THE HON'BLE SRI JUSTICE A. GOPAL REDDY AND THE HON'BLE SRI JUSTICE G.BHAVANI Civil Miscellaneous Appeal No.324 of 2006
19-09-2008
Hemant Jalan and another
Om Prakash Jalan and 3 others
Counsel for petitioners: Sri S.Ravi
Counsel for Respondents 1 to 3: Sri Y.Ratnakar
Counsel for respondent No.4 : N.A.
:Judgment: (Per Hon'ble Sri Justice A.GOPAL REDDY)
This appeal is filed under Section 37 of the Arbitration and Conciliation Act, 1996 (for short "the Act") against the judgment and decree dated 22-10-2005 passed in O.P.No.2924 of 2003 by the XIV Additional Chief Judge, City Civil Court, Hyderabad.
2. A short question that arises for consideration in this appeal is: "Whether the court can modify the award of the arbitrator under Section 34 of the Act and allow the claim of interest which was disallowed by the arbitrator"
3. The facts, which are not in dispute and relevant for disposal of the appeal, may briefly be stated as under:
4. Deccan Enterprises Private Limited hereinafter called as 'Deccan' was under the management and control of O.P.Jalan. Nucon Industries Limited hereinafter called as 'Nucon' is under the management and control of R.N.Jalan.
5. R.N.Jalan, father of the 1st appellant and O.P.Jalan, 1st respondent are brothers. There were several disputes among brothers before various courts including C.P.No.27 of 1987 which was disposed of on 29-09-1997 and confirmed by the Division Bench by order dated 02-12-1998. Apart from the same, there are other cases between the parties O.S.No.85 of 1995, O.S.No.1583 of 1998 and C.A.No.72 of 1998 which were disposed of in terms of compromise and in respect of certain disputes i.e. C.P.Nos.67 & 68 of 1987 and O.S.No.125 of 1998 no compromise could be arrived at so far between the parties. They have entered into arbitration agreement dated 31-05-2001 agreeing to resolve their dispute by referring them to the sole arbitrator, agreed to nominate Shri Ram Kishore Chowdary, Advocate to resolve the dispute among them, and accordingly referred the dispute to the arbitrator. On arbitrator accepting to arbitrate and resolve the matters, Deccan filed claim statement claiming that from time to time several amounts were lent and advanced to Nucon for the purposes of its business carrying interest @12% per annum and there was a separate account maintained both by Deccan and Nucon with regard to the amounts lent and advanced, refund received back and interest debited and credited, as the case may be, in the books of account of the respective companies. On account of such advance and loans made by Deccan to Nucon net amount towards principal remaining unadjusted or paid by Nucon to Deccan is Rs.23,36,931.17 ps. with simple interest at the rate of 12% per annum from 01-10-1981 to 30-09-1987 has been claimed at Rs.16,30,497.84 ps. Thus, the total amount of loan, namely, the principal together with simple interest at the rate of 12% per annum upto 30-09-1987 amounts to Rs.39,67,420.01 ps. Apart from the above claim, there is another claim for Rs.1,19,438.38 ps. by Deccan against Nucon relating to supply of rubber seals. Deccan also claimed compound interest at the rate of 18% per annum with quarterly rest from 01-10-1987 till 31-03-2001 on the amounts due at Rs.36,91,165/-.
6. The said claim was resisted by R.N.Jalan representing Nucon pleading that M/s. Deccan Enterprises Private Limited, M/s. Nucon Industries Private Limited, Deccan Polymers Limited and certain companies and partnership firms like M/s. Secunderabad Commercial Company and the Trusts like Vikas Trust etc. are all properties and assets of the joint family and their assets constitute and come from a common pool of the said family, but merely in the control and management of one or the other members of the Jalan family, with the consent of others. There has been no exclusive ownership of any of these by one individual members of the family. Funds are transferred from one establishment to the other according to the requirements, by way of credits or debits or deposits or loans and repayments, to conform to the requirements of law as such corporate bodies or firms or trusts as the case may be, and to facilitate commercial or other dealing with outsiders in conformity with the provisions of the Company Law, Deposit Rules etc. No one company or the firm or the trust can claim or to be proceeded against based upon any of these isolated entries of debits or credits and the like. The position continued till
31-07-1984 as found by the High Court in O.S.A.Nos.9 and 10 of 1987 and thereafter it was agreed between the parties concerned that the joint family business in the form of companies, firms etc. be allotted into three groups, between the different members of the Jalan family, according to their position, as far as possible, to persons who were then in the management and control of these, and the rights and interest be further worked out, as per the arrangement. R.N.Jalan also submitted that Nucon is entitled to a claim of Rs.23,53,219/- and Rs.24,90,815/- on account of under-invoicing caused to be done by O.P.Jalan in respect of works executed by Nucon against orders of Deccan.
