1989 JTR(SC) 501
1989 AIR(SC) 2259 ; 1989 15 AllLR 758 ; 1989 2 ArbLR 444 ; 1990 BankJ 303 ; 1990 CivCC 702 ; 1989 3 CurCC(SC) 370 ; 1989 39 DLT 310 ; 1989 4 JT 86 ; 1989 2 Scale 756 ; 1989 4 SCC 578 ; 1989 Supp1 SCR 366 ; 1989 KHC 1011
SUPREME COURT OF INDIA
L.M. SHARMA, M.N. VENKATACHALIAH AND KULDIP SINGH, JJ.
The Secretary to the Govt. of Orissa and another, Appellants
Versus
Sarbeswar Rout, Respondent.
Civil Appeal No. 2472 of 1989
Decided on 4-10-1989.
Act Referred :ARBITRATION ACT : S.29, S.14
(A) The Arbitration Act provisions read in conjunction with the Interest Act, 1978 govern this matter. Section 2(a) of the Interest Act defines 'Court' to include an arbitrator, thereby extending certain jurisdiction to arbitrators post- commencement of the 1978 Act. Section 3 of the Interest Act allows interest for the past period terminating on the 'date of institution of the proceedings' before a Court, and by necessary implication, before an arbitrator. Section 29 of the Arbitration Act relates to setting aside awards, while Section 14 pertains to the form and content, neither directly bearing on the interest question here. Thus, the statutory framework permits an arbitrator to award interest for the past period if the conditions of the Interest Act are met, with the institution of arbitration being the key temporal marker.
(B) Key principles include: (i) an arbitrator is vested with jurisdiction to award interest under the Interest Act, 1978 where the reference is made after its commencement; (ii) an arbitrator cannot grant pendente lite interest as they are not a 'Court'; (iii) the 'date of institution' of arbitration proceedings is when the arbitrator indicates willingness to act, typically upon direction to file statements; and (iv) the award must be read as a whole to ascertain whether interest was included in the principal sum.
Facts of the case:
The appellant and respondent had a written agreement for work execution, which led to a dispute referred to arbitration in March 1982. An Arbitrator was appointed on 16-3-1982 and directed the parties to file statements by 20-4-1982. The respondent claimed interest at 12% per annum from 1-10-1978, which was awarded by the Arbitrator and made a rule of the Court. The appellant challenged this before the High Court and this Court, primarily on the grounds of excess of jurisdiction and double interest.
Findings of Court:
The High Court was found correct on all points except pendente lite interest. The Arbitrator did not exceed jurisdiction in allowing interest for the period up to 20-4-1982, as the reference was in 1982 post- commencement of the Interest Act, 1978. The awards language clearly intended the sum of Rs. 1,29,000 to be principal only, excluding interest. However, the inclusion of pendente lite interest from 20-4-1982 was without jurisdiction, as the proceeding is not deemed to have commenced before the arbitrator directed the filing of statements.
Issues:
(i) Whether an arbitrator can award interest under the Interest Act, 1978 when the reference is made after its commencement. (ii) Whether the arbitrator exceeded jurisdiction by awarding interest included in the principal sum. (iii) When the period for pendente lite interest before an arbitrator is deemed to commence.
Ratio Decidendi:
The appointment of the arbitrator on 16-3-1982 and the subsequent direction to file statements on 20-4-1982 establish that the arbitration proceeding is deemed to have commenced on 20-4-1982. Consequently, the arbitrator had no jurisdiction to award pendente lite interest for the period prior to this date, although interest for the period after the commencement until the award date was validly granted under the Interest Act, 1978.
Result:
The appeal is allowed in part. The award is set aside to the extent it includes pendente lite interest prior to 20-4-1982. The respondent is entitled to interest only from 20-4-1982 onward, and the appellant and respondent shall bear their own costs.
(A) The Arbitration Act provisions read in conjunction with the Interest Act, 1978 govern this matter. Section 2(a) of the Interest Act defines 'Court' to include an arbitrator, thereby extending certain jurisdiction to arbitrators post- commencement of the 1978 Act. Section 3 of the Interest Act allows interest for the past period terminating on the 'date of institution of the proceedings' before a Court, and by necessary implication, before an arbitrator. Section 29 of the Arbitration Act relates to setting aside awards, while Section 14 pertains to the form and content, neither directly bearing on the interest question here. Thus, the statutory framework permits an arbitrator to award interest for the past period if the conditions of the Interest Act are met, with the institution of arbitration being the key temporal marker.
