(This Original Side Appeal is preferred under Order XXXVI Rule 9 of O.S. Rules under clause 15 of letters patent against the order of this Court dated 03.04.2009 made in O.P.No.325 of 2009.)
(PRABHA SRIDEVAN. J,)
1. This Original Suit Appeal has been filed against the order of the learned Single Judge upholding the award in so far as the Item Nos. I to IV in para 13.0 of the award is concerned and setting aside the award in so far as the Item Nos. V to VIII in para 13.0 are concerned and is restricted only to the rate of interest awarded and future interest.
2. The Tribunal made the following award :
"13. 0 AWARD OF TRIBUNAL:
Under the circumstances and considering all arguments by both the parties and on the basis of the conclusions as stated above, the Tribunal finds that Section 5 relating to whole of the works substantially completed on 01.06.2001. Accordingly, the award of the Tribunal on Claim No.6 is as under:
i. Claimant is entitled for the Taking Over Certificate for whole of the work i.e. Section 5 with effect from 01.06.2001. Accordingly, the date of taking over certificate shall be 01.06.2001.
ii. Respondent shall pay to Claimant the retention money and also release the Retention money Bank Guarantee in excess of 50% retention money pertaining to whole of the works effect from the date of substantial completion i.e. 01.06.2001.
iii. Respondent shall release the domestic preference security provided under the contract with effect from date of substantial completion i.e. 01.06.2001.
iv. Respondent shall also pay simple interest at 12% p.a. on the awarded amount at item (ii) above, from 56 days after the date of substantial completion till the date of this award.
v. Respondent shall issue Defect Liability Certificate with effect from 31.05.2002.
vi. Respondent shall release the remaining 50% of the retention money/bank guarantee with him with effect from the date of expiry of defect liability period.
vii. Respondent shall pay simple interest at 12% p.a. on amount (money) under item vi above from 56 days after the date of expiry of defect liability period till the date of this award.
viii. Respondent, shall release performance Bank Guarantee provided under the contract with effect from the date of expiry of defect liability period i.e. 31.5.2002."
3. Learned Counsel appearing for the appellant and the Senior Counsel appearing for the 1st respondent admitted and confirmed that the appeal is only in respect of Clause iv above and future interest. Therefore, we will refer to the facts only in so far as it is necessary for us to deal with the issues.
4. The parties entered into an agreement on 22.8.1997 for the construction of the Break Waters. The work to be executed comprised of the construction of the North and South Break Waters. The entire works were divided into five sections. Originally, the date of completion was 15.8.2000. It was extended and finally, the taking over certificate was issued by the appellant herein at the request of the 1st respondent. There were disputes relating to what is the date of the taking over certificate. We will deal with that later. The amount payable to the 1st respondent by the appellant included the retention money which was with the appellant herein. According to the 1st respondent, since they had been deprived of the use of the money, they were entitled to interest on the retention money and according to them, they had borrowed funds from the bank for which they had to repay with interest. The appellant herein resisted the claim for interest contending that the interest if any payable shall be at the current annual rate on 46 days deposit by the State Bank of India or as per the provisions of the Interest Act, 1978. In the present case, the dispute arose in 2000-2001 and the rate of interest on 46 days deposit at the relevant point of time was in the range of 6% to 8%, The Dispute Review Board before which the parties made their grievance, before moving the Arbitrary Tribunal, had recommended the rate of interest at 18% which according to the appellant was in accordance with the terms of the contract.
5 The Arbitral Tribunal held as follows:
"It is a settled position in law that, any party, which is deprived of the use of money to which it is legitimately entitled has a right to be compensated for the deprivation, by way of interest. There cannot be two views on this. However, the question to be decided is what should be the rate of interest. As far as the interest specified in the Contract under Clause 60.8, it would be applicable only in case of the any payment is certified by the Engineer and there has been delay on part of the Respondent in making the payment to Claimant. The fact that the contract specifies interest on the 46 days deposit rate would lead to reasonable and logical conclusion that, respondent had foreseen a maximum delay of 46 days over and above the time stipulated in contract (i.e. 56 days) in making payments certified by Engineer. In the present case, the payment of retention money itself is under dispute and therefore, in our opinion, the interest as stipulated under Clause 60.8 of Contract shall not be applicable. However, considering the commercial nature of transaction, the tribunal is of the opinion that it would be fair and reasonable and ends of justice would be met by awarding interest at the rate of 12% upto 30.6.2003 and 9% thereafter."