7. O.P.Jalan filed rejoinder to the counter statement of R.N.Jalan denying no one company or the firm or the trust can claim or be proceeded against and pleading that the amounts mentioned in the claim were not an isolated entries of debits and credits but, in fact actual payments paid by "account payee cheques" by Deccan and his family members and the companies under his control. R.N.Jalan again cannot re-agitate the issue on dismissal of C.P.No.27 of 1987 as confirmed in O.S.A.Nos.9 and 10 of 1987. For which additional reply has been filed by R.N.Jalan with several contentions reiterating that Nucon is entitled to a sum of Rs.48.44 lakhs in respect of works undertaken by Nucon for orders placed by Deccan for the period from 1976- 77 to 1982-83 and affirmed that there have been under-invoicing in regard to such offers at the instance of O.P.Jalan. A rejoinder has been filed by O.P.Jalan raising preliminary point that such additional reply should not be taken on record and considered by the arbitrator.
8. The arbitrator after considering the rival contentions at length passed an award on 12-11-2002 admitting claim No.1 for Rs.23,36,600/- towards principal and Rs.16,30,000 as interest, aggregating to Rs.39,66,000/- and further interest of Rs.9,81,000/- at the rate of 12% per annum from 01-10-2987 to 31-03-2001 on Rs.23,36,000/-; Nucon has to pay interest on Rs.23,36,000/- at the rate of 12% per annum until payment thereof calculated and paid on and from 01-04-2003 if the said sum remains outstanding. Interest is to be calculated on simple interest basis, no compound interest. On claim No.2 Nucon was directed to pay a sum of Rs.6 lakhs as refund of security deposit and interest of Rs.2,20,000/-, no compound interest. On claim No.3 it was held that in view of pending litigation in a competent Court of law arbitrator declined to arbitrate the claim of Deccan against Secunderabad Commercial Company as not arbitrable.
9. On passing the award P.A. to the arbitrator addressed a letter dated 14-11-2002 to the parties stating that there is a typographical error has crept in the eighth line of para-20 of the award which read as "rate of 12% per annum from 01-10-1987 till 31-03-2001 amounting to Rs.9,81,000/- (rounded off)" it has to be read as "rate of 12% per annum from 01-10-1997 till 31-03- 2001 amounting to Rs.9,81,000/- (rounded off)".
10. On receipt of the above letter an application under Section 33 of the Act was filed by O.P.Jalan for rectification of errors crept in the award dated 12-11-2002 for which R.N.Jalan's legal heirs Hemanth Jalan and others filed counter statement. To which reply was also filed by O.P.Jalan and others wherein it is prayed that in para-20 the words "amounting to Rs.9,81,000/- (rounded off)" may be substituted with the words "amounting to Rs.37,84,000/- (rounded off)" contending that interest from October, 1987 till 31-03-2001 has been wrongly calculated at Rs.9,81,000/- instead of Rs.37,84,000/-; and the amount of Rs.1,19,438.38 Ps. has to be included quantifying the total amount of Rs.40,86,867.39 ps.
11. The learned arbitrator after completion of pleadings and the hearing of the said application filed under Section 33 rejected the claim for calculation error in quantification of interest on claim No.1 from 01-10-1987 till 31-03-2001 obviously claimed due to typographical mistake of putting the date of commencement of interest as 1st October, 1987 was corrected immediately on 14-11-2002 and the fact of correction was also intimated to the parties. The arbitrator rejected the contention that correction was made by the Secretary and not personally by him holding the parties did not take any exception to such correction. Hence, the same do not require any correction/modification. The claim of Rs.1,19,438,38 ps. has not been denied by Nucon and the same is admitted and accordingly rectified the error for not including of Rs.1,19,438.38 ps. claimed by Deccan with interest at the rate of 12% per annum from the date of award i.e. 14-11-2002 until payment thereof with a direction to Nucon to pay Rs.1,19,438/- together with interest on or before 31-03-2004. Nucon should pay the sums awarded in the award dated 12-11-2002 against it, inclusive of principal and interest on or before 31-03-2004 failing which it will be liable to pay interest upon interest and to that extent the award dated 12-11-2002 stands corrected and modified. The application under Section 33 of the Act filed by O.P.Jalan was partly allowed to the extent as referred above.
12. On passing the additional award O.P.Jalan, Deccan Enterprises Pvt. Ltd. and Vikas Trust filed O.P.No.2924 of 2003 under Section 34 of the Act for setting the award dated
12-11-2002 and additional award dated 10-07-2003 of the arbitrator in relation to claim No.1 insofar as it denies award of interest to the petitioners for the period from 01-10-1987 to
30-09-1997 and in relation to claim No.2 insofar as it denies award of interest to the Vikas Trust on the sum of Rs.6,00,000/- for the period from 12-10-1986 till the payment of the amount and for a consequential direction directing the payment of as claimed.
