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,
1
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1940 Act was repealed and the Arbitration and Conciliation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.
2
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
3
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
4
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
5
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
6
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
7
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
8
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
9
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
10
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
11
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
12
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
13
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;
14
(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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