Thereafter, a petition was filed in terms of Section 33 of the Arbitration and Conciliation Act and the Arbitral Tribunal awarded an uniform interest of 12% for the entire period.
6. The learned Counsel appearing for the appellant referred to Section 60.8 of the contract which reads as follows:
"Sub-clause 60.8: Time for Payment and Interest: The amount due to the contractor under any Interim Payment Certificate issued by the Engineer pursuant to this Clause, or to any other term of the Contract shall, subject to Clause 47, for local currency payments, be paid by the Employer to the Contractor and for foreign currency payments, be notified to the State Bank of India by the Employer for transfer to the Contractor's 0verseas bank, within 56 days after the Contractor's monthly statement has been submitted to the engineer for certification, or in the case of the final certificate pursuant to Sub-clause 60.13, within 84 days after the agreed Final Statement and written discharge have been submitted to the Engineer for certification. In the event of the failure of the employer to make or notify payment within the times stated, the Employer shall pay to the Contractor interest compounded monthly at the rate(s) stated in the Appendix to Bid upon all sums unpaid or not notified from the date upon which the same should have been paid or notified, in the currencies in which the payments are due.
The learned Counsel submitted that when the interest is clearly stipulated in the contract, the Tribunal cannot award interest at any other rate on the ground that it would be just and reasonable. The learned Counsel then referred to the Appendix to Bid to show that the rate of interest on unpaid sums would be within 'current annual rate on 46 days deposit paid by the State Bank of India'. The table thereon shows that the amount would be 6% + 2%. The learned Counsel for the Appellant also referred to the Interest Act wherein it is provided in paragraph 2(b) which defines the current rate of interest and he submitted that the clauses relating to rate of interest incorporated in this agreement is only in line with the Interest Act.
7. The learned Counsel referred to various decisions to support his case that the rate of interest stipulated in the contract cannot be altered by the Arbitrator.
8. The learned Senior Counsel appearing for the 1st respondent would submit that the same clause had come up for consideration before a learned Single Judge of this Court and also before the Arbitral Tribunals in several proceedings and all of them have understood the Clause in the same way as it has been done in this case. He would also submit that if a clause gives room for two different interpretations, it should be construed in the manner that is in favour of the party which had not drafted the contract and that would be in consonance with the Doctrine of Contra Preferentum. The learned Senior Counsel, further, submitted that the conclusion made by the Arbitral Tribunal is in consonance with the contract, if viewed as a whole. The learned Senior Counsel also referred to an agreement No 33 of 97 where the preamble clause iv reads as follows:
"The Employer hereby covenants to pay the Contractor in consideration of the execution and completion of the Works and the remedying of the defects therein the Contract Price or such other sum as may become payable under the provisions of the Contract at the times and in the manner prescribed by the Contract."
9. According to the learned Senior Counsel, therefore, the sums due became payable at the times and in the manner prescribed in the contract. He also produced a tabular column to show the conflicting stands taken by the parties with regard to the date of taking over certificate. According to the 1st respondent, it was 01.02.2001. The Dispute Review Board also fixed this date as the date of taking over certificate. According to the Engineer, 31.7.2001 was the date. The Arbitral Tribunal held that it was 1.6.2001. Since there was a huge variation in the date of the take over certificate which is relevant for deciding the issue, the Tribunal had fixed the rate of interest at 12%. The Interest Act cannot be relied on if it is inconsistent with Arbitration and Conciliation Act. This was perfectly in order and did not warrant interference.
10. The learned Senior Counsel also referred to various decisions in this regard.
11. In Oil and Natural Gas Corporation Limited Vs. Saw Pipes Limited, (2003) 5 Supreme Court Cases 705, the Supreme Court held that an award is to be construed from the words used in the agreement. In particular, in page 20, it is held as follows:
'... Take for illustration a case wherein there is a specific provision in the contract that for delayed payment of the amount due and payable, no interest would be payable, still however, if the arbitrator has passed an award granting interest, it would be against the terms of the contract and thereby against the provision of Section 28(3) of the Act which specifically provides that 'Arbitral Tribunal shall decide in accordance with the terms of the contract'.