13. Hemanth Jalan and others/respondents filed counter raising preliminary objection that O.P. filed by the petitioners for setting aside the award is bared by limitation; petitioners having accepted the award and received the amounts thereunder in full and final satisfaction without a demur; the petitioners have acquiesced to the award and has not reserved any right to challenge the award; therefore, the petitioners cannot challenge the award. The scope of enquiry under Section 34 of the Act is limited to the grounds, which are stated therein and the court does not act as an appellate authority to re- appreciate the evidence led before the arbitrator and can come to a different conclusion. The court cannot adjudicate the correctness or otherwise of an order passed under Section 33 of the Act, unless the issues are not specifically dealt therein. All the issues were exhaustively covered in the award dated 12-11-2002. The reasoning of the arbitrator with respect to grant of interest is perfectly justified and unquestionable. There is no agreement with regard to payment of interest and the interest granted itself is excessive and ought not to have been granted by the arbitrator, the petitioners having mislead the respondents that they were accepting the award in full and collected the amount are estopped from challenging the same. Once the arbitrator has every authority and right to correct typographical errors by exercise of power under Section 33(3) of the Act, the court cannot interfere with such correction.
14. The learned XIV Additional Chief Judge, City Civil Court, Hyderabad by the impugned order set aside the award and additional award passed by the arbitrator to the extent of disallowing interest to the claimants i.e. respondents 1 and 2 herein and modified the award allowing interest at the rate of 12% per annum on 23,36,000/- in favour of the 2nd respondent from 01-04-1991 till the date of payment; interest at 12% per annum in favour of 3rd respondent from 12-10-1996 till the date of payment on Rs.6 lakhs. Questioning the correctness of the said judgment present appeal has been filed.
15. Sri S.Ravi, learned counsel for the appellants, who has taken us through the reasoning of the arbitrator in the award and additional award for disallowing the pre lite interest, contended that once reasons are given by the arbitrator for granting interest of Rs.9,81,000/-, which is contrary to the findings, in fact, the appellants should have a grievance, but agreed for the said award to have a quietus to the litigation paid the amount under the award; after receiving the entire amount it is not open for the respondents 1 to 3 to claim interest pre lite which was also clarified by the arbitrator in the additional award. Section 34 of the Act contains grounds on which the award of the arbitrator may be set aside by the court subject to filing an application for setting aside the arbitrator's award within the time prescribed, but no power is vested with the court to allow the claim which was disallowed by the arbitrator by interpreting the terms of award. Once Section 34 of the Act do not contemplates modification of the award, the order passed by the lower court is without jurisdiction and the same is liable to be set aside. For the said proposition reliance is placed on the judgment of the Supreme Court In McDERMOTT INTERNATIONAL INC v BURN STANDARD CO. LTD. AND OTHERS1.
16. On the other hand, learned counsel for the respondents, Sri Y.Ratnakar, pointed out that no award was passed by the arbitrator under Section 33 of the Act correcting the date from 01-10-1987 to 01-10-1997; even in the additional award passed under Section 33, there was no correction made relating to the date from which interest is granted; the correction made by the P.A. to the arbitrator as of no consequence. Once there is an error in calculation of amount, the court can correct the same, which will not amount to modification. When no reasons were given in support of the change of dates effected after passing the award from
01-10-1987 to 01-10-1997, which is a patent illegality, and such correction deserves to be ignored. The civil court also did not super-impose its own judgment nor there was any correction made to the award. The civil court only determined the quantum of interest awarded by the arbitrator from 01-10-1987 to 31-03-2001. The arbitrator under the garb of arithmetical error cannot reduce the period for which interest was awarded. In support of his submission, reliance is placed on the following judgments:
1. RAJASTHAN STATE ROAD TRANSPORT CORPORATION v. INDAG RUBBER LTD.2
2. KRISHNA BHAGYA JALA NIGAM LTD. v. G.HARISCHANDRA REDDY3
3. NUMALIGARH REFINERY LTD. v. DAELIM INDUSTRIAL COMPANY LTD.4
17. In view of rival submissions, the following points arise for consideration:
1. Whether the arbitrator is entitled to correct the typographical error without assigning reasons after passing the award?
2. Whether the civil court is competent to correct the award and substitute the amount of interest for the period, which has been rejected by the arbitrator on parties moving for such correction under Section 33 of the Act?
