Madhya Pradesh High Court
Anand Prakash And Brothers, Ujjain vs State Of M.P. And Ors. on 29 April, 1994
Equivalent citations: AIR1996MP24, AIR 1996 MADHYA PRADESH 24
JUDGMENT Doabia, J.
1. A dispute having arisen between M/s. Anand Prakash and Brothers, Ujjain, a firm of Contractors (hereinafter referred to as the 'appellant') and the State of Madhya Pradesh (hereinafter referred to as the 'respondent-State') with regard to certain matters arising out of construction of the main earthen Bandh of Komcha Project in district Guna, the matter was referred to a sole arbitrator, who gave his award on April 9, 1982.
2. The appellants had claimed a total amount of Rs. 14,10,406/-. The break-up of this figure is as under:--
S. No. Items of claim Amount claimed
1.
Lead of earth-work not paid properly.
.. Rs. 6,87,804/-
2. Thick jungle clearance at quarries not paid.
.. Rs. 3,695/-
3. Extra work got done, not paid.
.. Rs. 1,626/-
4. List of earth work not paid correctly.
.. Rs. 7,15,281/-
Total :
Rs. 14,10,406/-
It is the case of the appellant that a claim for interest at the rate of 12 per cent, per annum on the aforementioned amount was made and it was duly referred to the arbitrator. This is, however, disputed by respondent-State. The arbitrator passed a non-speaking award on 9th of April, 1982 holding that the respondent-State of Madhya Pradesh, was liable to pay a sum of Rs. 8,82,319.85 p. only. The arbitrator also allowed interest at the rate of 12 per cent, per annum on the aforementioned amount. This interest was payable on the principal amount from I0th of April, 1974 being the date of completion of work by claimants to 9th of April, 1982, the date of making of the award.
3. An application was filed by the appellant before the District Judge, Guna, for making the award Rule of the Court. On the other hand, objections were filed by the respondent-State. The District Judge, Guna gave his decision on August 8, 1984 and he formed a view that the amount of Rupees 8,82,319.85 p. was rightly given but came to the conclusion that the appellant was not entitled to interest from April 10, 1974 to April 9, 1982. He, however, awarded future interest at the rate of 6 per cent, per annum.
4. The respondent-State of Madhya Pradesh felt satisfied with the decision given by the District Judge, Guna, whereas the appellant formed a view that the interest from April 10, 1974 to April 9, 1982 was wrongly denied. Accordingly, the present appeal was preferred before this Court.
5. The controversy in this appeal is very narrow. Broadly speaking, it is with regard to the power of the arbitrator to grant interest. This can be divided into two parts, that is, pre-reference period and the period after the arbitrator entered into reference. These two aspects are being dealt with separately. However, before we do so, the finding recorded by the District Judge with regard to the claim relating to interest be noticed. While deciding issue No. 1-A, the District Judge, came to the conclusion that when the matter was referred to the arbitrator there was no claim made with regard to the payment of interest and, therefore, interest could not be claimed by the appellant.
6. In this appeal, the learned Counsel for the appellant has argued that notwithstanding the finding recorded by the District Judge, Guna that claim qua interest was not made, his client is entitled to the same, as, according to him, the matter is squarely covered by a decision of the Supreme Court in the case of Secretary, Irrigation Department v. G. C. Roy, AIR 1992 SC 732. According to him in the above case, it has been held that arbitrator has power to award interest pendente lite, as claim regarding interest is an implied term of reference. The counsel for the State has, however, contended that the judgment given by the Supreme Court in the aforementioned case is distinguishable.
7.-8. As the District Judge has recorded a positive finding that in the reference which was subject-matter of adjudication before the arbitrator, the appellant had not claimed any interest, we are proceeding on the assumption that in the claim petition no claim for interest was made. We, however, agree with the contention of the learned Counsel for the appellant that whenever any money claim is referred to an arbitrator it is to include a claim for interest as well. It has been rightly argued that this would be an implied terms of reference even if there is no express claim made regarding this. This aspect of the matter was expressly dealt with by the Supreme Court in the aforementioned case, in para 14 of the judgment a reference is made to a decision given in Edwards v. The Great Western Railway Co., (1851) 138 ER 603. In the above case, the plaintiffs plea was that he was entitled to such interest whereas the defendant-Company disputed the power of the arbitrator to grant interest in this regard. The observations made by the Supreme Court in G. C. Roy's case (AIR 1992 SC 732) (supra) are relevant and are fully applicable to the facts of this case and may be noticed thus:--
"The question with which we are faced has been considered by the Indian and English Courts in detail. The decisions of the English Courts have been followed by the Indian Courts. It is, therefore, necessary to refer to some of the English decisions to examine how this question has been dealt with by the Courts in England. In Edwards v. The Great Western Railway Company, (1851) 138 ER 603, the question raised before the Court was "whether the arbitrator is empowered to award interest on the amount awarded by him if he thinks such a course proper. The plaintiffs case was that he was entitled to such interest whereas the defendant-Company disputed the power of the arbitrator. The Company's case was that inasmuch as the notice of action did not demand interest, the plaintiff was not entitled to claim interest. This argument was repelled by Jervis, C. J. in the following words:
"There are two answers to this : one is that there is no plea of want of notice of action, but only a plea of never indebted "by statute", --the effect of which is altered by Sir F. Pollock's act, 5 and 6 Vict. c. 97, Section 3. The defendants had, therefore, no right to rely upon the general plea; they are bound to plead especially the want of notice of action. A further answer would be, that this is a submission, not only of the action, but of all matters 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."
