Himachal Pradesh High Court
M/S Sai Engineering Foundation ... vs Hpseb .......Judgment Debtor on 13 June, 2018
Author: Sandeep Sharma
Bench: Sandeep Sharma
IN THE HIGH COURT OF HIMACHAL PRADESH, SHIMLA
Execution Petition No. 16 of 2016
Reserved on 22.5.2018
Date of Decision: 13.6.2018
.
______________________________ _______________________________________
[
M/s Sai Engineering Foundation .........Decree Holder
Versus
HPSEB .......Judgment Debtor
Coram
Hon'ble Mr. Justice Sandeep Sharma, Judge.
Whether approved for reporting1? Yes.
For the petitioner: Mr. Vikas Chauhan, Advocate.
For the respondent: Mr. J.S. Bhogal, Senior Advocate, with Mr. Satish
Sharma, Advocate.
___________________________________________________________________________
Sandeep Sharma, J. (Oral)
HP Electricity Regulatory Commission, Shimla, appointed Shri D.N. Bansal (retired Engineer)/ Ex-Member of the HPSEB as the sole Arbitrator vide its order dated 25.2.2008, passed in petition No. 139/2007 titled M/s Sai Engineering Foundation v. HPSEB, for adjudication of dispute arose inter-se parties concerning the evacuation of power from the Titang Mini Hydel Project, Kinnaur. Aforesaid Arbitrator came to be appointed in terms of terms and conditions contained in Power Purchase Agreement dated 3.10.2000, signed between both the parties. Learned Arbitrator allowed the total sum of Rs. 53,26,732/- without interest as compensation in favour of decree holder.
None of the parties to aforesaid arbitration proceedings filed objections, if any, under Section 34 of the Arbitration and Conciliation Act, 1996 (in short Whether reporters of the Local papers are allowed to see the judgment?
::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -2-"the Act"), laying therein challenge to award dated 30.5.2009, passed by the sole arbitrator and as such, same has attained finality.
2. On 8.7.2016, decree holder, filed an execution petition under .
Order 21 Rule 11 of CPC read with Section 36 of the Act, for the execution of award dated 30.5.2009, passed by the sole Arbitrator, however, subsequently, an application bearing OMP No. 375 of 2016, came to be filed on behalf of the decree holder, seeking therein following amendment:-
"3. That the applicant/decree holder wants to amend by way of substitution in the existing Para 7 of the Execution petition as under:
Learned Arbitrator has allowed a total sum of Rs.53,26,732/- (Rupees Fifty Three Lakh Twenty Six thousand seven hundred and r thirty two only) without interest as compensation in favour of the decree holder till the date of the arbitral award that is 30.5.2009. The decree holder is also entitled to the future interest @ 18% per annum on the sum directed to be paid by an arbitral award as per Section 31(7)(b) of the Arbitration and conciliation Act, 1996 w.e.f. 31.5.2009 till the date of actual payment. Thus, the decree holder is entitled for a sum of Rs.1,21,41,958/- (Rupees one crores twenty one lakh forty one thousand nine hundred and fifty eight only)as calculated upto 8.7.2016 that is the date of filing of the Execution Petition before this Hon'ble Court. The following amount is payable by way of judgment debtor to the decree holder:
(i)Principal amount Rs.53,26,732/-
(ii) Interest on principal amount till the date of arbitral award (30.5.2009) -NIL-
(iii)Interest at 18% per annum on Principal amount from 31.05.2009 to 08.07.2016 (date of filing of the execution Petition) Rs.68,15,226/-
Total Rs. 1,21,41,958/-
(Future interest is also receivable @ 18% per annum till the date of full and final payment to the decree holder)"
::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -3-3. Though aforesaid prayer made on behalf of the decree holder was opposed by the Judgment Debtor, but this Court while returning finding that the entitlement of the decree holder to claim the post award interest and .
denial thereto by the Arbitral Tribunal is an arguable point, allowed the application and permitted Judgment Debtor to amend the execution petition. Aforesaid order was never laid challenge by the Judgment Debtor and as such, it attained finality qua both the parties.
4. Judgment Debtor filed the objections under Section 47 CPC bearing OMP No. 381 of 2016, to the execution petition, praying therein for dismissal of the execution proceedings, however fact remains that same was dismissed by this Court vide order dated 16.5.2017. It is also not in dispute that no challenge, if any, was laid to order dated 16.5.2017, passed by this Court.
Subsequent to passing of aforesaid order, an application bearing OMP No. 269 of 2017, came to be filed on behalf of the decree holder for release of principal amount i.e. Rs.53, 26,732/-, deposited by the judgment debtor in the Registry of this Court. This Court taking note of the fact that it had already dismissed the objections filed under Section 47 of CPC vide its order dated 16.5.2017, ordered for release of amount lying deposited in the Registry of this Court in favour of the decree holder. However, issue with regard to the entitlement of post award interest in terms of Section 31 (7) (b) of the Act, was ordered to be decided later on. After dismissal of objections filed under Section 47 of CPC i.e. OMP No. 381 of 2016, petitioner filed application bearing No. 270 of 2017 under Order 21 Rule 13 of CPC, praying therein for attachment of immovable property of the judgment debtor.::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -4-
5. As has been noticed herein above, none of the parties have laid challenge to the award passed by the learned Arbitrator and as such, same has attained finality. Objection to the execution of award stands already .
dismissed and the amount deposited by the judgment debtor in this Court in terms of award passed by the learned Arbitrator stands already disbursed to the decree holder. Question which remains to be decided by this Court in the present proceedings is that whether decree holder is entitled to post award interest @ 18% p.a., from the date of the award till date of actual payment, as has been prayed in the instant petition on behalf of the decree holder or not?
