MUNICIPAL COUNCIL THANESAR versus VIRENDER KUMAR ETC. on 19 February 2019

MUNICIPAL COUNCIL THANESAR

v.

VIRENDER KUMAR ETC.

(Civil Appeal Nos. 1751-1763 of 2019)

FEBRUARY 19, 2019

[UDAY UMESH LALIT AND

DR. DHANANJAYA Y CHANDRACHUD, JJ.]

Arbitration and Conciliation Act, 1996: s.31(7)(a) and (b) –Interest – Entitlement of Decree-holders to the statutory benefitsunder ss.31(7)(a) and (b) – Held: Decree-holders-respondents areentitled to post award interest in terms of s.31(7)(b) of the Act.

Code of Civil Procedure, 1908: Execution of award – Interestawarded in the arbitration award – In the award, it was notspecifically stated that the interest @ 7% p.a. was to be awardedwith quarterly rests – In fact, the award did not specify anything;whether it was quarterly rests or yearly rests – It simply awardedinterest @ 7% p.a. – Executing Court put it with yearly rests whichthe High Court in revisions preferred by the appellants modified toquarterly rests – On appeal, held: Both the Executing Court andthe High Court completely erred and awarded compound interest infavour of the respondents when the award had stipulated it to be7% p.a. simplicitor – The award did not even remotely suggest thatsuch award of interest would be with a direction that interest becapitalized on yearly or quarterly basis – It was pure and simpleaward of interest @ 7% and could not be taken to be a direction toaward compound interest – Consequently, the pre-award intereston the amounts in question shall be calculated @ 7% p.a. simpleinterest – Arbitration and Conciliation Act, 1996 – s.31(7)(a)and (b).

Partly allowing the appeals, the Court

HELD: 1. The first issue that whether the decree-holderswere entitled to the statutory benefits under Section 31(7)(a)and (b) of the Act was rightly answered in favour of thedecree-holders/respondents. The question is no longer res

A

B

C

DE

F

G

H

[2019] 5 S.C.R.

Aintegra and stands answered in clear terms in Hyder Consultingcase. [Paras 5.2, 7][833-F; 834-B-C]

Hyder Consulting (UK) Ltd. v. Governor, State of Orissathrough Chief Engineer (2015) 2 SCC 189 – relied on

2. As regards the second issue, the Executing CourtBcorrectly appreciated that the Award did not specifically state thatthe interest @ 7% per annum was to be awarded with quarterlyrests. The Executing Court found that it was doubtful whetherthe award of interest was @ 7% with quarterly rests or yearlyrests. The Executing Court put it with yearly rests which theCHigh Court in Revisions preferred by the appellants modified toquarterly rests. Both the Executing Court and the High Courtcompletely erred and awarded compound interest in favour ofthe respondents when the award had stipulated it to be 7% perannum simplicitor. The Award did not even remotely suggestthat such award of interest would be with a direction that interestDbe capitalized on yearly or quarterly basis. It was pure and simpleaward of interest @ 7% and could not be taken to be a directionto award compound interest. Consequently, the pre-awardinterest on the amounts in question shall be calculated @ 7%per annum simple interest. The respondents shall be entitled toEthe benefit under Section 31(7)(b) of the Act and postaward interest shall also be @ 7% per annum simple interest.[Paras 8-12][834-C-D; 835-F-G; 835-A-B]

Case Law Reference

(2015) 2 SCC 189relied onPara 6FCIVIL APPELLATE JURISDICTION : Civil Appeal Nos. 1751-1763 of 2019.

From the Judgment and Order dated 03.03.2017 of the High Courtof Punjab and Haryana at Chandigarh in C.R. Nos. 6765 of 2015(O & M), C.R. No. 5198 of 2015 (O & M) to C.R. No. 5205 of 2015G(O & M), C.R. No. 5510 of 2015 (O & M) to C.R. No. 5512 of 2015(O & M) and C.R. No. 4253 of 2015 (O & M).

With

Civil Appeal Nos. 1443-1444 of 2019.

H

Ajay Majithia, Shekhar Kumar, Advs. for the Appellants.

A. Tewari, Ms. Eliza Bar, Shree Pal Singh, Riju Mani Talukdar,Anupam Raina, Saurav Trivedi, Sunando Raha, Raktim Gogoi, KartikeyaSingh, Sarvwsa Chhajer, Anupam Lal Das, Chritarth Palli, ShubhamBhalla, Advs. for the Respondents.