(B) Key principles include: (i) an arbitrator is vested with jurisdiction to award interest under the Interest Act, 1978 where the reference is made after its commencement; (ii) an arbitrator cannot grant pendente lite interest as they are not a 'Court'; (iii) the 'date of institution' of arbitration proceedings is when the arbitrator indicates willingness to act, typically upon direction to file statements; and (iv) the award must be read as a whole to ascertain whether interest was included in the principal sum.
Facts of the case:
The appellant and respondent had a written agreement for work execution, which led to a dispute referred to arbitration in March 1982. An Arbitrator was appointed on 16-3-1982 and directed the parties to file statements by 20-4-1982. The respondent claimed interest at 12% per annum from 1-10-1978, which was awarded by the Arbitrator and made a rule of the Court. The appellant challenged this before the High Court and this Court, primarily on the grounds of excess of jurisdiction and double interest.
Findings of Court:
The High Court was found correct on all points except pendente lite interest. The Arbitrator did not exceed jurisdiction in allowing interest for the period up to 20-4-1982, as the reference was in 1982 post- commencement of the Interest Act, 1978. The awards language clearly intended the sum of Rs. 1,29,000 to be principal only, excluding interest. However, the inclusion of pendente lite interest from 20-4-1982 was without jurisdiction, as the proceeding is not deemed to have commenced before the arbitrator directed the filing of statements.
Issues:
(i) Whether an arbitrator can award interest under the Interest Act, 1978 when the reference is made after its commencement. (ii) Whether the arbitrator exceeded jurisdiction by awarding interest included in the principal sum. (iii) When the period for pendente lite interest before an arbitrator is deemed to commence.
Ratio Decidendi:
The appointment of the arbitrator on 16-3-1982 and the subsequent direction to file statements on 20-4-1982 establish that the arbitration proceeding is deemed to have commenced on 20-4-1982. Consequently, the arbitrator had no jurisdiction to award pendente lite interest for the period prior to this date, although interest for the period after the commencement until the award date was validly granted under the Interest Act, 1978.
Result:
The appeal is allowed in part. The award is set aside to the extent it includes pendente lite interest prior to 20-4-1982. The respondent is entitled to interest only from 20-4-1982 onward, and the appellant and respondent shall bear their own costs.
JUDGMENT
SHARMA, J. :— This appeal by special leave by the State of Orissa is directed against the judgment of the Orissa High Court rejecting its appeal under S. 39 of the Arbitration Act. The respondent executed certain work under a written agreement with the appellant and a dispute arose thereunder which was referred to arbitration. The Arbitrator made an award which was filed in Court. On service of notice the appellant raised several objections which the trial Court overruled. The award was made a rule of the Court. After unsuccessfully moving the High Court in appeal, the appellant has approached this Court.
2. Except for the objection taken by the appellant on the question of the power of the Arbitrator to grant interest, we do not find any merit in the other points decided by the impugned judgment. The decision of the High Court is therefore affirmed on all the other points.
3. So far the question relating to interest is concerned, it has been contended by the learned Counsel for the appellant that the arbitrator exceeded his jurisdiction in allowing the respondents claim in view of the decision in Executive Engineer (Irrigation), Balimela v. Abhaduta Jena, (1988) 1 SCC 418. It was pointed out therein that this Court had in Seth Thawardas Pherurnal v. Union of India, (1955) 2 SCR-48, held that in case of direct reference to arbitration without the intervention of a Court, provisions of neither the Interest Act, 1839 nor the Civil Procedure Code applied to an arbitrator as he was not a Court, and interest could, therefore, be awarded only if there was an agreement to pay interest or a usage of trade having the force of law or some other provision of the substantive law which entitled the plaintiff to receive interest. On the coming in force of the Interest Act, 1978, although the position in regard to the arbitrators power to award pendente lite. interest continued to be the same, he was vested with the jurisdiction to allow interest prior to the proceeding in view of the definition of "Court" in the Act which includes the arbitrator. Accordingly, it was held that in cases in which the reference to arbitration was made after the commencement of the new Act, that is, August 19, 1981, the arbitrator may award prior interest, but in those cases also he cannot grant pendente lite interest. Since the reference in the case before us was made in, March 1982, no objection can be taken to that part of the award whereby the respondents has been allowed the claim of interest for the earlier period.