Point No.1:
18. From the facts mentioned above, it would be noticed that families of the appellants as well as the respondents, namely, R.N.Jalan and O.P.Jalan floated companies like Deccan, Nucon and certain other companies and partnership firms like M/s. Secunderabad Commercial Company and the Trusts like Vikas Trust etc. and due to certain differences they have also moved the court in C.P.No.27 of 1987 which was disposed of by this Court and the same was confirmed by a Division Bench in O.S.A.Nos.9 and 10 of 1987 apart from C.P. there are other proceedings at various courts between the parties, i.e. O.S.No.80 of 1995, O.S.No.1583 of 1998 and C.A.No.72 of 1998 which were disposed of in terms of compromise and further C.P.Nos.67 and 68 of 1987 and O.S.No.125 of 1998 which were pending and no compromise would be arrived between the parties. Therefore, they have agreed to resolve the disputes by referring them to the sole arbitrator-Sri M.Ram Kishore Choudary, Advocate by agreement dated 31-05-2001. As the parties could not negotiate amicably as suggested by the arbitrator, claim statements, counter statements, rejoinder, additional reply and additional rejoinder were filed. The learned arbitrator after considering the disputes, differences and claims referred to, annexed to the arbitration agreement, passed an award on 12-11-2002 accepting the claim made by Deccan against Nucon for Rs.23,36,000/- and directed to pay simple interest at 12% per annum on such amount from 01-10-1981 to 31-09-1987 amounting to Rs.16,30,000/-; the claim of Deccan for compound interest at the rate of 18% with quarterly rest from 01-10- 1987 to 31-03-2001 has been rejected but, however, awarded interest on Rs.23,36,000/- at the rate of 12% per annum from 01-10-1987 to 31-03-2001 amounting to Rs.9,81,000/- (rounded off) and directed Nucon to pay the said sum of Rs.23,36,000 plus Rs.16,30,000/- aggregating Rs.39,66,000/- and further interest of Rs.9,81,000/- ;further directed Nucon to pay interest on 23,36,000/- at the rate of 12% per annum until payment thereof; and interest is to be calculated on simple interest basis on the outstanding amount of Rs.23,36,000/-. The interest will be calculated and paid on from 01-04-2003, if the said sum of Rs.23,36,000/- remained outstanding. No interest is payable on Rs.16,30,000/- or Rs.9,81,000/- being the interest awarded as aforesaid.
19. In para-31 of the award the arbitrator held as under:
"Having regard to the discussions with reference to the liability for payment of interest and compound interest, in relation to claim No.1, I hold and award that Nucon is liable to pay interest @ 10% from 01-02-1983 to 12-10-1986 amounting to Rs.2,20,000/-. I also hold that the claim of Vikas Trust is not barred by the Law of Limitation and for the reasons stated herein above, I also reject the claim for payment of compound interest for the reasons stated while dealing with the claim No.1. There is no claim for simple interest at the rate of 10% beyond 12-10-1986, hence not allowed."
20. The arbitrator in para-40 of his award while considering the interest pendente lite held as follows:
"I have exercised the discretionary power and granted interest as claimed (subject to adjustment of quantum) upto a particular period. I do not intend to grant any interest pendente lite."
In para-43 the arbitrator held as under:
"It may also state that in course of discussions in this award I have discussed over some circumstances and documents bearing on the particular points in dispute but that does not mean that my decisions are based exclusively on those circumstances or documents. The facts and circumstances discussed by me should be considered illustrative and not exhaustive. My decisions are based on the entire evidence, facts, documents and in consideration of family peace and tranquility"
21. On passing the award the Personal Assistant to the Arbitrator addressed a letter dated 14-11-2002 informing the parties that a typographical error has crept in the 8th line of para-20 of the award which reads as "rate of 12% per annum from 01-10-1987 till 31-03-2001 amounting to Rs.9,81,000/- (rounded off)" which has to be corrected as "rate of 12% per annum from 01-10- 1997 to 31-03-2001 amounting to Rs.9,81,000/- (rounded off)". On the next date of the communication i.e. 15-11-2002 R.N.Jalan died. O.P.Jalan and Vikas Jalan representing Deccan filed an application on
10-01-2003 under Section 33 of the Act for rectification of the errors occurred in the award dated 12-11-2002. For which Hemanth Jalan s/o late R.N.Jalan representing Nucon filed counter. The Arbitrator after considering the statements found that there is no calculation error in quantification of interest in claim No.1. In view of correction of typographical mistake as intimated by the Secretary of arbitrator claim of the 1st respondent for correcting the calculation error towards interest at Rs.37,84,320/- was rejected, holding that quantum of Rs.9,81,000/- calculated at the rate of 12% per annum from 1997 is correct and there is no mistake or error in calculation of interest; therefore, the same needs no correction. The arbitrator found there were some factual errors in para-15 of the award. However, the claim for Rs.1,19,438.38 ps. towards supply of rubber seals was admitted and rectified the error which was included in the total amount quantified Rs.40,86,867.39 ps. and accordingly passed the additional award directing Nucon to pay the said amount together with interest from the date of award dated 14-11-2002 until payment thereof on or before
31-03-2004. Since the parties expressed their apprehension, no interest awarded on the amount of Rs.16,30,000 and 9,81,000/- and no time limit is fixed for payment. To obviate any confusion or ambiguity the arbitrator directed Nucon to pay the sums awarded in the award on or before 31-03-2004 failing which it will be liable to pay interest upon interest and to that extent the award 12-11-2002 stands corrected or modified by allowing application filed for correction of the same, as indicated above.