6. There is no dispute that the learned Arbitrator has not held the decree holder entitled to post award interest while awarding it compensation qua various claims raised by it by way of settlement of claims. Learned Arbitrator while returning finding qua issue No. 3, has categorically held that no interest is payable as IPP has not contributed for its interconnection to the distribution licensee.
7. Mr. Vikas Chauhan, learned counsel representing the decree holder fairly admitted that decree holder being aggrieved and dis-satisfied with the non-grant of interest, as claimed in the statement of claims, ought to have filed objections under Section 34 of the Act, however, he while inviting attention of this Court to Section 31 (7) (b) strenuously argued that the learned Arbitrator was under obligation to award post award interest and as such, decree holder is entitled to interest @18% p.a. from the date of the award till the date of actual payment. While referring to the award passed by the learned Arbitrator, Mr. Chauhan, made an endeavour to persuade this Court ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -5- to agree with his contention that there is no specific finding, if any, recorded by the Arbitrator qua the post award interest. He further stated that since award passed by the learned Arbitrator is silent qua aforesaid aspect of the .
matter, decree holder is entitled to post award interest in terms of Section 31 7 (b).
8. Mr. J. S. Bhogal, learned Senior Counsel, duly assisted by Mr. Satish Sharma, Advocate, while opposing the aforesaid submissions having been made by the learned counsel representing the decree holder, contended that since Arbitrator has categorically denied the future interest, as prayed for, by the decree holder in its statement of claims, no post award interest can be claimed under Section 31 (7) (b). While referring to the provisions contained in Section 31 (7) (b), Mr. Bhogal argued that decree holder is not entitled to any post award interest, because arbitrator has held it not entitled to any kind of interest. While laying stress upon words "unless the award otherwise directs", Mr. Bhogal, contended that learned Arbitrator has returned specific finding qua the interest claimed by the decree holder in its statement of claims and as such, decree holder cannot claim post award interest in terms of Section 31 (7) (b). He further argued that being aggrieved and dis-satisfied with non-awarding of interest by the learned Arbitrator, decree holder ought to have filed objections under Section 34 of the Act and post award interest, as prayed for, cannot be granted in the instant proceedings. Lastly, Mr. Bhogal, contended that in execution proceedings, court cannot go beyond the decree/award passed by the court/arbitrator and as such, prayer for post award interest, cannot be considered and ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -6- decided by this Court in the instant proceedings, especially when learned Arbitrator has not held the decree holder entitled for future interest. In this regard, he placed reliance upon judgment rendered by the Hon'ble Apex .
Court in Bharat Heavy Electricals Limited v. Tata Projects Limited, 2015 (5) SCC
682.
9. I have heard the learned counsel for the parties and gone through the records of the case.
10. Before ascertaining the correctness of the rival contentions raised on behalf of both the parties, it would be profitable to take note of following provisions of Act:
"35. Finality of arbitral awards.
Subject to this Part an arbitral award shall be final and binding on the parties and persons claiming under them respectively.
36. Enforcement.
Where the time for making an application to set aside the arbitral award under section 34 has expired, or such application having been made, it has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 (5 of 1908) in the same manner as if it were a decree of the Court. 31 (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."
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment." (Emphasis supplied)
11. Needless to say, award passed in terms of Sections 35 and 36 of the Act, is an executable decree passed by the Court. Further careful perusal of Section 31 (7) (b), entitles the petitioner for an interest on the awarded amount till the date of payment of interest @18% p.a. Aforesaid provisions are evidently clear and claimant is entitled to be awarded interest, as prayed for, ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -7- in the statute. Since expression used is "shall", language of the statute is mandatory. No doubt, discretion to award interest is based upon the equitable consideration, but certainly court cannot go behind the decree.
.
This Court in case titled Kataria Builders Vs. State of HP, 2004 (3) Arb. L.R. 137, while dealing with an execution petition, held the decree holder entitled to future interest @ 18% p.a. from the date of the award till the date of payment in terms of clause (b) of Sub Section (7) of Section 31 of the Act.
12. Subsequently, this Court while dealing with similar situation in case titled Ranjit Singh Rana v. H.P. Housing and Urban Development, bearing OMP No. 678 of 2008 in Execution Petition No. 6 of 2008 decided on 5.3.2009, held the decree holder entitled for the post award interest in terms of Section 31 (7) (b) of the Act. It would be profitable to take note of the following paras of the aforesaid judgment:-
"A bare perusal of Section 31 (7) (b) entitles the petitioner for interest on the awarded amount till the date of payment at the rate of 18% per annum.
This Court in Kataria Builders Vs. State of H.P. 2004(3) Arb.L.R. 137 while dealing with an execution petition, arising out of similar circumstances has held the decree holder to be entitled to future interest at the rate of 18% per annum from the date of the award till the date of the payment in terms of Clause (b) of sub-section (7) of Section 31 of the Act.
A Similar view has also been taken by the Division Bench of the High Court of Delhi in Union of India and another Vs. M/s P.C. Sharma, and Company, AIR 2007 Delhi 51 and the High Court of Punjab and Haryana in State of Haryana and others vs. Goel projects Pvt. Ltd., 2007(1) Arb.L.R. 444 (P&H).
No doubt discretion to award interest is based on equitable consideration but, however, this court cannot go behind the decree.
