Judgment Name: Executive Engineer (R And B) And Others v. Gokul Chandra Kanungo (Dead) Thr. His Lrs.

Citation: Civil Appeal No. 8990 of 2017

Court: Supreme Court of India

Coram: B.R. Gavai & B.V. Nagarathna, JJ.

Date: 30th September 2022

Keywords: Arbitration, Arbitral Award, Interest, Deliberate Delay

Overview

A Division Bench of the Supreme Court (‘the Court’) held that while an Arbitral Tribunal has the power to apply its mind and use its discretion to award interest for any part or whole of the award and any part or whole of the period between the date on which the cause of action arose and the date on which the award is made under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996 (‘the A&C Act’), a party is not entitled to interest for the periods in which it deliberately delayed the proceedings. For this purpose, the Court held, the Supreme Court can invoke its powers under Article 142 of the Constitution of India to reduce the amount of interest awarded.

Facts

On 16th December 1971, Gokul Chandra Kanungo (‘Respondent’) was awarded the contract for the construction of the 3 kilometres missing link on NH-6 from Kanjipani, Odisha to Kuntala, Telangana by Executive Engineers (‘Appellant’). The amount of the contract was Rs.4,59,330/- and it was agreed that the work must be completed within one year, that is, by 15th December 1972. The work, however, was completed only by 30th December 1977, by which time the Appellant had already paid an amount of Rs.3,36,465/-, to the Respondent. The Respondent then issued a notice to the Appellant on 25th July 1989 regarding the pending sum owed to him, but the Appellant responded by stating that the amount has already been paid.

The Respondent then filed a suit under Section 20 of the Arbitration and Conciliation Act, 1940 (‘the 1940 Act’) before the Court of Civil Judge (Senior Division), Bhubaneswar (‘Trial Court’) seeking reference of the dispute to arbitration, which was granted in their favour vide an Order dated 14th February 1990. He, however, failed to comply with the Court’s directions to file the Original Agreement which the Court had stipulated as a necessity for referring the dispute to arbitration. In the meantime, the A&C Act came into force.

The Respondent then filed an application in the aforementioned suit before the Trial Court, seeking the appointment of an arbitrator under the A&C Act but the same was rejected by an Order dated 4th February 2002 for want of jurisdiction. The Respondent then filed a similar application in the High Court of Orissa, which was allowed vide an Order dated 15th October 2001 and an arbitrator was appointed.

The Respondent filed his claim of Rs.1,45,28,198/- on 15th March 2002 under 15 heads of claim and demanded 19.5% interest from 1st April 1976 to 15th March 2002. The Arbitrator, vide its award dated 24th August 2004, awarded a sum of Rs.9,20,650/- in respect of head Nos. 1 to 14. The learned Arbitrator also awarded interest pendente lite with effect from 1st April 1976 to the date of the award at the rate of 18% per annum which came to Rs. 46,90,000/-. The learned Arbitrator further directed the future interest to be paid at the rate of 18% per annum on the total of the aforesaid two amounts till actual payment. Aggrieved by this award, the Appellant filed an application for setting aside the Arbitral Award under Section 34 of the A&C Act which, was dismissed by the lower courts and came before the Supreme Court by way of appeal.

It was argued on behalf of the Appellant that the Respondent should not be entitled to interest for the period of 1977 to 1989, given that he was sleeping on his right and did not make any claim. Moreover, for the period of 1990 to 2000, the Respondent did not act on the order of the Court to file the Original Agreement and given these facts, the awarded interest amount of 18% is unreasonable. On the other hand, it was argued on behalf of the Respondent that the Tribunal has the discretion under Section 31(7)(a) of the A&C Act to apply its mind depending on the facts of the case to award interest of the whole or part sum of the amount due for the whole or part of any part of the period from which the cause of action arose to the date of the award. They also contended that the award had been upheld by the Court of District Judge, Cuttack and the High Court of Orissa.

Issue

Whether the Arbitral Tribunal had reasonably used its discretion in awarding the interest at the rate of 18% per annum for the period during which the proceedings were pending and also at the same rate after the award was made till the actual payment.

Analysis

The Court on analysing Section 31(7)(a) of the A&C Act, emphasized that the section itself provides the Arbitral Tribunal with the discretion to award an interest rate on the whole or part of the sum awarded for whole or any part of the period for which the party is entitled to compensation. This Court held that this discretion however casts a duty upon the Arbitral Tribunal to provide reasons as to why the interest rate they have awarded is reasonable.

The Court agreed with the Appellant, that the conduct of the Respondent in not making a claim and thus sleeping on his rights between the years 1977 to 1989 was unreasonable and disentitles him from receiving interest for the said period.

Next, the Court considered the period from the Order dated 14th February 1990 (the appellant was required to file an Original Agreement for reference of the suit to arbitration) to 15th October 2001, the date on which the Appellant sought to revive the dispute and refer it for arbitration in the competent court, that is, the High Court of Orissa. For this period the Court held that the Appellant failed to comply with the Order of the High Court to file the original agreement and chose to revive the suit after a lapse of 10 years. This conduct, the Court held, also disentitles the Respondent to derive benefit in the form of interest for this period.

With reference to the rate of interest awarded, the Court referred to Delhi Airport Metro Express Pvt. Ltd. v. Delhi Metro Rail Corporation and Mcdermott International Inc. v. Burn Standard Co. Ltd. and Others, and found that the Arbitrator has full discretion to observe the circumstances of the case to decide at the rate of interest to be awarded and whether it should be awarded on whole or part of the award money and on whole or any part of the pre-award period. It also observed instances wherein the Apex Court invoked its power under Article 142 to do complete justice by amending the rate of interest awarded.

Conclusion

The Court opined that the present case was also one that warranted the use of its powers under Article 142 to reduce the rate of interest. Considering the conduct of the Appellant in delaying the proceedings and sleeping on his rights, it had brought about long and delayed proceedings. Thus, in order to do complete justice, the Court held that the Appellant was not entitled to any interest for the period between 30th August 1977 and 25th July 1989 and between 14th February 2000 and 15th October 2001 and reduced the interest rate for all the other periods from 18% to 9% per annum.

[This case has been authored by Nankee Arora, an Editor at Mapping ADR.]