22. The arbitrator dealt with the issue of awarding interest from 01-10- 1997 but not from 01-10-1987 as claimed by the 1st respondent and clarified the same in his additional award dated 10-07-2003 rejecting the request to correct the error in calculation in quantification of interest from 01-10-1987 to 31-03- 2001 holding that the correction made on 14-11-2002 holds good. In view of clarification made by the arbitrator in his award, it cannot be said that the Secretary to arbitrator corrected the date without an authority of the arbitrator. Under sub-section (3) of Section 33 of the Act it is always open for the arbitrator to correct such errors on its own and can also interpret the award. Point No.1 is accordingly answered.
Point No.2:
23. Chapter VII of the Arbitration and Conciliation Act, 1996 contains only one section, which deals with application for setting aside the arbitral award. The scope of the court's interference in setting aside an award under Section 30 of the Act 1940 was wide and resulted in to spate of litigation in various High Courts as also in the Supreme Court causing enormous delay in an award ultimately culminating into a
decree of the court. With intent to restrict the grounds on which an arbitral award can be set aside by the court and based on pious hope that the grounds mentioned in sections 13 and
16 may diminish wasteful litigation and encourge parties to adopt alternative dispute resolution system, section 34 has been enacted. For the sake of convenience, we quote herein below
the provisions of Section 34 of the Act.
34 Application for setting aside arbitral award
(1) Recourse to a Court against an arbitral award may be made only by an application for setting aside such award in accordance with sub-section (2) and sub-section (3).
(2) An arbitral award may be set aside by the Court only if- (a) the party making the application furnishes proof that- (i) a party was under some incapacity; or
(ii) the arbitration agreement is not valid under the law to which the parties have subjected it or, failing any indication thereon, under the law for the time being in force; or
(iii) the party making the application was not given proper notice of the appointment of an arbitrator or of the arbitral proceedings or was otherwise unable to present his case; or
(iv) the arbitral award deals with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions
on matters beyond the scope of the submission to arbitration: Provided that, if the decisions on matters submitted to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration may be set aside; or
(v) the composition of the arbitral Tribunal or the arbitral procedure was not in accordance with the agreement of the parties, unless such agreement was in conflict with a provision of this Part from which the parties cannot derogate, or, failing such agreement, was not in accordance with this Part; or (b) the Court finds that-
(i) the subject-matter of the dispute is not capable of settlement by arbitration under the law for the time being in force, or (ii) the arbitral award is in conflict with the public policy of India. Explanation -Without prejudice to the generality of sub-clause (ii), it is hereby declared, for the avoidance of any doubt, that an award is in conflict with the public policy of India if the making of the award was induced or affected by fraud or corruption or was in violation of section 75 or section 81. (3) An application for setting aside may not be made after three months have elapsed from the date on which the party making that application had received the arbitral award or, if a request had been made under section 33, from the date on which that request had been disposed of by the arbitral Tribunal: Provided that if the Court is satisfied that the applicant was prevented by sufficient cause from making the application within the said period of three months it may entertain the application within a further period of thirty days, but not thereafter.
(4) On receipt of an application under sub-section (1), the Court may, where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
24. Sub-section (1) of Section 34 provides that an arbitral award may be set aside by the court on an application for setting aside the same if made on any of the grounds specified in sub-section (2) and within the time prescribed by sub-section (3) thereof provided the party making such application furnishes proof to the court in support of such application. Sub-Section (4) empowers the court to adjourn the proceedings for a period of time determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award. An arbitral award is not vulnerable to any challenge thereto and is conclusive as a judgment between the parties thereto.
25. Section 35 deals with finality of arbitral awards, which substantially corresponds to Rule 7 of Schedule I to the Act of 1940; (2) section 58(1) of English Arbitration Act, 1996 and (3) Article 31(1) of the UNCITRAL Model Law, subject to Chapter-VII and the same shall be binding on the parties thereto and the persons claiming under them respectively. Where the time for making an application under section 34 has expired or such application having been made has been refused, the award shall be enforced under the Code of Civil Procedure, 1908 in the same manner as if it were a decree of the court under Section 36 of the Act.
26. What is manifest from the above provisions is that an arbitral award is not open to challenge on the ground that the arbitral Tribunal has reached a wrong conclusion or has failed to appreciate the facts and evidence. The Court is entitled to set aside the arbitral award only if the grounds mentioned in sub-section (2) of section 34 read with grounds stated in Sections 13 and 16 of the Act, are proved to its satisfaction by the party making an application to set aside. However, when a court is called upon to decide objections raised by a party against the arbitral award, the jurisdiction of the court is limited, as expressly indicated in Section 34 and it has no jurisdiction to sit in appeal and examine the correctness of the award on merits with reference to the material produced before the arbitral tribunal.