The fact of the matter is that the provisions of the statute are evidently clear and the claimant has to be awarded interest as awarded for in the statute. The language of the statute is mandatory and the expression used is 'shall'. The ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -8- nature of the transaction between the parties were commercial in nature. They were conscious of the commercial terms and the laws of the land. Therefore, I have no hesitation in holding that the decree holder shall be entitled to interest at the rate of 18% from the date of the .
award till the date of actual payment.
It may be noticed that while dealing with the proceedings under the Act, as well as Arbitration Act, 1940, the Apex Court in Krishna Bhagya Jala Nigam Ltd. v. G. Harischandra Reddy and another, 2007 (2) SCC 720, Mcdermoti International Inc. Vs. Burn Standard Co. Ltd. and others 2006 (11) SCC 181, Rajasthan State Road Transport Corpn. Vs. Indag Rubber Ltd. 2006 (7) SCC 700 and Pure Helium India (P) Ltd. Vs. Oil & Natural Gas Commission 2003 (8) SCC 593, have reduced the rate of interest from the rate so awarded by the arbitrator. The Court was not dealing with the execution proceedings. But, however, the same has been done in the facts and circumstances of the cases being dealt with by the Court and that too in exercise of its constitutional powers and, therefore they are not binding precedents. The question as to whether interest lower than 18% as provided for in Section 31 (7) of the Act can be awarded by the executing Court was directly and substantially not in issue before the Apex Court.
No doubt, the constitution Bench in Central Bank of India Vs. Ravindra and others (2002) 1 SCC 367 has held as under:-
"(7) Award of interest pendente lite and post-decree is discretionary with the Court as it is essentially governed by Section 34 of the CPC de hors the contract between the parties. In a given case if the Court finds that in the principal sum adjudged on the date of the suit the component of interest is disproportionate with the component of the principal sum actually advanced the Court may exercise its discretion in awarding interest pendente lite and post-decree inter-
est at a lower rate or may even decline awarding such interest. The discretion shall be exercised fairly, judiciously and for reasons and not in an arbitrary or fanciful manner.
But, however, the court was not dealing with the relevant provisions of the Act. Therefore, the decision is not applicable.
In this view of the matter, it is held that the decree holder shall be entitled to interest at the rate of 18% per annum from the date of the award till the date of the payment."
::: Downloaded on - 15/06/2018 23:00:43 :::HCHP -9-13. At this stage, it may be noticed that aforesaid judgment passed by this Court was subsequently laid challenge in the Hon'ble Apex Court i.e. Himachal Pradesh Housing and Urban Development Authority and Anr. v. Ranjit .
Singh Rana, 2012 (4) SCC 505. Hon'ble Apex Court though upheld the finding returned by the co-ordinate Bench of this Court qua the entitlement of the decree holder for post award interest in terms of Section 31 (7) (b), but modified the judgment of this court to the extent that appellant department would be liable to pay interest @ 18%p.a. for the post award period from the date of award until 24.5.2001, i.e. on which date, department had deposited the entire amount due under the award before the High Court. It would be profitable to take note of the following paras of the aforesaid judgment because Hon'ble Apex Court has specifically dealt with provision contained under Section 31 (7) (a) and (b) and while drawing strength from its earlier judgment rendered in State of Haryana Vs. S.L. Arora and Co. 2010 (3) SCC 690, upheld the finding returned by this Court. Hon'ble Apex court has categorically held that since arbitrator has not exercised any discretion in the matter pertaining to interest for the post award period, decree holder shall be entitled to interest @ 18% p.a. from the date of award till the date of payment in terms of Section 31 (7) (b) of the Act. Relevant Paras are reproduced herein below:-
"6.The High Court considered the diverse provisions of the Act including Section 31(7)(a) and (b) of the Act and few decisions of this Court and ultimately held that the respondent was entitled to post-award interest @ 18% p.a. from the date of the award till the date of ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 10 -
the actual payment. It is this order which is in appeal before us.
7. There is no dispute that the entire amount due under the Award dated February 14, 2001 was deposited by the .
appellants before the High Court on May 24, 2001. The question that arises for determination before us is, whether deposit of the entire award amount by the appellants on May 24, 2001 into the High Court amounts to payment to the respondent and the appellants liability to pay interest @ 18% p.a. from the date of the award ceased from that date.
8. Section 31(7)(a) and (b) of the Act reads as under:
"31(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 r any part of the period between the date on which the cause of action arose and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment."
9. The above provision has been recently considered 9. The above provision has been recently considered by this Court in State of Haryana and others vs. S.L. Arora and Company (2010)3 SCC 690. This Court held as under:
"23........In a nutshell, in regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract, as per discretion of the Arbitral Tribunal. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum."
This Court further observed in para 24.6 as under:- (2010 (3) SCC690, 2010 (1) (Civ) 823:
"24.6.........but if the award is silent in regard to the interest from the date of award, or ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 11 -
does not specify the rate of interest from the date of award, then the party in whose favour an award for money has been made, will be entitled to interest at 18% per annum from the date of award. He may claim the .
said amount in execution even though there is no reference to any post-award interest in the award. Even if the pre-award interest is at much lower rate, if the award is silent in regard to post-award interest, the claimant will be entitled to post- award interest at the higher rate of 18% per annum.
10. The learned counsel for the parties are ad idem that the Arbitrator has not exercised any discretion in the matter pertaining to the interest for the post-award period.
Obviously, in absence thereof, by virtue of Section 31(7)
(b) of the Act, the award would carry interest @ 18% p.a. from the date of the award till the date of payment."