4. The learned Counsel for the appellant argued that the arbitrator allowed the past interest twice over. The award is a non- speaking one and in paragraph I it says that the appellant shall pay the claimant Rs. 1,29,000/- in full satisfaction of the claims. In paragraph 2 of the award it is held that the claimant is entitled to interest at the rate of 12 per cent per annum on the above principle sum of Rs. 1,29,000/- from 1-10-1978 till the payment of the decree. According to the learned Counsel for the appellant the sum of Rs. 1,29,000/- included the claim of interest also. In view of the clear language of paragraph 2 of the award, we reject the argument.
5. The appellant, however, is entitled to relief with respect to the pendente lite interest included in the award. The question is as to when this period commences. According to the appellant the period began on the 20th April, 1982 when the arbitrator must be deemed to have entered on reference. The respondent contends that this period must be held not to have commenced earlier than the 9th of July, 1982 when the parties filed their claim and counter-claim. The argument is that until the arbitrator applies his mind, he cannot be assumed to have entered on arbitration. Reliance has been placed on Gujarat Water Supply and Sewerage Board v. Unique Erectors (Gujarat) (P.) Ltd., (1989) 1 SCC 532.
6. Before proceeding further it will be helpful to examine the language of S. 3 of the Interest Act, 1978 which states that in cases where the conditions mentioned in Cls. (a) and (b) of subsection (1) are satisfied the Court may allow interest for the past period terminating on "the date of institution of the proceedings". By reason of the inclusive definition of "Court" in S. 2(a) of the Act is applicable to arbitration. The question. therefore, is as to when the proceeding before an arbitrator is deemed to commence. It has not been suggested before us that the necessary conditions for the application of S. 3 are not satisfied in the present case and so the respondent is not entitled to the benefit under 1978 Act; and we, therefore, proceed on the assumption that the provision of the Act govern the case.
7. The arbitrator in the present case was appointed on 16-3-1982. He after being informed about his appointment, directed the parties to submit their statements of claim by the 20th of April, 1982. The actual date when this order was made is not known. The contractor-respondent filed his statement on 5-5-1982 and the appellant on 9-7-1982. Relying on the observation in lossifoglu v. Coumantaros, (1941) 1 KB 396, and those of Raghubar Dayal, J. in Hari Shankar Lal v. Shambhunath Prasad, (1962) 2 SCR 720 at page 732. Mr. Panda, learned Counsel for the appellant. contended that the arbitrator cannot be said to have entered on the reference earlier than April 20, 1982. According to the learned Counsel for the respondent it could no be before 9-7-1982 when the arbitrator applied his mind to the cases of the parties. Reference was made to the decisions of several High Courts. In our view none of these cases. Is helpful to resolve the present controversy. They all deal with the point as to when an arbitrator is said to enter on reference. They were not concerned with the question as to when a proceeding before an arbitrator is deemed to commence.
8. So far an action in a Court of law is concerned, it must be held that it commences on the filing of a proper claim in accordance with the prescribed procedure before the authority empowered to receive the same. If a plaint, drawn up in accordance with the prescribed law, is filed before a Civil Court, the suit must be deemed to have been instituted on that date, and not on a later date when the Court takes up the plaint and applies its mind, Ordinarily the plaint is examined by the stamp reporter of the Court who scrutinises whether proper court-fee has been paid or not, and then makes a report. The Court generally takes up the plaint only later. Similar is the position with respect to other applications and memoranda of appeals. It must, therefore, be held that the proceeding is instituted when the claimant files his claim. We do not see any reason to apply a different approach in the case of an arbitration proceeding. As soon as the arbitrator indicate his willingness to act as such, the proceeding must be held to have commenced. This aspect did not arise for decision in the cases "Executive Engineer (Irrigation) v. Abhaduta Jena, (1988) 1 SCC 418 or Gujarat Water Supply and Sewerage Board V. Unique Erectors (Gujarat) (P.) Ltd., (1989) 1 SCC 532 and no assistace from them can be taken in the present appeal. The learned Counsel for the appellant is, therefore, right in saying that the arbitrator in the present case, by directing on 2041982 the parties to file their statements of claim, clearly indicated that he accepted the offer to arbitrate. The proceeding must, therefore, be deemed to have been instituted not later than this date. We accordingly hold that the award so far it allowed interest for the period after 20-4-1982, is without jurisdiction and must be excluded. The appeal is accordingly allowed in part. The parties shall bear their own costs.
Appeal partly allowed.
For Citation : AIR 1989 SC 2259