2022 (10) TMI 52 - SC - Indian Laws

Award of interest - it is alleged that learned Arbitrator has grossly erred in awarding interest for the period from 1977 to 1989 inasmuch as the respondent was in deep slumber for a period of twelve years and did not take any step for raising his claim - HELD THAT - The undisputed position is that though final measurement was done on 30st August 1977, for a period of twelve years, i.e., till 25th July 1989, the respondent did not take any step to raise his claim. It is only on that date, i.e., 25th July 1989, the respondent issued a notice to the appellants regarding his claim. As such, the very conduct of the respondent for remaining silent for such a long period would disentitle him for the interest during the said period. Similarly, though a decree was passed on 14th February 1990 and the respondent was directed to file the original agreement, he took no step till 4th February 2000. In the meantime, the 1996 Act came into force. Thereafter, the respondent filed an application in the disposed of suit which came to be dismissed on 4th February 2000. Thereafter, he moved an application being MJC No. 36 of 2000 before the High Court for appointment of arbitrator under Section 11 of the 1996 Act which came to be allowed on 15th October 2001. It could thus be seen that for a period of almost ten years, the respondent was again in silent mode - the learned Arbitrator was not justified in awarding interest for the period from 14th February 1990 to 4th February 2000. A party cannot be permitted to derive benefits from its own lapses. The present case is a fit case wherein this Court needs to exercise its powers under Article 142 of the Constitution of India to reduce the rate of interest. Taking into consideration the conduct of the respondent in delaying the proceedings at every stage which led to a long pendency of the dispute, it is opined that, though it will not be in the interest of justice to interfere with the principal award, this is a fit case wherein the interest at all the three stages, that is prereference period, pendente lite and postaward period, requires to be reduced. The respondent would not be entitled to any interest for the period between 30th August 1977 and 25th July 1989 and for the period between 14th February 2000 and 15th October 2001 - In respect of the remaining period at all the three stages, that is prereference period, pendente lite and postaward period, the respondent would be entitled to interest at the rate of 9% per annum. Application disposed off.

Summary

Issues Involved:
1. Awarding of interest by the Arbitrator for the periods of delay.
2. Reasonableness of the interest rate awarded by the Arbitrator.

Detailed Analysis:

1. Awarding of Interest by the Arbitrator for the Periods of Delay:

The appellants challenged the judgment dated 18th April 2012 by the High Court of Orissa, which dismissed their appeal against the arbitration award. The respondent was awarded a contract for construction work, which was delayed significantly. The respondent issued a notice regarding his claim only on 25th July 1989, after a long period of inaction.

The trial court decreed in favor of the respondent on 14th February 1990, directing the filing of the original agreement for arbitration, which the respondent failed to do. The respondent later filed an application under the new Arbitration and Conciliation Act, 1996, which was initially rejected due to jurisdiction issues but was later allowed by the High Court.

The Arbitrator awarded the respondent Rs. 9,20,650 and interest from 1st April 1976 to the award date at 18% per annum, totaling Rs. 46,90,000. The appellants contested this, arguing that the respondent's delay in raising the claim and filing the necessary documents should disentitle him to interest for those periods.

2. Reasonableness of the Interest Rate Awarded by the Arbitrator:

The appellants contended that the interest rate of 18% per annum was exorbitant and unreasonable, citing precedents where the Supreme Court had reduced high interest rates awarded by arbitrators. The respondent argued that the interest rate was justified and supported by legal provisions and previous judgments.

The Supreme Court examined Section 31(7)(a) of the 1996 Act, which allows the arbitral tribunal to award interest at a reasonable rate. The Court emphasized that the arbitral tribunal must provide reasons for deeming the interest rate reasonable and consider the specific facts of the case.

The Court found that the Arbitrator had not provided reasons for the 18% interest rate and had not considered the respondent's prolonged inaction. The Court noted that the respondent's conduct in delaying the proceedings disentitled him to interest for the periods of delay.

Judgment:

The Supreme Court concluded that the respondent was not entitled to interest for the period between 30th August 1977 and 25th July 1989, and between 14th February 1990 and 15th October 2001. For the remaining periods, the Court reduced the interest rate to 9% per annum, considering the respondent's delays and the need for a reasonable interest rate.

The Court directed the parties to submit calculations to the Executing Court, which would determine the amount payable within specified timelines. The appellants were ordered to pay the determined amount within one month of the Executing Court's quantification.

Pending applications were disposed of, and no costs were awarded.

Conclusion:

The Supreme Court partially allowed the appeal, modifying the interest awarded by the Arbitrator to 9% per annum for specific periods and denying interest for periods of delay caused by the respondent. The judgment emphasized the need for arbitral tribunals to provide reasoned decisions on interest rates and considered the conduct of parties in awarding interest.