14. Relevant paras of judgment passed by the Hon'ble Apex Court in State of Haryana Vs. S.L. Arora and Co. 2010 (3) SCC 690, are also reproduced herein below:-
"23. The difference between clauses (a) and (b) of section 31(7) of the Act may conveniently be noted at this stage. They are :
(i) Clause (a) relates to pre-award period and clause (b) relates to post- award period. The contract binds and prevails in regard to interest during the pre-award period. The contract has no application in regard to interest during the post-award period.
(ii) Clause (a) gives discretion to the Arbitral Tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the parties. Clause (b) also gives discretion to the Arbitral Tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that discretion is not exercised by the arbitral Tribunal, then the statute steps in and mandates payment of interest, at the ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 12 -
specified rate of 18% per annum for the post- award period.
(iii) While clause (a) gives the parties an option to contract out of interest, no such .
option is available in regard to the post-
award period.
In a nutshell, in regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract as per discretion of the Arbitral Tribunal. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitral Tribunal and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum.
24. As there is some confusion as to what section 31(7) authorizes and what it does not authorize, we will attempt to set out the legal position regarding award of interest by the arbitral tribunals, as emerging from section 31(7) of the Act.
(24.1) The provision for interest in the Act is contained in section 31 dealing with the form and contents of arbitral award. It employs two significant expressions "where the arbitral award is for payment of money" and "the arbitral tribunal may include in the sum for which the award is made, interest..... on the whole or any part of the money".
The legislature has thus made it clear that award of interest under sub-section (7) of section 31 (and award of costs under sub-section (8) of Section 31 of the Act) are ancillary matters to be provided for by the award, when the arbitral tribunal decides the substantive disputes between the parties. The words `sum for which the award is made' and `a sum directed to be paid by an arbitral award' contextually refer to award on the substantive claims and not ancillary or consequential directions relating to interest and costs.
(24.2.) The authority of the arbitral tribunals to award interest under section 31(7)(a) is subject to the contract between the parties and the contract will prevail over the provisions of section 31(7)(a) of the Act. Where the contract between the parties contains a provision relating to, or regulating or prohibiting interest, the entitlement of a party to the contract to interest for ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 13 -
the period between the date on which the cause of action arose and the date on which the award is made, will be governed by the provisions of the contract, and the arbitral tribunal will have to grant or refuse interest, strictly in accordance with the contract. The arbitral tribunals cannot .
ignore the contract between the parties, while dealing with or awarding pre-award interest. Where the contract does not prohibit award of interest, and where the arbitral award is for payment of money, the arbitral tribunal can award interest in accordance with Section 31(7) (a) of the Act, subject to any term regarding interest in the contract.
(24.3) If the contract provides for compounding of interest, or provides for payment of interest upon interest, or provides for interest payable on the principal upto any specified stage/s being treated as part of principal for the purpose of charging of interest during any subsequent period, the arbitral tribunal will have to give effect to it. But when the award is challenged under Section 34 of the Act, if the court finds that the interest awarded is in conflict with, or violating the public policy of India, it may set aside that part of the award.
(24.4) Where an arbitral tribunal awards interest under section 31(7)(a) of the Act, it is given discretion in three areas to do justice between the parties. First is in regard to rate of interest. The Tribunal can award interest at such rate as it deems reasonable. The second is with reference to the amount on which the interest is to be awarded. Interest may be awarded on the whole or any part of the amount awarded. The third is with reference to the period for which the interest is to be awarded. Interest may be awarded for the whole or any part of the period between the date on which cause of action arose and the date on which the award is made.
(24.5) The Act does away with the distinction and differentiation among the four interest bearing periods, that is, pre-reference period, pendente lite period, post-award period and post-decree period. Though a dividing line has ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 14 -
been maintained between pre-award and post-award periods, the interest bearing period can now be a single continuous period the outer limits being the date on which the cause of action arose and the date of payment, subject however to the discretion of the arbitral tribunal to .
restrict the interest to such period as it deems fit.
(24.6) Clause (b) of Section 31(7) is intended to ensure prompt payment by the award-debtor once the award is made. The said clause provides that the "sum directed to be paid by an arbitral award" shall carry interest at the rate of 18% per annum from the date of award to the date of payment if the award does not provide otherwise in regard to the interest from the date of the award. This makes it clear that if the award grants interest at a specified rate up to the date of payment, or specifies the rate of interest payable from the date of award till date of payment, or if the award specifically refused interest, clause (b) of Section 31 will not come into play. But if the award is silent in regard to the interest from the date of award, or does not specify the rate of interest from the date of award, then the party in whose favour an award for money has been made, will be entitled to interest at 18% per annum from the date of award. He may claim the said amount in execution even though there is no reference to any post award interest in the award. Even if the pre-award interest is at much lower rate, if the award is silent in regard to post- award interest, the claimant will be entitled to post- award interest at the higher rate of 18% per annum. The higher rate of interest is provided in clause (b) with the deliberate intent of discouraging award-debtors from adopting dilatory tactics and to persuade them to comply with the award.
34. Conclusion Thus it is clear that section 31(7) merely authorizes the arbitral tribunal to award interest in accordance with the contract and in the absence of any prohibition in the contract and in the absence of specific provision relating to interest in the contract, to award simple interest at such rates as it deems fit from the date on which the cause of action arose till the date of payment. It also provides that if the award is silent about interest from the date of award till date of payment, the person in whose favour the award is made will be entitled to interest at 18% per annum on the principal amount awarded, from the date of award till date of payment. The calculation that was made in the execution petition as originally filed was correct and the modification by the respondent increasing the amount due under the award was contrary to the Award."