It is relevant to notice that the Court clearly held that where a money claim is referred to an arbitrator, it would include the claim for interest as well. This is how it has been understood in subsequent decisions, as we shall presently notice."
Even in the face of above observations, the argument advanced on behalf of the respondent-State was that the Supreme Court was not dealing strictly with the question of implied reference vis-a-vis interest. We do not agree with this argument of the counsel for the respondent-State. It may be seen that the decision given in the Great Western Railway Co. (1851 (138) ER 603) (supra) was followed by the Calcutta High Court in Bhowanidas Ramgobind v. Harsukhdas, AIR 1924 Cal 524. This is noticed by the Supreme Court in para 26 at page 743. The relevant portion reads as under:--
"The legal position is the same in India. In Bhawanidas Ramgobind v. Harsukhdas Bal-kishandas, AIR 1924 Cal 524, the Division Bench of the Calcutta High Court consisting of Rankin and Mookerjee, JJ., held that the arbitrators had authority to make a decree for interest, after the date of the award and expressly approved the decision of the English cases -- Edwards v. Great Western Rly., (1851) 11 CB 588 : (138 ER 603); Sherry v. Okes, (1835) 3 Dowl 349 : (1 H and W 119) and Beahan v. Wolfe, (1832) I A1 and Na 233. The same view has been expressed by this Court in a recent judgment in Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore, AIR 1967 SC 1030. We are accordingly of the opinion that the arbitrator had authority to grant interest from the date of the award to the date of the decree of Mallick, J. and Mr. Bindra is unable to make good his argument on this aspect of the case."
After noticing the aforesaid position, the Supreme Court further observed (at p. 744 of AIR) :--
"The above passages show that the Court laid down two principles : (i) it is an implied term of the reference that the arbitrator will decide the dispute according to existing law and give such relief with regard to interest as a Court could give if it decides the dispute; (ii) though in terms of Section 34 of the Code of Civil Procedure docs 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. It is also relevant to notice that this decision refers with approval to both the English decisions in Edwards (1851 (138) ER 603) and Chandris case (1951 (1) KB 240) besides the decision of this Court in Firm Madanlal Roshanlal. It is noteworthy that the decision explains and distinguishes the decision in Thawardas (AIR 1955 SC 468) on the same lines as was done in Firm Madanlal Roshanlal's case (AIR 1967 SC 1030)."
Thus, it is apparent that the view expressed in the Great Western Railway Co. (1851 (138) ER 603) (supra) that claim regarding interest is an implied term of reference in a money claim which was followed by the Calcutta High Court was proved by the Supreme Court. Accordingly, there is no room for contending that in a reference there has to be an express reference vis-a-vis interest. This becomes further clear from para 45 of G. C. Roy's case (AIR 1992SC732)(supra). This is as under:--
"Where the agreement between the parties does not prohibit grant of interest and where a party claims interest and that dispute (along with the claim for principal amount or independently) is referred to the arbitrator, he shall have the power to award interest pendente lite. This is for the reason that in such a case it must be presumed that interest was an implied term of the agreement between the parties and, therefore, when the parties refer all their disputes -- or refer the dispute as to interest as such -- to the arbitrator, he does not mean that in every case the arbitrator should necessarily award interest pendente lite. It is a matter within his discretion to be exercised in the light of all the facts and circumstances of the case, keeping the ends of justice in view."
The appellants would thus be entitled to interest for the period when the dispute was pending before the arbitrator i.e., from 29th November, 1979 to 9th. of April, 1982.
9. Faced with the above situation, the counsel for the respondent-State submitted that the judgment in G.C. Roy's case (AIR 1992 SC 732) (supra) can be said to deal with the question of payment of interest pendente lite and, therefore, the appellant's case for the pre-reference period would not be covered by the above decision. For payment of interest for pre-reference period, he relies upon a decision given by the Supreme Court in the case of Executive Engineer, Irrigation, Galimala v. Abnaduta Jena, AIR 1988 SC 1520.