12. In M/s.Gautam Constructions and Fisheries Limited V. National Bank for Agriculture and Rural Development and other reported in AIR 2000 Supreme Court 3018, the Supreme Court held as follows:
'5. So far as the interest is concerned, no exception could be taken to the award at the rate of 12% p.a. The grant of interest at 18% p.a. Is directly opposed to the specific terms in the contract and it is not permissible for the Arbitrator or the Court dealing with the validity of the award to award a higher rate than the mutually agreed rate, which is binding the parties. The challenge to the judgment of the Division Bench in this connection fails and shall stand rejected.'
13. In Krishna Bhagya Jala Nigam Limited v. G.Harischandra Reddy and another reported in (2007) 2 Supreme Court Cases 720, the Supreme Court had taking into account the various circumstances reduced the rate of interest from 18% to 9%. In H.U.D.A. v. Raj Singh Rana reported in AIR 2008 Supreme Court 3035, the Supreme Court held as follows:
'The concept of levying or allowing interest is available in almost all statutes involving financial deals and commercial transactions, but the provision empowering Courts to allow interest is contained in the Interest Act, 1978, which succeeded and repealed the Interest Act, 1839. Section 3 of the said Act, inter alia provides that in any proceeding for the recovery of any debt or damages or in any proceeding in which a claim for interest in respect of debts or damage already paid is made, the Court may, if it thinks fit, allow interest to the person entitled to the debt or damages or to the person making such claim, as the case may be, at a rate not exceeding the current rate of interest, for the whole or part of the periods indicated in the said Section.
11. What is important is the mention of allowing the interest at a rate not exceeding the current rate of interest. Such a provision is, however excluded in respect of the interest payable as of right by virtue of any agreement as indicated in sub-section (3) of Section 3. In other words, where there is an agreement between the parties to payment of interest at a certain stipulated rate, the same will have the precedence over the provision contained in sub-section (1) which provides for the Court to allow interest at a rate not exceeding the current rate of interest.'
In this case, the Supreme Court has stressed that the Courts cannot arbitrarily fix the rate of interest and should take into account the current bank rates which in recent years have shown a tendency to slide downwards. In fact, in many of the aforesaid cases, the rate of interest has been reduced substantially.
14. In Sayeed Ahmed and Co. Vs. State of U.P. And others reported in 2009 (5) CTC 264, the Supreme Court has traced the position of law relating to award of interest for the three periods namely, pre-reference period, pendente lite period and future interest and in considering the 1996 Act held that this Act recommended only two periods and makes the following provisions:
"a. In regard to the period between the date on which the cause of action arose and the date on which the award is made (pre reference period plus pendente lite), the Arbitral Tribunal may award interest at such rate as it deems reasonable, for the whole or any part of the period, unless otherwise agreed by the parties;
b. For the period from the date of award to the date of payment, the interest shall be 18% per annum if no specific order is made in regard to interest. The Arbitrator may however award interest at a different rate for the period between the date of award and date of payment."
They also held that unless the award of interest is found to be unwarranted for reasons to be recorded, the court should not alter the rate of interest awarded by the Arbitrator.
15. In Sports Development Authority of Tamil Nadu, No.116-A Periyar E.V.R. High Road, Chennai-84 represented by its Member Secretary v. Tarapore & Co. Engineers and Contractors, 827, Anna Salai, Chennai-2 rep. By its partner reported in 2006(4) CTC 712, a Division Bench of this Court held as follows:
"27. Section 3 of the Interest Act, 1978 recognises the power of Court to allow interest. However, Section 3(3) makes it clear that nothing in this section shall apply in relation to any debt or damages upon which interest is payable as of right by virtue of any agreement or any debt or damages upon which payment of interest is barred by virtue of an express agreement. Since there is no agreement expressly excluding payment of interest nor there is an agreement by which interest is payable as of right, we have to fall back upon other provisions contained in Section 3 of the Interest Act.
30. Notwithstanding the provisions contained in Section 3, a mandate has been given to the Court under Section 4(1) to pay interest in all cases in which it is payable by virtue of any enactment or other rule of law or usage having the force of law. Section 4(2) which also starts with a non obstante clause excluding the applicability of Section 3, mandates the Court to allow interest at such rate as the Court considers reasonable in the circumstances contemplated in four clauses, namely (a) to (d) in Section 4(2), from the date of deposit as envisaged in Section 4(2)(a) or from the date of the cause of action as envisaged in other clauses of Section 4(2). In the matters coming within Section 4(2), the Court, however, can refuse to allow interest if it is satisfied that there are special reasons why interest should not be allowed."