::: Downloaded on - 15/06/2018 23:00:43 :::HCHP- 15 -
15. Plain reading of Section 31 (7) (b) of the Act (un-amended) prescribes the maximum rate of interest that can be allowed by an arbitrator.
Aforesaid provision clearly lays down that a sum directed to be paid by an .
arbitral award shall, unless the award otherwise directs, carry interest at the rate of 18%, from the date of award till the date of payment. At this stage, it may be noticed that since award sought to be executed by way of present proceedings was passed in the year, 2009 i.e. 30.5.2009, and as such, un- amended provision of Section 31 (7) (b) shall be applicable, not the amended Section 31(7) (b), whereby it has been provided that an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent, higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment. Aforesaid provision of law came to be amended by Act 3 of 2016. It would be profitable to take note of amendment made in Section 31 of the principal Act of the Arbitration and Conciliation (Amendment) Act, 2015:-
"16.Amendment of section 31.- In section 31 of the principal Act,-
(i) in sub-section (7), for clause (b), the following clause shall be substituted, namely:-
(b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of two per cent. higher than the current rate of interest prevalent on the date of award, from the date of award to the date of payment.
Explanation. The expression current rate of interest shall have the same meaning as assigned to it under clause (b) of section 2 of the Interest Act, 1978 (14 of 1978).' ;
(ii) for sub-section (8), the following sub-section shall be substituted, namely:-
::: Downloaded on - 15/06/2018 23:00:43 :::HCHP- 16 -
(8) The costs of an arbitration shall be fixed by the arbitral tribunal in accordance with section 31A."
Aforesaid amendment came into force w.e.f. 23.10.2015. At this stage, it .
would be apt to take note of Section 26 of the Amended Act, 2015, which is reproduced herein below:-
"26.Act not to apply to pending arbitral proceedings.- Nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree but this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act."
Aforesaid provision of law clearly provides that nothing contained in this Act shall apply to the arbitral proceedings commenced, in accordance with the provisions of section 21 of the principal Act, before the commencement of this Act unless the parties otherwise agree and this Act shall apply in relation to arbitral proceedings commenced on or after the date of commencement of this Act i.e. Arbitration and Conciliation (Amendment) Act, 2015. Careful perusal of aforesaid provision of law leaves no manner of doubt that amendment made in Section 31 (7) (b) is prospective and cannot be made applicable to the arbitral proceedings commenced before the commencement of Arbitration and Conciliation (Amendment) Act, 2015.
16. Careful reading of aforesaid provision of law clearly provides for future interest to be paid on the principal amount awarded by the Arbitrator.
Though discretion lies with the arbitral tribunal to grant interest at a rate lower than the set out from the date of award to the date of payment, but in the absence of any determination on the claim of interest by the arbitral tribunal, ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 17 -
the award "shall" carry interest at the rate of 18% from the date of award till the date of payment and as such, it can be safely concluded that act provides for an in-built machinery for payment of future interest on the .
amount of award unless the award otherwise directs. Very object of the clause seems to compel the unscrupulous disputants from adopting delaying tactics in the matter of payment of the award alongwith interest. Hon'ble Apex Court in Nityananda Samantray v. State of Orrisa, AIR 1987 Ori 132, has held that award of future interest from the date of decree puts a lead and tension on the other party to pay off the sum promptly since otherwise payment of the sum may be delayed indefinitely. It has been further held that very purpose of resorting to arbitration is a prompt disposal of the claim and unless future interest is granted, the whole purpose of arbitration may be frustrated.
17. Bare reading of aforesaid exposition of law, clearly suggests that even when there is prohibition on the part of the arbitrator in granting interest on the awarded amount, the court is not precluded from granting post award interest for early recovery of the amount so awarded and to protect interest of the party in whose favour, award is passed. No doubt, from the date of passing of the decree, future interest can be awarded by an arbitrator, but in this regard, he or she is under obligation to return specific finding qua the entitlement of decree holder for post award interest. If the award is silent with regard to rate of interest in the award, then the party in whose favour, the award for money has been made, shall be entitled to the interest at the rate specified from the date of the judgment. Higher rate of interest is provided in ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 18 -
clause (b,) purposely with an intent of discouraging the judgment debtors from adopting delaying tactics and persuade them to comply with award as is held in State of Haryana v. S.L. Arora's case (surpa). Grant of future interest .
is mandatory since expression used in sub section 7(b) is "shall". Where the nature of transaction between the parties is commercial in nature and they were conscious of the commercial terms and law of the land, the decree holder would be entitled to interest at the rate specified from the date of award till the date of payment as has been held by the Hon'ble Apex Court in Ranjit Rana's case supra.
18. Reliance is also placed upon judgment rendered by the Hon'ble Apex Court in case Hyder Consulting (UK) Limited v. Governor, State of Orissa, 2015 (2) SCC 189, wherein it has been held that vide Section 31 (7) (a) of the Act, Parliament intended that an award for payment of money may be inclusive of interest and the "sum" of the principal amount plus interest may be directed to be paid by the Arbitral Tribunal for the pre-award period.
Thereupon, the Arbitral Tribunal may direct interest to be paid on such "sum"
for the post-award period vide clause (b) of sub- section (7) of Section 31 of the Act. In the aforesaid judgment, it has been held that pre-award interest is at the discretion of Arbitral Tribunal, whereas the post-award interest on the awarded sum is mandate of statute and the only difference being that of rate of interest to be awarded by the Arbitral Tribunal. Relevent paras of the aforesaid judgment are reproduced herein below:-
"9. The purpose of enacting this provision is clear, namely, viz. to encourage early payment of the awarded sum and to discourage the usual delay, which accompanies the ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 19 -
execution of the Award in the same manner as if it were a decree of the court vide Section 36 of the Act.