The Judgment of the Court was delivered by UDAY UMESH LALIT, J. 1.Leave granted.

2. These appeals challenge the final judgment and order dated03.03.2017 passed by the High Court of Punjab and Haryana atChandigarh in C.R.Nos. 6765 of 2015 (O&M), 5198 of 2015(O&M),5199 of 2015(O&M), 5200 of 2015(O&M), 5201 of 2015(O&M), 5202of 2015(O&M), 5203 of 2015(O&M), 5204 of 2015(O&M), 5205 of2015(O&M), 5510 of 2015(O&M), 5511 of 2015(O&M), 5512 of2015(O&M) and 4253 of 2015(O&M).

3. Pursuant to public notice for auction of shops/showrooms, theauction was conducted by the appellant on 18.10.2016 in which therespondents participated and were declared successful bidders.Thereafter, disputes arose between the parties whether the auctionedpremises were ready to be delivered on the relevant dates; whether theconstruction was incomplete; and whether the civic amenities were madeavailable or not? The matters reached the High Court in various WritPetitions namely CWP Nos.13548 of 2008, 1015, 1016, 1017, 1018, 1020,1062, 14793 and 19228 of 2009 and by a common order dated 14.07.2010the disputes were referred to a sole Arbitrator. After considering thematters, the Arbitrator passed a common Award on 14.10.2010. Para21 of the Award was as under:- “21. In view of the above findings, award is passed in favour ofthe petitioners against the respondents with costs of Rs.10,000/-(Rupees Ten Thousand only) and Municipal Council, Thanesar, isdirected to complete the work in all the respects of the ShoppingComplex, situated in Kacha Gher, Thanesar, within one month; ifalready completed, a notice be issued to the petitioners to takepossession of the respective shops and also to execute theagreement within a week. Municipal Council, is further directedto give interest on the advance rent as well as non-refundablesecurity, at the rate of interest offered by Nationalised Bank, i.e.

A

B

C

DE

F

G

H

A

A7% per annum, till physical/possession is handed over to thepetitioners/allottees. Petitioners are further awarded damagesby way of 12% interest on non-refundable security till delivery ofpossession as they have suffered mentally as well as loss ofbusiness due to delay in completion of work of the shops andhanding over their possession. Requisite stamp papers be filedBwithin week.”

4. The appellants preferred objections under Section 34 of theArbitration and Conciliation Act, 1996 (hereinafter referred to as ‘theAct’) which were dismissed by the Additional District Judge on15.09.2012. The appellants, being aggrieved, preferred First AppealsCwhich were dismissed by the High Court of Punjab and Haryana on17.01.2014. The order of the High Court was also affirmed by this Courtby dismissing Special Leave Petition (Civil) No.15550 of 2014 on04.08.2014. The directions issued in the Award thus became final.

5. In Execution Proceedings taken out by the respondents, theDExecuting Court in its order dated 23.03.2015 dealt with the matter asunder:-

“5. As per the award dated 14.10.2010 the arbitrator had directedthe judgment debtor i.e. Municipal Council, Thanesar to giveinterest on the advance rent as well as non-refundable security, atthe rate of interest offered by nationalized bank i.e. 7% per annumtill physical possession is handed over to the petitioners/allottees.Petitioners were further awarded damages by way of 12% intereston non-refundable security till delivery of possession. It is a settledlegal position that an executing court cannot go beyond decree. Aplain reading of award dated 14.10.2010 shows that interest @7% per annum has been given to the decree holder on the advancerent as well as non-refundable security. “At the rate of interestoffered by nationalized bank” mentioned in the award has to beread in continuation and cannot be isolated to give it a separatemeaning. The award clearly stipulates that the rate of interestbeing awarded by the arbitrator is at the rate which is offered bynationalized bank. The award is silent about the manner ofcalculation of interest. The award cannot be interpreted to meanthat the manner of calculation of the interest has to be in accordance E

F

G

with the norms of a nationalized bank. Interpreting the award ascalculation of interest of 7% per annum on advance rent and non-refundable security with quarterly rests would mean that compoundinterest has to be calculated. The same does not appear to be theintention of the learned arbitrator as it is not specifically statedthat interest at the rate of 7% per annum was awarded withquarterly rests.