10. It may be seen that the above decision was overruled in so far as it deals with the question of speaking nature of award. The reasoning with regard to the power of the arbitrator to grant interest with regard to pre-reference period still holds good. This matter becomes apparent when the judgment given by the Supreme Court in the ease of Jugalkishore v. Vijyendra, AIR 1993 SC 864, is perused. Mr. Justice B. P. Jeevan Reddy, who was member of the Constitution Bench of the Supreme Court which decided G.C. Roy's case (AIR 1992 SC 732) (supra) made this position clear in paras 35 and 38. The relevant portions read as under :--
"The decision in G.C. Roy, (1992) 1 SCC 508 : (AIR 1992 SC 732) was concerned only with the power of arbitrator to award interest pendente lite. It was not concerned with his power to award interest for the pre-reference period."
x x x x x "In the circumstances, it would not be correct to read the first of the five principles set out in para 43 as overruling Jena in so far as it dealt with the arbitrator a power to award interest for the pre-reference period."
In this view of the matter, the decision in the case of Executive Engineer, Irrigation, Gali-mala's case (AIR 1988 SC 1520) (supra) would continue to hold the field with regard to the power of the arbitrator to grant interest relating to pre-reference period. See also State of Orissa v. B.N. Agarwala, AIR 1993 SC 2521, which again reiterates what was stated in Jugal Kishore's case (supra). On the basis of the above judgments, and particularly on Abnaduta Jena's case (supra), the learned Counsel for the State/respondent has contended that if power to grant interest for pre-reference period is to be inferred then the payment of interest would be governed by the Interest Act, 1978 (hereinafter referred to as 'the Interest Act') and he has relied upon the provisions of Section 3(1)(b) of the above Act. He has contended that appellant can claim interest in accordance with the aforementioned Act and as such, interest can be awarded only from the date the notice was given by the appellant. This notice was given on 1st of February, 1979. The counsel for the appellant, however, submitted that the case should be dealt with in accordance with Section 3(1)(a) of the Interest Act and notice should also be taken of the definition of the term 'debt' as contained in the Interest Act. The learned Counsel for the appellant submitted that the claim of the appellant was not for any unliquidated damages or for the payment of any amount arising out of an inchoate or contingent obligation but it was for the payment of sum which was ascertain-able on a calculation made in terms of the agreement. Before dealing with these submissions, the provisions of Sections 2(c) and 3(1)(a) and (b) of the Interest Act may be seen. These are as under:--
"2(c) "debt" means any liability for an ascertained sum of money and includes a debt payable in kind, but does not include a judgment debt."
"3. Power of Court to allow interest.--(1) In any proceedings for the recovery of any debt or damages or in any proceedings in which a claim for interest in respect of any debt or damages already paid is made, the court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the following period, that is to say --
(a) if the proceedings relate to a debt payable by virtue of a written instrument at a certain time, then, from the date when the debt is payable to the date of institution of the proceedings;
(b) if the proceedings do not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable that interest will be claimed, to the date of institution of the proceedings:
Provided that where the amount of the debt or damages has been repaid before the institution of the proceedings, interest shall not be allowed under this section for the period after such repayment."
A bare reading of the aforementioned provisions makes it apparent that the appellant would be entitled to interest in terms of Section 3(1)(b) of the Interest Act only. The appellant gave a notice on 1st of November, 1979 and, therefore, the interest which would be payable to the appellant would be from this date only. Earlier to this, the claim of the appellant was unascertained and it was ascertained only by the arbitrator. The learned Counsel for the appellant has also placed reliance on a decision of this Court reported in Union of India v. K.S. Kalra, 1992 (2) MPJR 83, and has contended that interest should be payable with effect from 11th of April, 1974. He has also argued that the Interest Act is only an enabling provision and his client is entitled to interest under the ordinary law as well. He has also argued that his client is entitled to interest because what is to be seen is the date on which the award was given and, as, on that date, the Interest Act was in force the arbitrator could award the interest. This argument of the appellant's counsel is not correct. The Supreme Court allowed interest in Jena's case (AIR 1988 SC 1520) on the basis of the Interest Act, 1978. The case of the appellant falls under Section 3(1)(b) of the Interest Act. Earlier to it its claim was yet to be ascertained. A claim for a sum of Rupees 14,10,406/- was made but the arbitrator found that the appellant was entitled to only Rs. 8,82,319.85 p. As such, the argument of the counsel for the appellant that his clients are entitled to interest for the entire pre-reference period is not sustainable.
11. In view of the reasons given above, we are of the view that:--
(i) the appellant would be entitled to interest for the period when the dispute was pending before the arbitrator;
(ii) the appellant would also be entitled to interest for the pre-reference period in terms of Section 3(1)(b) of the Interest Act, 1978 with effect from 1st of February, 1979 only;
(iii) the rate of interest would be the same as allowed by the arbitrator.
12. As the question as to whether the arbitrator had the power to grant interest or not has been settled by the decision given by the arbitrator, we leave the parties to bear their own costs.