Supreme Court of India
M/S SHAHI AND ASSOCIATES versus STATE OF U.P. & ORS. on 8 August 2019
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SUPREME COURT REPORTS
[2019] 11 S.C.R.
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M/S SHAHI AND ASSOCIATES
v.
STATE OF U.P. & ORS.
(Civil Appeal No. 3559 of 2010)
BAUGUST 8, 2019
[ARUN MISHRA, S. ABDUL NAZEER ANDM. R. SHAH, JJ.]
Arbitration and Conciliation Act, 1996: s. 31(7)(b) – ReductionCof rate of interest – Arbitral award along with interest payable inaccordance with s. 31(7(b), at the rate of 18% pa – District judgereduced the rate of interest on the sum awarded from 18% to 6%relying on para 7-A of s. 24 of the UP Amendment Act – Upheld bythe High Court – On appeal, held: Section 31(7)(b) clearly statesthat unless otherwise specified, the awarded sum would carry anDinterest @ 18% pa – Para 7-A of s. 24 of the U.P. Amendment Actwas an amendment to the First Schedule of Arbitration Act, 1940 –Since the Arbitration Act, 1940 has been repealed, the Schedule tothe Arbitration Act, including the State amendment, also standsrepealed – Thus, the provisions of Arbitration Act, 1940 includingEpara 7-A of s. 24 would have no application to the proceedingscommenced after coming into force of the Act of 1996 – On facts,though the agreement was earlier to the date of coming into forceof the Act of 1996, the proceedings commenced on 27.10.1999 andwere conducted in accordance with the Act of 1996, thus, para 7-Aof s. 24 of the U.P. Amendment Act would not be applicable – HighFCourt and the District Judge not justified in reducing the rate ofinterest by following the U.P. Amendment Act – Award of interest inaccordance with s. 31(7)(b) is restored – Arbitration Act, 1940 –Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 – s.24.
GAllowing the appeal, the Court
HELD: 1.1 The Arbitration and Conciliation Act, 1996 hascome into force with effect from 22.08.1996. Section 85 of theAct of 1996 expressly repeals the provisions of the Arbitration H
Act, 1940. Thus, the Act of 1996 would be applicable to all arbitralproceedings which have commenced on or after the said Act cameinto force. Para 7-A of Section 24 of the U.P. Amendment Act wasan amendment to the First Schedule of Arbitration Act, 1940.This amendment was introduced by the U.P. Act No. 57 of 1976.Section 31(7)(b) of the Act of 1996, before its amendment by Act3 of 2016, which has come into force with effect from 23.10.2015,is relevant for the purpose of this case, empowers the Arbitratorto award pre-award and post-award interest. Section 31(7)(b)clearly mandates that, in the event the Arbitrator does not giveany specific directions as regards the rate of interest on the amountawarded, such amount ‘shall’ carry interest @ 18% p.a. from thedate of award till the date of payment. Since the Arbitration Act,1940 has been repealed by way of Section 85, the Schedule to theArbitration Act, including the State amendment, also standsrepealed. The only exception is provided in sub-section (2)(a) ofSection 85 where a proceeding which had commenced when theArbitration Act of 1940 was in force and continued even aftercoming into force of the Act of 1996, and all parties thereto agreedfor application of the old Act of 1940. Therefore, the provisionsof Arbitration Act, 1940 including the State amendment-para 7-Aof Section 24 of U.P. Amendment Act will have no application tothe proceedings commenced after coming into force of the Act of1996. [Para 9-11][644-C-F; 645-B-D]
1.2 In the instant case, though the agreement was earlierto the date of coming into force of the Act of 1996, the proceedingsadmittedly commenced on 27.10.1999 and were conducted inaccordance with the Act of 1996. If that be so, para 7-A of Section24 has no application to the case at hand. Since the rate of interestgranted by the Arbitrator is in accordance with Section 31(7)(b),the High Court and the District Judge were not justified inreducing the rate of interest by following the U.P. AmendmentAct. The judgments of the High Court and the order of the DistrictJudge are set aside only insofar as reduction of rate of interest isconcerned. The interest awarded by the Arbitrator in accordancewith s. 31(7)(b) of the 1996 Act is restored.[Para 12,13][645-E-G]
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ACIVIL APPELLATE JURISDICTION: Civil Appeal No. 3559
of 2010
From the Judgment and Order dated 05.12.2007 of the HighCourt of Judicature at Allahabad in First Appeal from Order No. 3728of 2007
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Ms. Komal Mundhra, Saurabh Agrawal, Abhijit Sengupta, Advs.for the Appellant.
