October 2001.

It could thus be seen that for a period of almost ten years,

the respondent was again in silent mode.  Had he filed the

original agreement immediately after the decree was passed

on 14th  February 1990, the arbitration proceedings would

have commenced and concluded immediately thereafter.  As

such, the learned Arbitrator was not justified in awarding

interest   for   the   period   from   14th  February   1990   to   4th

February   2000.   A   party   cannot   be   permitted   to   derive

benefits from its own lapses.  

14. It   is   further   to   be   noted   that,   though   after   the

commencement of the 1996 Act, the respondent could not

have moved an application in the disposed suit, he chose to

do so and only after dismissal of the said application on the

ground of lack of jurisdiction, did he move an application for

appointment of an arbitrator under Section 11 of the 1996

Act before the High Court, which was allowed on 15th October

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2001.   We therefore find that the respondent would not be

entitled for interest for the period from 14th February 1990 to

15th October 2001.

15. That leaves us with the rate of interest awarded by

the learned Arbitrator which has been upheld by the District

Judge and the High Court.  It will be apposite to refer to the

following observations of this Court in the case of Rajendra

Construction Co. (supra):

“30. The question then remains as to interest.

The   appellant   had   claimed   interest   in   the

suits. The arbitrator awarded interest at the

rate of 18 per cent per annum on the principal

amount from the date of the suits to the date

of awards and also from the date of the awards

to the date of payment or up to the date of

decrees, “whichever is earlier”. This Court has

dealt with the power of the arbitrator to award

interest for (i) pre­reference period (Executive

Engineer,   Dhenkanal   Minor   Irrigation

Division v. N.C. Budharaj [(2001) 2 SCC 721] );

(ii) pendente lite (Secy., Irrigation Deptt., Govt.

of Orissa v. G.C. Roy [(1992) 1 SCC 508] ); and

(iii) post­award period (Hindustan Construction

Co. Ltd. v. State of J&K [(1992) 4 SCC 217] ).

In Bhagawati Oxygen Ltd. v. Hindustan Copper

Ltd. [(2005) 6 SCC 462 : AIR 2005 SC 2071 :

JT (2005) 4 SC 73] , one of us (C.K. Thakker,

J.) had an occasion to consider the relevant

decisions   on   the   power   of   the   arbitrator   to

award interest at all the three stages. It was

held that the arbitrator had power to award

interest.   Keeping   in   view   the   facts   and

circumstances   of   the   present   case   that   the

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contract was entered into in 1987, the work

was completed in 1990 after extension granted

by MHADA and the arbitrator passed awards

in 1995, it would be proper, equitable and in

the interest of justice if we reduce the rate of

interest to 10 per cent per annum.”

16. This Court, after referring to the earlier decisions on

the power of the Arbitrator to award interest at all the three

stages that is pre­reference period,  pendente lite  and post

award period, found that, in the facts and circumstances of

the   said   case,   it   would   be   proper,   equitable   and   in   the

interest of justice to reduce the rate of interest to 10% from

18% per annum.

17. This Court, in the case of Mcdermott International

Inc., has observed thus:

“154. The   power   of   the   arbitrator   to   award

interest   for   pre­award   period,   interest

pendente lite and interest post­award period is

not in dispute. Section 31(7)(a) provides that

the Arbitral Tribunal may award interest, at

such rate as it deems reasonable, on the whole

or any part of the money, for the whole or any

part of the period between the date on which

the   cause   of   action   arose   and   the   date   on

which   award   is   made   i.e.   pre­award   period.

This, however, is subject to the agreement as

regards the rate of interest on unpaid sums

between   the   parties.   The   question   as   to

whether interest would be paid on the whole or

part of the amount or whether it should be

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awarded in the pre­award period would depend

upon   the   facts   and   circumstances   of   each

case. The Arbitral Tribunal in this behalf will

have to exercise its discretion as regards (i) at

what   rate   interest   should   be   awarded;   (ii)

whether   interest   should   be   awarded   on   the

whole or part of the award money; and (iii)

whether   interest   should   be   awarded   for   the

whole or any part of the pre­award period.

155. The 1996 Act provides for award of 18%

interest.   The   arbitrator   in   his   wisdom   has

granted   10%   interest   both   for   the   principal

amount as also for the interim. By reason of

the   award,   interest   was   awarded   on   the

principal amount. An interest thereon was up

to the date of award as also the future interest

at the rate of 18% per annum.

