Punjab-Haryana High Court
Haryana State Agricultural Marketing ... vs Shri Sunder Ram Yadav on 1 August, 2013
Author: K. Kannan
Bench: K. Kannan
C.R. No.5020 of 2001 -1-
IN THE HIGH COURT FOR THE STATES OF PUNJAB AND HARYANA AT
CHANDIGARH
C.R. No.5020 of 2001
Date of Decision.01.08.2013
2. C.R. No.2775 of 2002
Haryana State Agricultural Marketing Board .....Petitioner
Versus
Shri Sunder Ram Yadav, Contractor and another .......Respondents
Present: Mr. Sanjiv Gupta, Advocate
for the petitioner.
Mr. Sunil Panwar, Advocate
for respondent No.1.
CORAM:HON'BLE MR. JUSTICE K. KANNAN
1. Whether Reporters of local papers may be allowed to see the
judgment ? Yes
2. To be referred to the Reporters or not ? Yes
3. Whether the judgment should be reported in the Digest? Yes
-.-
K. KANNAN J. (ORAL)
1. Both the civil revisions are between the same parties and with the consent of both parties, they are taken up together.
2. There are certain common grounds of contentions urged in both the civil revisions and they shall be addressed together and an additional point which is urged in C.R. No.2775 of 2002 is that the Arbitrator while passing an award, which was made the rule of Court had provided for an assessment of ` 1,39,200/- as the damages part for the delay in settling the dues and harassment suffered, which according to the Marketing Board-revision petitioner was not tenable since the parties had a pre-determined liquidated sum stipulated under the contract restricting damages only to a sum of ` 50,000/- and the award passed in Kamboj Pankaj Kumar 2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh C.R. No.5020 of 2001 -2- excess was without jurisdiction.
3. The award came to be passed on a reference to arbitration of dispute raised relating to unsatisfied bills for the works done by the contractor entrusted by the Board. The reference to arbitration had been made on 05.08.1991 and the award came to be passed on 05.01.1996. The three objections, which are taken on both the cases are: (i) that the award passed was without jurisdiction by the Arbitrator beyond a period of four months and hence void ab initio; (ii) the Arbitrator did not have a power to award interest on the amount determined and the award of interest @12% for the amount determined by him was incompetent and (iii) the Court had increased the award to 18% from the date of the decree which according to him was also not possible since in terms of Section 34 CPC, the Court should have passed an award only at the rate not exceeding 6% since the entrustment of work was not a commercial transaction.
4. As regards the contention that the award could not be passed by the Arbitrator beyond the period of four months, the counsel refers the reasoning adopted by the Court below that both parties had given in writing allowing for extension of time upto 06.01.1996 as not tenable on the ground that the extension agreed to by the parties must have been within a period of four months and in this case, since admittedly the reference to the Arbitrator had been made on 05.08.1991, the extension should also have been given within a period of four months but the extension had been given only on 04.12.1995 and therefore, such an extension cannot constitute a valid authority to the Arbitrator to pass the award.
Kamboj Pankaj Kumar2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh C.R. No.5020 of 2001 -3-
5. The power of the Arbitrator to extend the period comes only through the consent of parties and the Court itself has a power to consider extending the time when it is brought before it for making it rule of Court. The governing provision is Section 28 of the Arbitration Act of 1940 and it is reproduced as under:-
"28. Power to Court only to enlarge time for making award.
(1) The Court may, if it thinks fit, whether the time for making the award has expired or not and whether the award has been made or not enlarge from time to time the time for making the award.
(2) Any provision in an arbitration agreement whereby the arbitrators or umpire may, except with the consent of all the parties to the agreement, enlarge the time for making the award, shall be void and of no effect."
6. Clause (1) refers to the power of the Court for enlarging the time and Clause (2) refers to Arbitrator's power to extend the time. All that Clause (2) states is that any clause in an arbitration agreement providing for enlargement of time would be void. This only means that parties cannot contract out of statute and provide for a clause that an arbitral award could be passed beyond a period of four months. The exception is contained in the very same Section, which states that such enlargement to the time could come by consent of parties to the agreement. This consent obviously must be a consent in the course of arbitration proceedings and the Section by itself does not cause any restriction that such extension must be applied for within a period of four months itself. I would, therefore, not see such an inherent restriction as fettering the parties' right to grant an extension to the Arbitrator and if the consent to such a course comes about, although Kamboj Pankaj Kumar 2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh C.R. No.5020 of 2001 -4- after the expiry of period of four months, it ought to be sufficient ground to legitimize the Arbitrator's power and award. If the clause is so read and understood, there is no scope for seeing whether the Court could have awarded the extension. Even for an argument sake that it should be accepted that the parties could not have provided for such an extension, Section 28(1) allows for the power of the Court to grant such extension whether or not award has been passed. The expression of enlargement of time to an award being passed must be seen as an award passed beyond time or otherwise a reference under Section 2g(1) itself does not obtain any meaning. If, therefore, an award is passed by the Arbitrator beyond time then there is no restrictive provision under Section 28 itself for the Court to exercise and allow for such extension. The fact that parties had themselves allowed for extension during the course of proceedings ought to be therefore relevant even for the Court to consider and provide for extension. This would be, in my view, an additional ground for a Court to have exercised the discretion. If the Court of first instance has, therefore, allowed for such an extended period and legitimized the arbitral award, I will find no reason to take a different view.