Ms. Aishwarya Bhati, AAG, Ashutosh Kumar Sharma, RajeevDubey, Vivek Sharma, Kamlendra Mishra, Advs. for the Respondents.
CThe Judgment of the Court was delivered by
S. ABDUL NAZEER, J.
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1. M/s. Shahi and Associates has filed this appeal impugning thecommon final judgment and order dated 05.12.2007 passed by the HighCourt of Judicature at Allahabad in F.A.F.O Nos. 3728 of 2007 and 947Dof 2007, whereby the High Court has upheld the award of the Arbitrator.However, relying on para 7-A of Section 24 of the Uttar Pradesh CivilLaws (Reforms and Amendment) Act, 1976 (for short ‘U.P. AmendmentAct’), it has reduced the statutory interest to 6% p.a. from 18% p.a. asawarded by the Arbitrator. The appellant has questioned the reductionof the interest in this appeal.E
2. The appellant is a registered partnership firm engaged in civilconstruction projects for the government of Uttar Pradesh. The appellantentered into an agreement dated 08.07.1993 with the SuperintendentEngineer, Drainage Division, District Gonda, U.P. for work related tothe Gola Pump House. Owing to certain disputes that arose betweenFthe parties with respect to the rate of payment for additional work underthe agreement, the appellant served a notice invoking arbitration on therespondents and filed the claim petition on 11.09.1999. Shri B.M. Arorawas appointed as the sole Arbitrator on 12.10.1999 and the proceedingscommenced on 27.10.1999 under the Arbitration and Conciliation Act,G1996 (for short ‘the Act of 1996’).
3. The sole Arbitrator passed an award on 24.12.2001, wherebythe appellant was awarded a sum of Rs. 17, 86, 339/- (seventeen lakhseighty six thousand three hundred thirty nine). The Arbitrator further H
held that the interest on the sum awarded would be payable in accordancewith Section 31(7)(b) of the Act of 1996, i.e. 18% p.a. from the date ofthe award till the date of actual payment. The operative portion of theaward is:
“According to the above, the petitioner becomes entitled forreceiving a total amount of Rs. 17,86,339.00 (Rs. Seventeenlac eighty six thousand three hundred thirty nine only) and thepetitioner is hereby awarded the same.
From the date of award to the actual date of payment an interestat the rate which is given in the provisions of section 31(7)(b)of the Arbitration and Conciliation Act, 1996 shall also bepayable on Rs. 17,86,339.00 which is the amount of declaredaward.
Both the parties would bear their own cost related with thearbitration.”
4. The respondents 1 and 2 being aggrieved by the aforesaid awardfiled civil miscellaneous case No. 5 of 2002 before the District Judge,Gorakpur, under Section 34 of the Act of 1996. The District Judge whileupholding the sum awarded by the Arbitrator, reduced the rate of intereston the sum awarded from 18% p.a. to 6% p.a. by relying on para 7-A ofSection 24 of the U.P. Amendment Act.
5. Being aggrieved by the aforesaid judgment dated 28.10.2006,both the parties filed F.A. F.O. Nos. 3728 of 2007 and 947 of 2007before the High Court. The High Court by way of impugned commonfinal judgment and order has dismissed both the appeals. In the courseof the order, the High Court has observed that the District Judge hascorrectly reduced the rate of interest from 18% p.a. to 6% p.a. in viewof para 7-A of Section 24 of the U.P Amendment Act.