16. In Steel Authority of India Limited V. J.C.Budharaja Government and Mining Contractor reported in (1999) 8 Supreme Court Cases 122 at paragraph 15, the Supreme Court has held that where these conditions have been specifically prohibited for granting claim for damages, the Arbitrator cannot ignore the said conditions. It is held as follows:
"If no specific question of law is referred, the decision of the arbitrator on that question is not final however much it may be within his jurisdiction and indeed essential for him to decide the question or misapply it in order to do what he thinks is just and reasonable. The arbitrator is a tribunal selected by the parties to decide their disputes according to law and so is bound to follow and apply the law, and if he does not he can be set right by the court provided his error appears on the face of the award."
17. The Bombay High Court in Maharashtra Industrial Development Corporation Limited V. Govardhani Construction Company reported in AIR 2008 (NOC) 1678 (BOM) followed the judgment in Krishna Bhagya Jala Nigam Limited v. Harishchandra Reddy and another reported in 2007 AIR SCW 527 and reduced the interest. Our Court in Eastern Trading Company and Others v. Kalpana Lamps and Components Limited and another reported in (2008) 3 MLJ 680 followed the same judgment for reduction of rate of interest from 18% to 9%.
18. On the side of the 1st respondent, the following judgments were cited:
1. AIR 1990 SC 1340 (M/s. Hindu Builders vs. UOI) wherein, the Supreme Court held as follows:
"They have acted upon a particular interpretation of certain clauses of the contract on which two views are possible. This case certainly cannot be brought under the principle that the arbitrator have exfacie exceeded the authority or jurisdiction conferred on them by the contract....
In a matter on which the contract is upon to two equally plausible interpretations, it is legitimate for the available interpretations and, if the court may think that the other view is preferable, the court will not and should not interfere. This view is too well settled to need any reference to any precedent other than Sudershan Trading Co., case."
2. 2001(3) SCC 397 (U.P. State Electricity Board Vs. Searsole Chemicals Limited) wherein it was held thus :
"When the arbitrators have applied their mind to the pleadings, the evidence adduced before them and the terms of the contract, we do not think, it is within our scope to reappraise the matter as if this were an appeal, and it is clear that where two views are possible ? in this case there is no such scope ? the view taken by the arbitrators would prevail."
3. 2003 (7) SCC 396 (State of U.P. Vs. Allied Constructions)wherein the Supreme Court held as follows:
"The award is a speaking one. The Arbitrator has assigned sufficient and cogent reasons in support thereof. Interpretation of a contract, it is trite, is a matter for the arbitrator to determine. Unless one or the other condition contained in Section 30 is satisfied, an award cannot be set aside. The arbitrator is a judge chosen by the parties and his decision is final. The court is precluded from reappraising the evidence. Even in a case where the award contains reasons, the interference therewith would still be not available within the jurisdiction of the court unless, of course, the reasons are totally perverse or the Judgment is based on a wrong proposition of law. An error apparent on the face of the records would not imply closer scrutiny of the merits of the documents and materials on record. Once it is found that the view of the arbitrator is plausible one, the court will refrain itself from interfering."
4. 2009 (2) CTC 843 (M.P.Hosing Board v. Progressive Writers) wherein, it is held as follows:
"It is fairly well settled and needs no restatement that award of the Arbitrator is ordinarily final and courts hearing applications under Section 30 Act do not exercise by the Court is impermissible. ... Interpretation of a contract, it is trite, is a matter for the Arbitrator to determine. Even in a case where the award contains reasons, the interference therewith would still not available within the jurisdiction of the Court, unless, of course, the reasons are totally perverse or award is based on wrong proposition of law. An error apparent on the face of the records would not imply close scrutiny of the merits of documents and materials on record. "Once it is found that the Arbitrator is a plausible one, the Court will refrain itself from interfering." See Sudarsan Trading Co. and State of U.P.V. Allied Constructions.... In case of default award of interest 18% is fair and equitable one."