6. Even as per the Reserve Bank of India guidelines libertyhas been given to the nationalized banks to pay interest on domesticsavings deposit accounts either at quarterly intervals or by givinglonger rests. Admittedly different nationalized banks have theirown rate of interest and are free to determine the manner ofcalculation by giving shorter or longer period of rests. In theabsence of any specific direction given by the learned arbitratorin the award dated 14.10.2010, no further interpretation in theaward is feasible and the rate of interest has to be read as 7% perannum which has to be calculated with yearly rests. As per awarddated 14.10.2010, the interest has to be calculated only till thedelivery of possession. The possession of the respective shopshas already been handed over to the decree holders.”

5. The appellants being aggrieved, filed aforementioned CivilRevisions in the High Court which were disposed of on 03.03.2017.The questions that arose for consideration were formulated by the HighCourt as:

“Twin questions that fall for consideration of this Court are; (i)whether the decree-holders are entitled to the statutory benefitsunder Section 31(7)(a) and (b) of the Act; and (ii) whether thedecree-holders-petitioners are also entitled to calculate the amountof interest on advance rent and nonrefundable security, at therate of interest offered by nationalized bank, i.e. 7% per annum,with quarterly rests.”

Relying on the majority view in Hyder Consulting (UK) Ltd. vs.Governor, State of Orissa through Chief Engineer[1], the High Courtanswered the first issue in favour of the respondents and concluded thatthey were entitled to post award interest in terms of Section 31(7)(b) ofthe Act. As regards second issue, it was held that the respondents were 1(2015) 2 SCC 189

A

B

C

D

E

F

G

H

Aalso entitled to interest @ 7% per annum with quarterly rests. The viewso taken by the High Court is presently under challenge.

6. We have heard Mr. Ajay Majithia, learned counsel for theappellants and Mr. A. Tewari, Mr. Anupam Raina, Mr. Raktim Gogoiand Mr. Chritarth Palli, learned advocates for the respondents.

B

7. The first issue was rightly answered in favour of therespondents. The question is no longer res integra and stands answeredin clear terms in Para 10 of the Judgment of Bobde, J. and paras 27-28of the Judgment of Sapre, J. in Hyder Consulting (supra). The viewtaken by the High Court on this issue is absolutely correct.

C

8. As regards the second issue, the Executing Court correctlyappreciated that the Award did not specifically state that the interest @7% per annum was to be awarded with quarterly rests. In fact, theAward did not specify anything; whether it be quarterly rests or yearlyrests. It simply awarded interest @ 7% per annum. Since the AwardDwas completely silent on that aspect, at the stage of execution, no additionor alteration could be made in the operative directions issued in the Award.The Award had seen the challenges at three levels and at none of thosestages, there was any modification in the operative directions of theAward.

E9. The Executing Court found that it was doubtful whether theaward of interest was @ 7% with quarterly rests or yearly rests. Infact, the situation was more fundamental, whether there was award ofany compound interest at all. The Executing Court put it with yearlyrests which the High Court in Revisions preferred by the appellantsmodified to quarterly rests. In our view, both the Executing Court andFthe High Court completely erred and awarded compound interest in favourof the respondents when the award had stipulated it to be 7% per annumsimplicitor. The Award did not even remotely suggest that such awardof interest would be with a direction that interest be capitalized on yearlyor quarterly basis. It was pure and simple award of interest @ 7% andGcould not be taken to be a direction to award compound interest.

10. We, therefore, accept the submission made by the learnedcounsel for the appellants as regards second issue and direct that thedirection issued in the para 21 of the Award shall be construed as simpleinterest @ 7% per annum.

H

MUNICIPAL COUNCIL THANESAR v. VIRENDER KUMARETC. [UDAY UMESH LALIT, J.]

11. Consequently, the pre-award interest on the amounts in questionshall be calculated @ 7% per annum simple interest. The respondentsshall be entitled to the benefit under Section 31(7)(b) of the Act and postaward interest shall also be @ 7% per annum – simple interest.

12. With the aforesaid modification the appeals are partly allowed.No order as to costs.

Devika Gujral

Appeals partly allowed.

A

B

C

D

E

F

G

H