6. Learned counsel for the appellant submits that the arbitrationproceedings were commenced on 27.10.1999 under the Act of 1996 andthe provisions of Arbitration Act, 1940 will have no application to theproceedings between the parties. The U.P. Amendment Act was a Stateamendment which introduced para 7-A to the First Schedule of theArbitration Act, 1940. Since the Arbitration Act, 1940, has been repealedunder Section 85 of the Act of 1996, the Schedule to Arbitration Act, A
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A1940 also stands repealed and para 7-A has become obsolete.Therefore, the Arbitrator has rightly awarded interest @ 18% p.a. underSection 31(7)(b) of the Act of 1996. The District Judge as also the HighCourt have wrongly relied upon the repealed provision and reduced astatutorily permissible interest rate.
7. On the other hand, learned Additional Advocate Generalappearing for the respondent-State has sought to justify the impugnedjudgment.
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8. We have carefully considered the submissions of the learnedcounsel made at the Bar.
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9. The Act of 1996 has come into force with effect from22.08.1996. Section 85 of the Act of 1996 expressly repeals theprovisions of the Arbitration Act, 1940. Thus, the Act of 1996 would beapplicable to all arbitral proceedings which have commenced on or afterthe said Act came into force. Para 7-A of Section 24 of the U.P.Amendment Act was an amendment to the First Schedule of ArbitrationDAct, 1940. This amendment was introduced by the U.P. Act No. 57 of1976. The provisions of the Arbitration Act, 1940 including the Stateamendment will have no application to the proceedings commenced aftercoming into force of the Act of 1996.
10. Section 31(7)(b) of the Act of 1996, before its amendment byAct 3 of 2016, which has come into force with effect from 23.10.2015,is relevant for the purpose of this case, empowers the Arbitrator to awardpre-award and post-award interest. This Section clearly states that unlessotherwise specified, the awarded sum would carry an interest @ 18%p.a, as extracted below:
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“31. Form and contents of arbitral award –
(7) (a) Unless otherwise agreed by the parties, where and in sofar as an arbitral award is for the payment of money, the arbitraltribunal may include in the sum for which the award is madeinterest, at such rate as it deems reasonable, on the whole orany part of the money, for the whole or any part of the periodbetween the date on which the cause of action arose and thedate on which the award is made.
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(b) A sum directed to be paid by an arbitral award shall, unlessthe award otherwise directs, carry interest at the rate of eighteen H
per centum per annumfrom the date of the award to the dateof payment”.
(Emphasis supplied)
11. Section 31(7)(b) of the Act of 1996 clearly mandates that, inthe event the Arbitrator does not give any specific directions as regardsthe rate of interest on the amount awarded, such amount ‘shall’ carryinterest @ 18% p.a. from the date of award till the date of payment.Since the Arbitration Act, 1940 has been repealed by way of Section 85of the Act of 1996, the Schedule to the Arbitration Act, including theState amendment, also stands repealed. The only exception is providedin sub-section (2)(a) of Section 85 where a proceeding which hadcommenced when the Arbitration Act of 1940 was in force and continuedeven after coming into force of the Act of 1996, and all parties theretoagreed for application of the old Act of 1940. Therefore, the provisionsof Arbitration Act, 1940 including the State amendment namely para 7-A of Section 24 of U.P. Amendment Act will have no application to theproceedings commenced after coming into force of the Act of 1996.
12. In the instant case, though the agreement was earlier to thedate of coming into force of the Act of 1996, the proceedings admittedlycommenced on 27.10.1999 and were conducted in accordance with theAct of 1996. If that be so, para 7-A of Section 24 of the U.P. AmendmentAct has no application to the case at hand. Since the rate of interestgranted by the Arbitrator is in accordance with Section 31(7)(b) of theAct of 1996, the High Court and the District Judge were not justified inreducing the rate of interest by following the U.P. Amendment Act.
13. The appeal, therefore, succeeds and it is accordingly allowed.The judgments of the High Court of Judicature at Allahabad dated05.12.2007 in F.A.F.O Nos.3728 and 947 all of 2007 and the order of theDistrict Judge, Gorakhpur in Misc. Case No.5 of 2002 dated 28.10.2006are set aside only insofar as reduction of rate of interest is concerned.The interest awarded by the Arbitrator in accordance with Section31(7)(b) of the Act of 1996 is restored.
14. There will be no order as to costs.
Appeal allowed.
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