27. In McDERMOTT INTERNATIONAL INC (1 supra) the Supreme Court after considering the scheme of the Act in para-52 it was held as under: "The 1996 Act makes provision for the supervisory role of courts, for the review of the arbitral award only to ensure fairness. Intervention of the court is envisaged in few circumstances only, like, in case of fraud or bias by the arbitrators, violation of natural justice, etc. the court cannot correct errors of the arbitrators. It can only quash the award leaving the parties free to begin the arbitration again if it is desired. So, the scheme of the provision aims at keeping the supervisory role of the court at minimum level and this can be justified as parties to the agreement make a conscious decision to exclude the court's jurisdiction by opting for arbitration as they prefer the expediency and finality offered by it."
32. In RAJASTHAN STATE ROAD TRANSPORT CORPORATION (2 supra) the Supreme Court was dealing with appellate powers under Section 39 of the Arbitration Act, 1940, where the award passed by the arbitrator was made rule of court by the District Judge, which was set aside and remitted the matter for fresh adjudication by the High Court to the arbitrator who has passed the award. On further appeal to the Supreme Court, the judgment of the High Court was set aside confirming the order passed by the District Judge making the award rule of court however reduced interest rate from 12% to 6% per annum.
29. In KRISHNA BHAGYA JALA NIGAM LTD
(3 supra) the award passed by the arbitrator was confirmed by dismissing the application filed under Section 34(2) (v) of the Act by the civil court as well as appellate court. On appeal, when a suggestion made by the Court, the contractor agreed for reduction of the awarded amount and accordingly reduced the same. On further appeal, the Supreme Court held that interest awarded by the arbitrator at 18% for the pendente lite period and future interest has to be reduced to 9% from that of 18% as awarded by the arbitrator and when the contractor accepted for the suggestion of rejection of award amount appeal was allowed for the reduced amount awarding interest at 9% instead of 18%, as referred to above.
30. In NUMALIGARH REFINERY LTD (4 supra) the arbitrary tribunal passed an award by majority of arbitrators for certain amounts and awarded interest at the rate of 12% per annum pendente lite till the date of award and saddled with interest at 18% per annum; whereas Justice M.M.Dutt gave dissenting award awarding amounts less than awarded by the majority of arbitrators with interest at the rate of 10% till realization. On appeal by the contractor, the High Court set aside the order of the District Judge and confirmed the majority award of the arbitrators. On further appeal, the Supreme Court while holding that they cannot sit over the findings of the arbitrator as confirmed by the High Court, and accepted the view taken by the Division Bench. In accepting the majority of arbitrators in granting damages in favour of the contractor granted 12% as confirmed by the majority of the arbitrators.
31. The above judgments cited by the learned counsel for the respondent are also misplaced to the facts of the present case.
32. After we heard and reserved the matter for judgment on 16-07-2008 and prepared the draft judgment on
26 & 27-07-2008 a Memo dated 28-07-2008 with list of cases was handed over to the Court Master by the learned counsel for the respondent for circulation. This practice is unknown and cannot be appreciated, unless sought the leave of court for such course of action at the time of closing arguments. If the counsel for the respondent wants to re-hear the appeal for enabling him to cite the judgments, he has to file an application to the said effect and only on reopening of the matter such judgments will be taken into consideration where the other side will have an opportunity to explain the ratio laid down in the said judgments can be applied to the facts of the present case or not. Though we are not under obligation to refer the judgments cited, to dispel the impression of the parties that their case has not been properly dealt with we proceed to consider the same.
33. The Delhi High Court in DELHLI JAL BOARD v. SHUBHAS PIPES LTD.5 Set aside the award insofar as claims
2, 3, 4 awarded by the arbitrator and upheld the award so far as claims 1 and 5 as justifiable and reduced the rate of interest on the claims upheld.
34. The Bombay High Court in UNION OF INDIA v. ARCTIC INDIA6 held that there is no bar under the Act to modify the award following the judgment of the Supreme Court in KRISHNA BHAGYA JALA NIGAM LTD. v. HARISCHANDRA REDDY (2007 AIRSCW 527) where the Supreme Court modified the award and awarded past and pendente lite interest.
35. In DELHI JAL BOARD v. ESSKAY KOHLI7 the Delhi High Court set aside the award insofar as it relates to claim Nos. 2(i), 2(ii), 2(iii), 3 and 4 and the same is contrary to the agreed clause while maintaining the award relating to claim Nos.1 and 5.
36. In DELHI DEVELOPMENT AUTHORITY v. ANAND AND ASSOCIATES8 the Delhi High Court allowed the appeal modifying the award and also the order passed by the single Judge to the extent of interest amount awarded on the principal amount was substituted at 9% against 18% as awarded by the arbitrator.