26.Section 31(7)(a) of the Act deals with grant of pre-award interest while sub-clause (b) of Section 31(7) of the Act deals with grant of post- award interest. Pre-award interest .
is to ensure that arbitral proceedings are concluded without unnecessary delay. Longer the proceedings, would be the period attracting interest. Similarly, post-award interest is to ensure speedy payment in compliance of the award. Pre-award interest is at the discretion of Arbitral Tribunal, while the post-award interest on the awarded sum is mandate of statute - the only difference being that of rate of interest to be awarded by the Arbitral Tribunal. In other words, if the Arbitral Tribunal has awarded post- award interest payable from the date of award to the date of payment at a particular rate in its discretion then it will prevail else the party will be entitled to claim post-award interest on the awarded sum at the statutory rate specified in clause (b) of Section 31(7) of the Act, i.e., 18%. Thus, there is a clear distinction in time period and the intended purpose of grant of interest.
80. Therefore, it may be concluded that the term "interest", appears to be distinct from the principal amount on which it is imposed. Furthermore, the imposition of an interest is stated to be for the purpose of providing compensation for withholding the said principal amount or, as in the case of clause (a) of sub- section (7) of Section 31 of the Act, 1996, for withholding the money awarded as per the claim, as determined by the arbitral tribunal, from the date the cause of action arose till the date when such award was made. In other words, interest is imposed to compensate for the denial to one party, by the other party, of the money which rightfully belongs to the said former party under the relevant agreement governing the arbitration proceedings.
81. Having clarified sub-section (a) of sub- section (7) of section 31 of the Act, 1996, I would now consider clause
(b) of the said provision. As noticed above, clause (b) is applicable for the period from the date of award to the date of payment. The applicability of clause (b) has also been qualified by the legislature. The said clause uses the phrase "unless the award otherwise directs", which would mean that in the event the arbitral tribunal, in its award, makes a provision for interest to be imposed in this second stage as envisaged by sub- section (7) of section 31 of the Act, 1996, clause (b) would become inapplicable. By the said award, the arbitral tribunal has the power to impose an interest for the post-award period which may be higher or lower than the rate as prescribed under clause (b). Even if the award states that no interest shall be imposed in the post-award period, clause (b) cannot be invoked.::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 20 -
82. If the arbitral award is silent on the question of whether there would be any post- award interest, only in that situation could clause (b) be made applicable. In the said situation, it would be mandatory as per law that the award would carry interest at the rate of 18% per annum from the .
date of the award to the date of payment. The term used in the given clause is "shall", therefore, if applicable, the imposition of interest as per clause (b) would be mandatory.
83. It would be relevant also to take note of the case of H.P. Housing & Urban Development Authority v. Ranjit Singh Rana, (2012) 4 SCC 505. In the Ranjit Singh Rana case (supra), this Court dealt with the meaning of the word "payment" as under clause (b) of sub- section (7) of section 31 of the Act, 1996 to ascertain when the liability to pay post- award interest would come to an end. After making a reference to the S.L. Arora case (supra), this Court went into the dictionary meaning of the word "payment". The Court explained as follows. The Court explained as follows: (Ranjit Singh Rana Case, SCC p.508, para 15) r "15. The word "payment" may have different meaning in different context but in the context of Section 37(1)(b); it means extinguishment of the liability arising under the award. It signifies satisfaction of the award. The deposit of the award amount into the court is nothing but a payment to the credit of the decree-holder. In this view, once the award amount was deposited by the appellants before the High Court on 24- 5-2001, the liability of post-award interest from 24-5-2001 ceased. The High Court, thus, was not right in directing the appellants to pay the interest @ 18% p.a. beyond 24-5- 2001."
84. Clause (b) of sub- section (7) of section 31 of the Act, 1996 further states that the interest as envisaged under the said provision would be on the sum directed to be paid by an arbitral award. As noticed in the discussion hereinabove, the term "sum", as in clause (a), refers simply to the money directed to be paid as per the award, that is, the money as adjudicated by the arbitral tribunal.
19. It is apparently clear from the aforesaid enunciation of law laid down by the Hon'ble Apex Court as well as this Court that Arbitral Tribunal can exercise discretion to grant pre award period interest only in the absence of ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 21 -
agreement between the parties and it has absolute discretion to grant post award interest, but the contract has no application to the post award interest.
It also emerges from the reading of the aforesaid judgments rendered by the .
Hon'ble Apex Court that if the award is silent as to the interest from the date of award, or does not specify the rate of interest from the date of award, interest at a mandatory statutory rate of 18% per annum is payable from the date of award in terms of Section 31 (7) (b).
20. High Court of Delhi in Union of India and Anr. V. M/s P.C. Sharma and Com., AIR 2007 Delhi 51, has held that mandate of law is that award shall automatically carry interest at the rate of 18% per annum from the date of the award till the date of payment unless the award otherwise directs. It has been further held that even if it was not so spelled out in the award, it has to be read into the award. While rendering the aforesaid judgment, High Court of Delhi, has further held that executing court cannot be faulted in awarding post award interest in terms of Section 31 (7) (b) and such action of executing court cannot be termed as modification of the award. Relevant paras of the judgment are reproduced herein below:-
"10. It is, therefore, explicit from a perusal of the said provision that any sum which is directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of 18% per annum from the date of the award to the date of payment. This being the mandate of the provision of the Act, even if it was not so spelled out in the award, it has to be read into the award and the executing Court cannot be faulted in doing so in the present case. This cannot be termed as a modification of the award. The submission of the learned Counsel for the appellants that the award already stood satisfied on payment of Rs. 4,68,753/- and that the provisions of Section 33 could only be invoked by the arbitral tribunal and not by the Court for carrying out any correction and/or ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 22 -
interpreting an award or passing an additional award, is devoid of merits inasmuch as the executing Court has not exercised its powers under the said provision at all. Nor has it corrected the original award or passed any additional award. The learned single Judge has only amplified the .
relevant provisions of the Act and given effect to them by holding that the respondent/decree holder is entitled to receive interest on the awarded amount at the rate of 18% per annum from 25th November, 2000 to 25th September, 2003.