5. 2005(6) SCC 462 (Bhagawathi Oxygen Ltd. vs.Hindustan Copper Ltd.) wherein the Supreme Court held as follows:
" This court considered the provisions of Section 30 of the Act in several cases and has held that the court while exercising the power under Section 30, cannot reappreciate the evidence or examine correctness of the conclusion arrived at by the Arbitrator. The jurisdiction is not appellate in nature and an award passed by an arbitrator cannot be set aside on the ground it was erroneous. It is not open to the court to interfere with the award merely because in the opinion of the court, another view is equally possible. It is only when the court is satisfied that the arbitrator had misconducted himself or the proceedings or the Award had been improperly procured or is otherwise invalid that the court may set aside such award.... our view, however, a relevant and germane factor weighed with the Arbitrator in awarding 18% interest, that at that rate HCL had given advance to BOL. In view of the said circumstances, in our opinion, even that part of the award passed by the Arbitrator did not deserved interference and the learned Single Judge and Division Bench were not right in reducing the rate of interest."
6. 2004 (3) SCC 694 (United India Insurance Company Limited Vs. Puspalaya Printers)wherein it was held thur:
"... It is also settled position in law that if there is an ambiguity or a term is capable two possible interpretations, one beneficial to the insured should be accepted consistent with the purpose for which the policy is taken, namely, to cover the risk on the happening of certain event. Although, there is no ambiguity in the expression "impact", even otherwise applying the rule of Contra Preferentem, the use of the word "impact" in clause 5 in the instant policy must be construed against the appellant..."
19. It is admitted that the appellant and the respondents have entered into several agreements and it is not as if either of them is stranger to a contract with similar terms. As regards the interest on the retention money, the learned Single Judge was persuaded to accept the award of the Arbitral Tribunal which submitted that the interest as provided under Clause 16.8 is applicable for normal delay and that would not be applicable in the present case and to pay for interest at 18% stating that they had been borrowing funds from the bank as such rates. The learned Single Judge had also referred to the fact that the Tribunal found that the respondents had honestly endeavoured to complete the work within the stipulated time and therefore, the appellant was in a position to inaugurate the Port on 1.2.2001. The Tribunal held that when the payment of retention money itself is in dispute, the interest in Clause 60.8 shall not be applicable and considering the commercial nature, awarded interest at 12%, the learned Single Judge observed that it is not as if the tribunal disregarded the clause, but had only interpreted the clause.
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/>20. There is Clause 60.8 to indicate that the rates specified therein applies only to normal delay and such rate will not apply in the case of abnormal delay. If we have to understand it in that manner, it would be read certain words into contract which are not there. We are informed that in several awards this is how it has been understood that the interest rate is only in respect of non-payment within 56 days and if the amount payable is not paid thereafter, that will not have any application. It appears to simply mean that the agreed rate of interest is the interest applied to 46 days deposit. It is doubtful that if we can read the words "this is the interest for a fixed period of delay and for delay after that we will not agree on any rate". But the Tribunal had understood that, that can be the only reason for choosing the interest for 46 days deposit. If the arbitrator had acted upon a particular interpretation which is not unreasonable or perverse, even if the Court thinks that the other view is preferable or the other view is plausible, the Court will not and should not interfere. (Vide AIR 1990 SC 1340, 2003 (7) SCC 396, 2009 (2) CTC 843. As we have stated earlier, the reference to 46 days appears only to fix the rate of interest and not to fix the period of delay. However, the Arbitrator's understanding of the period is not so unreasonable so as to justify interference under Section 34. It is a possible view, therefore, we will not interfere with the construction placed by the Arbitrator on the Clause 60.8. 21. Now we come to the rate of interest. The Act provides that if a rate of interest is not fixed, then unless the award otherwise directs, it will carry at the rate of interest at 18%. But when the interest specified in the agreement is below the range of 6% to 8%, there is no reason why the Tribunal felt that it was fair and reasonable to award interest at the rate of 12%. It is obvious even from the award of the Tribunal that originally the tribunal felt that 9% would be justifiable rate of interest from 30.6.1993. This was rectified by invoking Section 33. The contract specifies the interest shall be that which is applicable to 46 days deposit which is between 6% to 8%. Double that interest was awarded for the delay beyond 56 days. So, while we do not interfere with the Arbitrator's construction of Clause 60.9 in the present case, in view of the decision in Krishna Bhagya Jala Nigam Limited v. Harischandra Reddy and another which is followed by our Court in Eastern Trading Company and Others, we allow the appeal in so far as the rate of interest is concerned for the reasons given above. We reduce the rate of interest from 12% to 9%. The appeal is allowed to this extent. No costs.