156. However, in some cases, this Court has

resorted to exercise of its jurisdiction under

Article   142   in   order   to   do   complete   justice

between the parties.

157. In Pure   Helium   India   (P)   Ltd. [(2003)   8

SCC   593]   this   Court   upheld   the   arbitration

award for payment of money with interest at

the rate of 18% p.a. by the respondent to the

appellant. However, having regard to the long

lapse of time, if award is satisfied in entirety,

the   respondent   would   have   to   pay   a   huge

amount by way of interest. With a view to do

complete justice to the parties, in exercise of

jurisdiction   under   Article   142   of   the

Constitution of India, it was directed that the

award shall carry interest at the rate of 6%

p.a. instead and in place of 18% p.a.

158. Similarly   in Mukand   Ltd. v. Hindustan

Petroleum   Corpn.   Ltd. [(2006)   9   SCC   383   :

(2006) 4 Scale 453], while this Court confirmed

the decision of the Division Bench upholding

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the modified award made by the learned Single

Judge, the Court reduced the interest awarded

by the learned Single Judge subsequent to the

decree   from   11%   per   annum   to   7½   %   per

annum observing that 7½ % per annum would

be the reasonable rate of interest that could be

directed   to   be   paid   by   the   appellant   to   the

respondent for the period subsequent to the

decree.

159. In this case, given the long lapse of time,

it will be in furtherance of justice to reduce the

rate of interest to 7½ %.”

18. It   could   thus   be   seen   that   while   exercising   the

jurisdiction under Article 142 of the Constitution of India,

this   Court   has   reduced   the   rate   of   interest   to   7.5%   per

annum.

19. Again, in the case of Krishna Bhagya Jala Nigam

Ltd.  (supra), this Court, while reducing the rate of interest,

observed thus:

“11. On the merits of the claims made by the

contractor we find from the impugned award

dated   25­6­2000   that   it   contains   several

heads.   The   arbitrator   has   meticulously

examined the claims of the contractor under

each separate head. We do not see any reason

to interfere except on the rates of interest and

on the quantum awarded for letting machines

of the contractor remaining idle for the periods

mentioned in the award. Here also we may add

that we do not wish to interfere with the award

except to say that after economic reforms in

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our country the interest regime has changed

and the rates have substantially reduced and,

therefore, we are of the view that the interest

awarded by the arbitrator at 18% for the prearbitration period, for the pendente lite period

and future interest be reduced to 9%.”

20. Noticing the similarity between the aforesaid cases

and the present case, we find that the present case is also a

fit case wherein this Court needs to exercise its powers under

Article 142 of the Constitution of India to reduce the rate of

interest.   As   already   discussed   hereinabove,   taking   into

consideration the conduct of the respondent in delaying the

proceedings at every stage which led to a long pendency of

the dispute, we are of the view that, though it will not be in

the interest of justice to interfere with the principal award,

this is a fit case wherein the interest at all the three stages,

that is pre­reference period,  pendente  lite  and post­award

period, requires to be reduced.

21. In the result, we partly allow the appeal and pass the

following order:

(i) The respondent would not be entitled to any interest

for the period between 30th  August 1977 and 25th

July 1989 and for the period between 14th February

2000 and 15th October 2001;

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(ii) In respect of the remaining period at all the three

stages, that is pre­reference period, pendente lite and

post­award period, the respondent would be entitled

to interest at the rate of 9% per annum.

22. We are informed that the execution proceedings are

still   pending.   The   parties   shall   submit   their   calculation

before   the   Executing   Court   in   accordance   with   what  has

been held by us hereinabove within a period of one month

from the date of this judgment.  The Executing Court would

quantify   the   amount   in   accordance   with   the   aforesaid

directions   within   a   period   of   one   month   thereafter.   The

appellants   shall   make   the   payment   of   the   amount   as

determined by the Executing Court within a period of one

month thereafter.

23. Pending application(s), if any, shall stand disposed of

in the above terms. No order as to costs.

.…..….......................J.

[B.R. GAVAI]

 ……….......................J.       

[B.V. NAGARATHNA]

NEW DELHI;

SEPTEMBER 30, 2022.

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