11. Even otherwise, it is a well settled rule of justice, equity and fair play that the Court has inherent jurisdiction to award interest even in the absence of any legislation, agreement or custom to that effect, though subject to contrary agreement. As held by the Supreme Court in the case of South Eastern Coalfields Ltd. v. State of M.P. reported as , "applicability of the rule to award interest in equity is attracted on the existence of a state of circumstances being established which justify the exercise of such equitable jurisdiction and such circumstances can be many...."
21. At one point of time, Government of India, desired that the Law Commission may review the functioning of the Act in view of the various shortcomings observed in its provisions and certain representations received by the Government. Vide communication dated 12.9.2001, Law Commission of India submitted its 176th report on the Arbitration and Conciliation (Amendment) Bill, 2001, wherein Section 31 (7) (b), also came to be considered, relevant extract whereof is being reproduced herein below:-
"2.23 Interest under sec. 31(7)(b): 18% to be the upper limit
- proposal rejected Under sec. 31(7)(b) of the Act, it is stated that a sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per cent per annum after the date of the award till date of payment.
It has been pointed out that this provision is creating great hardships in cases where the award is silent as to the rate of interest in as much as, in all such cases, 18% interest ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 23 -
becomes payable. It has been suggested that sec. 31(7)(b) be amended as to prescribe 18% as the upper limit. The provision in section 31(7)(b) reads as follows:
"Section 31(7)(b): A sum directed to be paid by an arbitral award shall, unless the award .
otherwise directs, carry interest at such rate as may be fixed by the Court but not exceeding 18%"
Therefore, unless the award fixes a lesser rate, where the award is silent, 18% would apply. This is a special provision and is the reverse of section 34(2) of the Code of Civil Procedure, which says that if a decree is silent, interest from the date of decree is to be deemed as refused.
The provision in section 31(7)(b) is salutary and if this provision is not there, in the case of an award which is silent in regard to interest from the date of award till payment, the party who is to pay under the award can merrily use dilatory tactics and escape paying of interest. Having regard to the very nature of the provision, deeming a rate of interest, it is not possible to say that 18% is to be the maximum. After due consideration, the Commission has felt that there is no justification for reducing the rate below 18%. Hence no amendment is necessary in section 31(7)(b).
Though Law Commission did not recommend any amendment in the provision of law, but having carefully examined aforesaid section came to the conclusion that unless the award directs, arbitral award shall carry interest at such a rate as may be fixed by the court but not exceeding 18 %, meaning thereby, if no interest is awarded and award is totally silent with regard to the post award interest, claimant shall be entitled to interest 18% on the amount awarded by the learned Arbitrator.
22. In case titled Mithilesh Kumari & Anr. V. Prem Behari Khare, (1989) 2 SCC 95, it has been held that "It is permissible to refer to the Law Commission's Report to ascertain the legislative intent behind the provision?
We are of the view that where a particular enactment or amendment is the result of recommendation of the Law Commission of India, it may be ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 24 -
permissible to refer to the relevant report as in this case. What importance can be given to it will depend on the facts and circumstances of each case."
.
23. Now in the aforesaid background, this Court shall proceed to examine the correctness of submission having been made by the learned counsel representing the judgment debtor that since arbitrator while dealing with the claims having been filed by the decree holder has held the decree holder not entitled to the interest, it is estopped from claiming post award interest in terms of Section 31 (7) (b). Undisputedly, in clause (vi) of statement of claims filed by the decree holder, claimant has stated that the claim of the petitioner may be allowed and respondent be directed to pay to the claimant a sum of Rs. 8,21,11,675/- and interest @ 18 % p.a., thereon from 1.4.2002, till the date of actual payment. Learned Arbitrator while awarding amount qua various claims raised in the statement of claims, held the decree holder entitled to a certain amount, but specifically returned the finding that no interest is payable as IPP has not contributed for its interconnection to the distribution licensee.
24. There is no manner of doubt that learned Arbitrator has not held the decree holder entitled to interest qua the amounts claimed in the statement of claims. Though this Court is in agreement with Mr. Bhogal, learned Senior Counsel, that decree holder being aggrieved with non-
awarding of interest qua the amount claimed in the statement of claims, ought to have filed objections under Section 34 of the Act, but is not persuaded to agree with his another contention that since specific finding has been returned by the learned arbitrator qua the future interest as prayed for ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 25 -
by the decree holder in the statement of claims, it is precluded from claiming the post award interest in terms of Section 31 (7) (b) of the Act. At the cost of the repetition, it may be stated that there cannot be any quarrel with the .
