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CASE NO.: Appeal (civil)  2153 of 2006

PETITIONER: M/S MUKAND LTD.                                  

RESPONDENT: HINDUSTAN PETROLEUM CORPORATION LTD.                                             

DATE OF JUDGMENT: 21/04/2006

BENCH: S.B. SINHA & P.K. BALASUBRAMANYAN

JUDGMENT: J U D G M E N T  (Arising out of SLP(C) No.3194 of 2005)

P.K. BALASUBRAMANYAN, J.

                Leave granted.

1.               This appeal arises out of an award made by the  arbitrator on a reference made to him under the Arbitration  Act, 1940 (for short "the Act").   Though there was controversy  between the appellant and the respondent as to whether there  existed an arbitration clause justifying  reference to an  arbitrator, ultimately, the appellant agreed to the appointment  of one of the arbitrators suggested by the respondent clarifying  that the appellant was agreeing to the appointment of the  arbitrator "not under the alleged contract but outside the  alleged contract to decide whether there is a concluded  contract and in any event can you invoke the arbitration  clause under the alleged contract"   Thus, the dispute stood  referred to a sole arbitrator.   The sole arbitrator while making  an award held that there had come into existence a valid  contract between the parties; that there was an arbitration  clause in the contract and proceeded to adjudicate the claim  on merits and passed an award directing the appellant to pay  a sum of Rs.1,26,67,529.10 and costs of Rs.75,600/- to the  respondent on or before 31.07.1994 and failing payment,  directed the appellant to pay interest at the rate of 11 per cent  per annum on the sum of Rs.1,26,67,529.10 from 28.06.1994  till the date of payment.   The award was pronounced on  27.06.1994.

2.              The appellant moved the High Court of Bombay in  its original civil jurisdiction seeking to have the award set  aside in terms of Section 30 of the Act.   A learned single  Judge of the Bombay High Court rejected the objections of the  appellant to the award except as regards the quantum.   The  single judge modified the award by reducing the amount  payable by the respondent to the appellant to Rs.71,31,954.40  with costs of arbitration of Rs.75,600/-, with further interest  at the rate of 11 per cent per annum from the date of the  decree till payment or final realization.   An appeal filed by the  appellant before the Division Bench was dismissed by the  Division Bench upholding the finding of the arbitrator that  there had come into existence a concluded contract between  the parties and that there was an arbitration clause based on  which the disputes between the parties could be referred to

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arbitration and consequently, the award was one rendered  within jurisdiction.   Feeling aggrieved thereby, this appeal by  special leave has been filed by the appellant.

3.              Learned senior counsel for the appellant challenged  the decision of the High Court and that of the arbitrator that  there had come into existence a concluded contract between  the parties.   He further contended that even if there was a  concluded contract, there was no arbitration agreement in the  contract or in the correspondence relating thereto.   He also  contended on merits that the arbitrator was not justified in  awarding damages.   Learned senior counsel for the  respondent, on the other hand, submitted that the finding by  the arbitrator that there had come into existence a concluded  contract was based on an appreciation of the materials  available and the circumstances obtaining and such a finding  by the arbitrator was not amenable to correction in  proceedings under Section 30 of the Act which conferred on  the court only a circumscribed jurisdiction.   Counsel  submitted that the arbitrator had neither misconducted  himself nor the proceedings.   He also submitted that there  was no error apparent on the face of the record justifying  interference by this Court especially when the single judge and  the Division Bench of the Bombay High Court have refused to  interfere with the award subject to the modification of the  quantum realizable by the respondent.  The award could not  also be said to be otherwise invalid.

4.              We were taken elaborately through the materials by  senior counsel for the appellant in an attempt to show that  there was no concluded contract between the parties and there  existed no arbitration clause.   He attempted to argue that  what the appellant had agreed to was to the appointment of an  arbitrator to decide whether there was a concluded contract  between the parties containing an arbitration clause and there  is no consistent finding on this question by the arbitrator, the  learned single Judge and by the Division Bench of the High  Court and the approach and the reasoning of all the three had  differed materially.   Counsel for the respondent necessarily  submitted that the question referred to arbitration was  whether there was a concluded contract between the parties,  whether there was an arbitration clause, and what was the  amount, if any, due to the respondent from the appellant.  He  submitted that the findings on these aspects based on the  materials was perfectly correct and that there was no occasion  for interfering with the same.

5.              We do not think it necessary to deal in detail with  the materials placed before us by learned counsel for the  appellant.   During the course of the hearing when we took  note of the nature of the transaction between the parties and  the continuing and prospective business relationship between  them, we put it to the counsel for the appellant that even if we  accept his contention and hold that there was no arbitration  agreement, that may not put an end to the dispute and the  same would lead to the parties fighting another round of  litigation for years to come, thus, further souring their  commercial relationship.   Ultimately, counsel for the  appellant submitted that the appellant was really aggrieved by  the award of future interest at 11 per cent per annum from the  date of decree till the date of payment or realization by the  learned single Judge.  He pleaded that in the circumstances,  post decree interest be reduced to six per cent per annum.    Learned counsel for the respondent submitted that the  conduct of the appellant did not justify any such reduction of

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interest as sought for and considering the nature of the  contract and the default on the part of the appellant, the rate  of post decree interest awarded was justified.   Having  considered the rival submissions and having taken note of the  circumstances and the transaction in question in the light of  the correspondence between the parties and on an over all  view of the situation, we are of the view that it would be  appropriate to reduce the post decree interest awarded by the  learned single Judge.   We think that in the circumstances  seven and a half per cent per annum would be the reasonable  rate of interest that could be directed to be paid by the  appellant to the respondent, for the period subsequent to the  decree.   Therefore, while we confirm the decision of the  Division Bench upholding the modified award made by the  learned single Judge, we reduce the interest awarded by the  learned single Judge subsequent to the decree from eleven per  cent per annum to seven and a half per cent per annum.   In  other words, we hold that the amount awarded by the learned  single Judge in terms of paragraph 13 of his judgment would  bear interest at the rate of seven and a half per cent per  annum from the date of that decree (18.08.1998) till the date  of final payment and/or realization plus costs of the  arbitration proceedings as awarded therein.   In the  circumstances we direct the parties to bear their respective  costs in this Court.

6.              The appeal is disposed of on the above terms.