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PETITIONER: STATE OF ORISSA

       Vs.

RESPONDENT: NIRANJAN SWAIN

DATE OF JUDGMENT10/08/1989

BENCH: VERMA, JAGDISH SARAN (J) BENCH: VERMA, JAGDISH SARAN (J) SHARMA, L.M. (J)

CITATION:  1990 AIR  685            1989 SCR  (3) 821  1989 SCC  (4) 269        JT 1989 (3)   366  1989 SCALE  (2)345  CITATOR INFO :  D          1990 SC1128  (5,6)

ACT:     Arbitration Act, 1940: Award--Absence of reasons--Wheth- er  affects validity--Valid and  invalid  part--Severability and  effect  of-Arbitrator--A  competent  witness--Court  to exercise power of calling him as witness cautiously.     Interest  Act, 1978: Arbitration--Reference  before  the commencement of Act--Arbitrator--Whether empowered to  grant interest  upto the date of submission or pendente lite  upto the date of award.

HEADNOTE:     The  respondent was awarded a contract for  construction of  Earth Dam by the appellant-State of Orissa. His  dispute relating to the remaining Claim for payment was referred  to an  arbitrator for adjudication. Before the  arbitrator  the respondent  claimed (i) the balance amount due to him;  (ii) his security deposit with the appellant; and (iii) interest, on  the  balance amount due and security deposit,  upto  the date  of award. On 2.12.1980 the arbitrator gave a  lump-sum award in favour of the respondent inclusive of interest upto the date of award.     The  Trial Court made the award a rule of the Court  and accordingly passed a decree in favour of the respondent  for the amount awarded together with interest at the rate of six per  cent from the date of decree. The appeal filed  by  the State was dismissed by the High Court.     In  this appeal it was contended on behalf of the  State that the award was invalid because; (i) the arbitrator  gave no  reasons; (ii) no interest could be awarded by the  arbi- trator upto the date of award, and the award being inclusive of  interest was not severable. it was also  contended  that the  High Court was wrong in assuming that the  Trial  Court was  correct  in refusing to call the arbitrator  for  being examined. Allowing the appeal partly,     HELD: 1. The absence of reasons in the award does not by itself  result in its invalidity except where the giving  of reasons by the 822

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arbitrator for the award is the requirement of the  arbitra- tion agreement or the deed of submission or an order made by the Court or statute governing the arbitration. [823G-H]     Raipur  Development  Authority & Ors. v.  M/s  Chokhamal Contractors and Ors., [1989] 2 S.C.C. 721, applied.     2. Even though an arbitrator is a competent witness, the Court  must exercise the power of calling him as  a  witness cautiously  and sparingly and not in a routine manner.  When the  Court is requested to call the arbitrator for  examina- tion as a witness it must be shown that there is some cogent ground  for his examination within the  permissible  limits. [826D]     In the instant case, nothing has been shown to  indicate that  it  was at all necessary to call the arbitrator  as  a witness to depose on any matter which could legitimately  be examined  by  the Court in the proceedings. The  High  Court was, therefore, justified in refusing to call the arbitrator for examination. [826E]     State of Orissa v. D.C. Routray, A.I.R. 1983 Orissa 163, approved.     3. In cases wherein the reference to arbitrator was made prior  to  the commencement of the Interest  Act,  1978,  on August  19,  1981 the arbitrator is not empowered  to  grant interest  for the period either before the  commencement  of the proceedings or during the pendency of the arbitration.     In  the  instant case, the reference to  arbitrator  was made and even the award was given prior to the  commencement of the Interest Act, 1978. Therefore, the arbitrator had  no jurisdiction to grant any amount as interest for any  period either  upto the date of submission of the claim before  him or pendente lite upto the date of the award. [827F-G]     Executive  Engineer  (Irrigation), Balimela  &  Ors.  v. Abhaduta Jena & Ors., [1988] 1 SCC 418, applied.     Gujarat Water Supply and Sewerage Board v. Unique  Erec- tors  (Gujarat)  (P)  Ltd. & Anr., [1989] 1  SCC  532,  held inapplicable.     4.  In the instant case, the inclusion of the amount  of interest  in  the lumpsam award by the arbitrator  does  not render the whole award 823 invalid  since  it  is possible to sever  the  invalid  part relating to interest. The balance amount of award  remaining after  deduction of interest would not be tainted  with  any invalidity,  and it would be just and proper to sustain  the award  to this extent only. The decree is, therefore,  modi- fied to this extent. [828E-F; 829C]