37. Similarly in MAHARASHTRA INDUSTRIAL DEVELOPMENT CORPORATION LTD. v GOVARDHANI CONSTRUCTION COMPANY9 the Bombay High Court refused to interfere with the award passed by the arbitrator except reducing interest and fixed at 9% as against 18% awarded by the arbitrator for pre-arbitration period, pendente lite and future interest.
38. All the above judgments cited through Memo are not dealing with rejection of specific claim including interest by the arbitrator for a particular period and for the period for which they claimed are entitled to.
39. Sub-section (2) (iv) of Section 34 of the Act, referred to above, authorizes the court to set aside the award dealt with a dispute not contemplated by or not falling within the terms of the submission to arbitration, or it contains decisions on matters beyond the scope fo the submission to arbitration, provided that if the decisions on matters submission to arbitration can be separated from those not so submitted, only that part of the arbitral award which contains decisions on matters not submitted to arbitration. Sub-section (4) of Section 34 of the Act further authorizes the court where it is appropriate and it is so requested by a party, adjourn the proceedings for a period of time
determined by it in order to give the arbitral Tribunal an opportunity to resume the arbitral proceedings or to take such other action as in the opinion of arbitral Tribunal will eliminate the grounds for setting aside the arbitral award.
40. A combined reading of the above provisions makes it clear where any claim, which was awarded by the arbitrator, prohibited by the agreement, cannot be arbitrable can be set aside. Where there is any error apparent on the face of the award, which is likelihood of setting aside the award for a particular claim if the Court thinks fit it can postpone the adjudication by an order enabling the arbitrator or arbitral Tribunal to eliminate the grounds for setting aside such award.
41. In the instant case, on parties moving the arbitrator under Section 33 for correction and interpretation of the award, an additional award has been passed by the arbitrator specifically dealing with the claim for grant of interest for the period aforementioned and held that the claimants are not entitled to interest for such period.
42. As seen from the pleadings set out in the original award the parties were litigating in various courts and ultimately C.P.No.27 of 1987 was disposed of by the learned single Judge of this Court on 29-09-1997 and the same was confirmed by a Division Bench in O.S.A.Nos.9 and 10 of 1987 dated 02-12-1998. Further, O.S.Nos.80 of 1995, 1583 of 1998 and C.A.No.72 of 1998 were disposed of basing upon the compromise memos filed and the same has been clarified in the additional award, rejecting the specific claim of the claimants for interest from 01-10-1987 to 31-03-2001 and allowing interest from 01-10-1997 to 31-03-2001.
43. In ONGC LIMITED v SAW PIPES LTD.10 the Supreme Court expressed that the phrase "public policy" is required to be given a wider meaning and held that the award could be set aside if it is contrary to (a) fundamental policy of Indian law; (b) the interests of India; or (c) justice or morality; or (d) in addition, if it is patently illegal.
44. Neither the Contract Act, 1872 nor the Act defines the expression "public policy" or "opposed to public policy". In CENTRAL INLAND WATER TRANSPORT CORPORATION V. BROJO NATH GANGULY11 the Supreme Court dealing with "public policy" held as under:
"The Indian Contract Act does not define the expression "public policy" or "opposed to public policy". From the very nature of things, the expressions "public policy", "opposed to public policy", or "contrary to public policy" are incapable of precise definition. Public policy, however, is not the policy of a particular government. It connotes some matter which concerns the public good and the public interest. The concept of what is for the public good or in the public interest or what would be injurious or harmful to the public good or the public interest has varied from time to time. As new concepts take the place of old, transactions which were once considered against public policy are now being upheld by the courts and similarly where there has been a well recognized head of public policy, the courts have not shirked from extending it to new transactions and changed circumstances and have at times not even flinched from inventing a new head of public policy. There are two schools of thought- "the narrow view" school and "the broad view" school. According to the former, courts cannot create new heads of public policy whereas the latter countenances judicial law-making in this area. The adherents of "the narrow view" school would not invalidate a contract on the ground of public policy unless that particular ground had been well-established by authorities. Hardly ever has the voice of the timorous spoken more clearly and loudly than in these words of Lord Davey in Janson v. Driefontein Consolidated Gold Mines
Ltd ((1902) AC 484, 500): "Public policy is always an unsafe and treacherous ground for legal decision". That was in the year 1902. Seventy-eight years earlier, Burrough, J., in Richardson v. Mellish
((1824 2 Bing 229, 252) described public policy as