proposition of law as settled by the Hon'ble Apex Court that in case there is specific finding, if any, with regard to the entitlement of decree holder qua the post award interest, no interest in terms of Section 31 (7) (b) can be claimed by the person in whose favour award has been passed, but at the same time, it has been repeatedly held by the Hon'ble Apex Court in judgments referred herein above, that if award is silent qua the entitlement of the claimant to the post award interest from the date of award, or does not specify the rate of interest from the date of award, then the party in whose favour an award for money has been made, shall be entitled to interest @18 % p.a. from the date of award. In the case at hand, decree holder in his statement of claims had prayed for awarding of interest @18 % p.a. from 1.4.2002 till the date of actual payment, which plea of its was not accepted by the learned Arbitrator, but mere claiming of interest claimed by the claimant in the statement of claims filed before the learned Arbitrator and finding, if any, returned thereupon, cannot be said to be finding returned qua the entitlement of the decree holder or person in whose favour award is passed, for post award interest. Finding returned by the learned Arbitrator with regard to interest in impugned award definitely relates to pre award period not the post award period as envisaged under Section 31 (7) (b) of the Act. Arbitrator has denied interest to the claimant/decree holder qua the claims raised by it, but that is pre award interest (i.e. interest on the amount ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 26 -
awarded on the claim made by the claimant/decree holder.) Section 31 (7)
(b) has been introduced to ensure prompt payment by the award-debtor once the award is made. The said clause provides that the "sum directed to .
be paid by an arbitral award" shall carry interest at the rate of 18% per annum from the date of award till the date of payment, meaning thereby, post award interest is awarded on the amount awarded by the Arbitrator in its award, which may or may not include interest, if any, claimed by the claimant in the statement of claims. If the award grants interest at a specified rate up to the date of payment or specifies the rate of interest payable from the date of award till date of payment, or if the award specifically refuses interest, clause (7) (b) of Section 31 shall not come into play. But if the award is silent in regard to the interest from the date of award, or does not specify the rate of interest from the date of award, then the party in whose favour an award for money has been made, shall be entitled to interest at 18% per annum from the date of award.
25. In the case at hand, there is no specific finding, if any, recorded by the Arbitrator with regard to the post award interest payable to the decree holder. Arbitrator has not found decree holder/claimant entitled to interest over the amount claimed by it in the statement of claims, but definitely, there is no finding qua the entitlement of claimant/decree holder, for the post award interest i.e. interest over awarded amount and as such, this Court finds considerable force in the argument advanced by Shri Vikas Chauhan, Advocate, that award passed by the arbitrator is totally silent with regard to the entitlement of the claimant/decree holder for the post award interest and ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 27 -
as such, it is entitled to be awarded rate of interest @ 18% p.a. from the date of the award till date of its payment. Since there is no determination or specification of post award interest in the award, passed by the learned .
Arbitrator and no particular reason has been assigned in the award for refusing the post award interest, Section 31 (7) (b), comes into operation, entitling the claimant-decree holder to interest @18% p.a., from the date of award. Hon'ble Apex Court in Ranjit Singh Rana's case (supra), while modifying the judgment rendered by this Court has held that judgment debtor shall be liable to pay interest @ 18% p.a. for the post award period from the date of award till its depositing the amount in the High Court. In the case at hand, Arbitrator has not exercised any discretion in the matter pertaining to the interest for the post award period and as such, by virtue of Section 31 (7) (b) of the Act, award would definitely carry interest @ 18% p.a. from the date of award till its deposit made by the judgment debtor in the High Court. Reliance placed by the learned Senior Counsel on the judgment passed by the Hon'ble Apex Court in Bharat Heavy Electricals Limited v. Tata Projects Limited (supra), is wholly mis-placed because Hon'ble Apex Court in the aforesaid judgment has reiterated that where no award is made for interest, statutory rate of interest @18% p.a. is payable from the date of award till date of payment (power award interest). In the aforesaid case, prayer was made to enhance the post-award interest granted by the Arbitral Tribunal @ 10.5% to 18% p.a. in the light of provisions in Section 31(7)(b) of the Act.
Hon'ble Apex Court rejected the aforesaid prayer taking note of the fact that Arbitral Tribunal had already granted post award interest @ 10.5%. Hon'ble ::: Downloaded on - 15/06/2018 23:00:43 :::HCHP
- 28 -
Apex Court further held the statutory rate of interest @18% p.a., would have been payable from the date of award to the date of payment, if the arbitral Tribunal had not granted any post award interest. Relevent para of the .
aforesaid judgment is reproduced herein below:-
"4. On the issue of award of interest, learned senior counsel for the respondent tried to persuade us to enhance the post-Award interest granted by the Arbitral Tribunal @ 10.5% to 18% p.a. in the light of provisions in Section 31(7)(b) of the Act. We are unable to accept this contention because the Arbitral Tribunal has already granted post-Award interest @ 10.5%. Only if the Award had not made such a direction, the statutory rate of interest @ 18% p.a. would have been payable from the date of the Award to the date of payment as per statutory provision noted above."
26. Consequently, in view of the detailed discussion made herein above, as well as law relied upon, this court is inclined to hold the decree holder entitled to post award interest @ 18% p.a. on the principal amount awarded by the learned Arbitrator i.e. Rs. 53,26,732/-, from the date of award till its deposit made in the Registry of this Court. Accordingly, judgment debtor is directed to deposit/pay 18% p.a. post award interest on the awarded amount from the date of passing of the award till its deposit made in the Registry within a period of six weeks, failing which prayer made by the decree holder in its original miscellaneous application bearing No. 270 of 2017, filed under Order 21 Rule 13 of CPC, for attachment of immovable property belonging to the judgment debtor shall be considered.
List on 3rd August, 2018.
13th June, 2018 (Sandeep Sharma),
manjit Judge
::: Downloaded on - 15/06/2018 23:00:43 :::HCHP