JUDGMENT:     CIVIL  APPELLATE JURISDICTION: Civil Appeal No. 3297  of 1981.     From  the  Judgment  and Order dated  17.8.1981  of  the Orissa High Court in Misc. Appeal No. 145 of 1981. R.K. Mehta for the Appellant.     A.K. Sen, Arun Madan, R.K. Sahoo and J.D.B. Raju for the Respondent. The Judgment of the Court was delivered by     VERMA, J. This appeal by special leave under Article 136 of the Constitution challenges the judgment dated  17.8.1981 of the High Court of Orissa dismissing Misc. Appeal No.  145 of 1981 against the judgment dated February 28, 1981  passed by  the Subordinate Judge, Baripada, District Mayurbhanj  in Title  Suit No. 106 of 1980 by which the arbitrator’s  award for  a  sum of Rs.21,11,835.00 in favour of  the  plaintiff-

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respondent, Niranjan Swain, was made a rule of the court and a  decree was passed for that amount together with  interest at  the rate of six per cent per annum from the date of  the decree.     The main ground taken in this appeal was that the  arbi- trator’s award was per se invalid since it gave no  reasons. Some  other  points  were raised to which  we  shall  advert later.  The question of invalidity of an arbitrator’s  award merely  on the ground that it gave no reasons  was  involved for  decision in a large number of matters pending  in  this Court and in view of the importance of this common  question the bunch of cases was heard and decided by the Constitution Bench  in  Raipur Development Authority and  others  v.  M/s Chokhamal  Contractors  and others, [1989] 2 SCC 72  1.  The Constitution  Bench has held that the absence of reasons  in the award does not by itself result in its invalidity except where the giving of reasons by the arbitrator for the  award is the requirement of the arbitration agreement or the  deed of  submission  or  an order made by the  Court  or  statute governing  the  arbitration.  Accordingly,  this  contention raised in the present appeal 824 and all other similar matters was rejected by the  Constitu- tion  Bench with a direction that all such cases  should  go back  to the Division Bench for disposal in accordance  with law on the remaining points surviving therein for  decision. This is how the present appeal has come before us.     The conclusion reached by the Constitution Bench in  the above case and the direction given therein is as under:               "Having given our careful and anxious  consid-               eration  to the contentions urged by the  par-               ties  we  feel that law should be  allowed  to               remain  as it is until the competent  legisla-               ture  amends  the law. In the result  we  hold               that an award passed under the Arbitration Act               is  not  liable to be remitted  or  set  aside               merely on the ground that no reasons have been               given in its support except where the arbitra-               tion agreement or the deed of submission or an               order made by the court such as the one  under               Section 20 or Section 21 or Section 34 of  the               Act  or the statute governing the  arbitration               requires  that  the arbitrator or  the  umpire               should give reasons for the award. These cases               will  now  go back to the Division  Bench  for               disposal  in accordance with law and the  view               expressed by us in this decision."     The  only points now urged by Shri G.L. Sanghi,  learned counsel for the appellant, are two, namely, (1) no  interest could be awarded by the arbitrator in the present case  upto the date of the award but the same is obviously included  in the lumpsum award of Rs.21, 11,835.00; and the invalid  part of  the award not being severable from the rest, the  entire award  must  be  set aside; and (2) the High  Court  in  its cryptic  order  has  wrongly assumed as  correct  the  trial court’s refusal to call the arbitrator for being examined in the  court.  The learned counsel contended that any  one  of these defects was sufficient to set aside the entire award.     In  reply Shri Arun Madan, learned counsel for  the  re- spondent, primarily contended that the arbitrator was empow- ered to award interest upto the date of award. In the alter- native,  learned counsel for the respondent  contended  that the invalid part of the award relating to grant of  interest upto  the  date of the award was severable  and,  therefore, only that part should be set aside instead of setting  aside