7. As regards the power of the Arbitrator to award interest, it is contended in the ground that there was express stipulation in the agreement against the grant of interest to the Arbitrator. The relevant clause in the agreement is Clause 25-A, which is reproduced as under:-
"It shall be the term of contract agreement that the Arbitrator shall give a speaking award otherwise the award shall be null and void and will not be binding on the parties. It shall also be a term of this contract that in any dispute/difference referred to the Arbitrator, the Arbitrator Kamboj Pankaj Kumar 2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh C.R. No.5020 of 2001 -5- shall not award interest to the parties on any of the items of the contract agreement executed in between the parties. If the Arbitrator awarded interest, the same shall not be binding on the parties."
7. This issue has come up for consideration recently in Union of India Vs. Krafters Engineering and Leasing (P) Ltd. AIR 2011 SC 2620. It said that where the parties had agreed that no interest shall be payable, the arbitrator cannot award interest for the amounts payable to the contractor under the contract and where the agreement between the parties does not prohibit grant of interest and where a party claims interest and the said dispute is referred to the arbitrator, he shall have the power to award interest pendente lite. The agreement between the parties that there shall be no liability for interest actually takes away the discretion of the arbitrator to award pendente lite interest. However, this seems like a mere academic exercise, since the arbitrator has only awarded future interest and not pre-reference or pendente lite interest. The only issue, therefore, is whether even future interest @12% which was increased to 18% by the Court was justified. Section 29 empowers Court to order payment of interest at the rate it deems reasonable on principal sum adjudged by award and confirmed by decree.
8. Learned counsel refers me to paragraph 15 of the judgment of lower Court, where making a reference to Section 29 of the Arbitration Act as well as to Section 34 CPC, the Court has held that "the plain reading of the Section would show that the Court while making the award as rule of Court, which has an effect of decree can award interest from the date of decree at such rate as the Court may Kamboj Pankaj Kumar 2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh C.R. No.5020 of 2001 -6- think reasonable in this regard and the Courts ought to be guided either by the provisions of Section 34 CPC or by the agreement itself." Section 34, while dealing with the grant of future interest, talks about interest @6% from the date of decree till the date of actual payment is made. This Judge has not made a full reproduction of Section 34, for he has excluded consideration of the proviso which was introduced by Act 104 of 1976. In respect of a liability for a sum adjudged as future interest, the proviso admits of a rate on such further interest not exceeding the contractual rate of interest or where there is no contract rate, the rate at which monies are lent or advanced by nationalized bank. In this case, we have seen that the contract does not specific any rate.
9. The Bombay High Court has held in State of Maharashtra Vs. Saifuddin Mujaffarali Saif AIR 1994 Bom 48 that construction of Highway bridges by Government etc. cannot be treated as commercial transaction. They were conceived to be sovereign duties and hence could not obtain a commercial connotation. The Karnataka High Court had also interpreted that amount borrowed from a Bank for construction of a house was not a commercial transaction (The Sangli Bank Ltd. Vs. Chandrshekhar Channabasappa Karchi and others 2006(5) Kant CJ
402). In this case, the work was construction of a link road for the benefit of the Marketing Board. By no stretch of imagination, it would be stated to be a commercial transaction. The counsel for the respondent argued that even apart from construction cost, the award included amounts determined for delay and mental harassment. None of them could be stated to be commercial in character.
10. In C.R. No.2275 of 2002, the future interest had been Kamboj Pankaj Kumar 2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh C.R. No.5020 of 2001 -7- awarded @12%. The future interest in both the cases shall be 12% as awarded by the arbitrator. C.R. No.5020 of 2001 is allowed to the above extent and C.R. No.2775 of 2002 is dismissed. No costs.
(K. KANNAN) JUDGE August 01, 2013 Pankaj* Kamboj Pankaj Kumar 2013.08.08 16:12 I attest to the accuracy and integrity of this document Chandigarh