"a very unruly horse, and when once you get astride it you never know where it will carry you". The Master of the Rolls, Lord Denning, however, was not a man to shy away from unmanageable horses and in words which conjure up before our eyes the picture of the young Alexander the Great taming Bucephalus, he said in Enderby Town Football Club Ltd. v. Football Assn. Ltd. "With a good man in the saddle, the unruly horse can be kept in control. It can jump over obstacles." Had the timorous always held the field, not only the doctrine of public policy but even the common law or the principles of Equity would never have evolved. Sir William Holdsworth in his History of English Law Vol. III, p. 55, has said: "In fact, a body of law like the common law, which has grown up gradually with the growth of the nation, necessarily acquires some fixed principles, and if it is to maintain these principles it must be able, on the ground of public policy or some other like ground, to suppress practices which, under ever new disguises, seek to weaken or negative them." It is thus clear that the principles governing public policy must be and are capable, on proper occasion, of expansion or modification. Practices which were considered perfectly normal at one time have today become obnoxious and oppressive to public conscience. If there is no head of public policy which covers a case, then the court must in consonance with public conscience and in keeping with public good and public interest declare such practice to be opposed to public policy. (para 92)
45. This court in KOLAPARTI VENKATAREDDI V. KOLAPARTI PEDA VENKATACHALAM12 held as under:
"Whatever tends to injustice of operation, restraint of liberty, commerce, and natural or legal rights, whatever tends to the obstruction of justice or to the violation of a statute and whatever is against the good morals-when made the object of a contract, is against public policy and therefore void and not susceptible to enforcement"
46. The Supreme Court has had an occasion to consider whether award of interest on interest or compound interest was contrary to the public policy of India in RENUSAGAR POWR CO. V. GENERAL ELECTRIC COMPANY13. The Supreme Court observed that award of interest on damages or interest on interest, that is, compound interest is not regarded as being against public policy in England, Australia and Canada. As regards India, the Supreme Court observed that there is no absolute bar on the award of interest by way of damages and it would be permissible to do so if there is a usage or contract, express or implied, or any provision of law to justify the award of such interest. Payment of compound interest on loans advanced by banks and financial institutions are provided in contracts for such loans and those contracts are enforced by law. Observing so, the Supreme Court held that award of interest on interest cannot be said to be against the public policy of India. Equally disallowing interest by the arbitrator, who is a court as defined under Interest Act, 1978 restricting the interest for a specified period cannot be said to be against the public policy of India. (Emphasis supplied)
47. Once the arbitrator rectified the typographical mistake of date crept in the original award, further when the parties have filed an application under Section 33 of the Act for payment of interest from 01-10-1987 to 31-03- 2001 was rejected by the arbitrator by his additional award, which is within the realm of his jurisdiction, and when the same is not opposed to public policy it is not open for the civil court to award interest.
48. It is needless to say that an arbitrator is supposed to and is expected as well as is required to proceed in accordance with law, which includes law of limitation also. When reference itself is made in the year 2001 the arbitrator can award interest, if any, three years prior to his entering on reference but not beyond the said period. The learned trial judge has lost sight of to the law of limitation in modifying the award.
49. In our view, learned counsel for the appellant is right in his submission that when the respondents/claimants having received the entire amount as awarded by the arbitrator, have resorted in speculative litigation. The Bombay High Court in INDIAN OIL CORPORATION LIMITED V. KAVAERNER CONSRUCTION INDIA LIMITED14 held that where the petitioner while objecting to the award under Sec.30 of the Act of 1940, accepted benefit thereunder which accrued because of the award, has acquiesced to the award and as such, precluded from impugning the same.
50. In view of our discussion made hereinabove, the question posed is answered as under:
a) The court can set aside the award passed by the arbitrator, arbitral Tribunal leaving the parties to begin the arbitration again if it is so desired, set aside particular claims which can be separated from the award, if such claims are not submitted to the arbitration or prohibited under the clauses of agreement. The court can also reduce the interest awarded by the arbitrator, if any, in consonance with the prevailing market rate of interest as per the provisions of the Interest Act.
b) Once the arbitrator dealt with a specific claim and rejected the same, the only remedy available to the court is to quash the award granting liberty to the parties to begin the arbitration again if it is so desired. c) A claim for interest for a specified period once rejected by the arbitrator cannot be allowed by modifying the award.
51. For the foregoing reasons and the conclusions reached by us the impugned order passed by the lower court awarding interest which was disallowed by the arbitrator for the specified period cannot be sustainable and the same is accordingly set aside. Consequently O.P. stands dismissed.
52. The CMA is accordingly allowed. There shall no order as to costs.
?1 (2006) 11 SCC 181
2 (2006) 7 SCC 700
3 (2007) 2 SCC 720
4 (2007) 8 SCC 466
5 2005 (2) Arb.LR 213 (Delhi)
6 2007 (4) Arb.LR 524 (Bombay)
7 2007(3) Arb.L.R. 314 (Delhi)
8 2008 (1) Arb. L.R. 490 (Delhi)
9 Appeal No.903/2006 in Arbitration Petition No.159/2006 dt.27-02-2008 10 (2003) 5 SCC 705
11 (1986) 3 SCC 156
12 AIR 1964 AP 465
13 AIR 1994 SC 860
14 2000 Ar.W.L.J. 416 (Bom)