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the  whole award. He also contended that the High Court  did not make any wrong assumption and refusal to call the  arbi- trator for examination 825 was  justified. It was also urged that in the  present  case there  was nothing to indicate that calling  the  arbitrator for examination in the court was at all necessary.     Before  proceeding to consider the surviving points  now urged on behalf of the appellant we may refer briefly to the few  facts which alone are relevant at this stage. The  con- tract for the work "Construction of Earth Dam (balance work) of Sansiali Nai M.I. Project" in Division Mayurbhanj,  Bari- pada,  was given by the appellant, State of Orissa,  to  re- spondent,  Niranjan  Swain  and the  agreement  between  the parties contained an arbitration clause for adjudication  of disputes  arising  out of the  contract.  Consequently,  the dispute relating to the remaining claim for payment made  by the respondent was referred for adjudication to the arbitra- tor  in  terms of the arbitration clause  contained  in  the agreement. The respondent’s claim before the arbitrator  was for the amount of Rs. 19,04,689.00 as the balance amount due to   him  and  for  return  of  the  security   deposit   of Rs.28,000.00 or in all the total of Rs. 19,32,689.00 as  the principal  amount. The respondent also claimed  interest  on the  sum of Rs. 19,04,689.00 at the rate of 18 per cent  per annum  from  15.4.1977  to 15.5.1978, namely,  the  date  of submission  of the statement of claim before the  arbitrator amounting  to Rs. 3,71,4 14.00 and interest on the  security deposit of Rs. 28,000.00 at the same rate from 15.9.1977  to 15.5.1978  amounting to Rs.3,360.00. The respondent  further claimed  interest  at the rate of 18% per annum  from  16.5. 1978  till  payment of the amount to the respondent  by  the appellant.  In  the  statement of  claim  the  total  amount claimed  was  mentioned  at  Rs.23,07,463.00  together  with interest @ 18% per annum on Rs. 19,32,689.00 from  16.5.1978 to the date of the award. The appellant denied the  respond- ent’s claim including the claim for payment of interest.               The arbitrator gave the award dated  2.12.1980               as under:                                        "AWARD               After  perusal  of the  claim  statements  and               counter  statements, the counter claim of  the               respondent, the rejoinder of the claimant, the               documentary and oral evidence and on a careful               consideration of the submissions and arguments               of  the  parties and the IR advocate,  I  have               come  to the conclusion that the  claimant  is               entitled  to  get  a  sum  of  Rs.21,11,835.00               (Rupees twenty-one lakhs eleven thousand eight               hundred  thirty-five only) in full  and  final               satisfac-               826               tion of his claims till the date of the  award               from  the  respondent. The respondent  is  not               entitled to get any amount towards his counter               claim from the claimant.   sd/-                                                              B.S.               Patnaik                                                                Arb itrator                                                                2/1 2/1980"                                                       (emphasis               supplied)

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   It  is on the basis of the contents of this  award  that the above contentions have to be considered and decided.     We  may  dispose of the second point  urged  by  learned counsel  for  the appellant straightaway since it  does  not merit  any  elaborate  consideration. The  argument  of  the learned  counsel for the appellant relating to  calling  the arbitrator  for  examination as a witness in the  court  was based  on the decision of the Orissa High Court in State  of Orissa  v. D.C. Routray, AIR 1983 Orissa 163. That  decision itself  says that even though an arbitrator is  a  competent witness, the court must exercise the power of calling him as a  witness  cautiously and sparingly and not  in  a  routine manner.  It is obvious that when the court is  requested  to call the arbitrator for examination as a witness it must  be shown  that there is some cogent ground for his  examination within the permissible limits. Nothing has been shown in the present  case  to indicate that it was at all  necessary  to call  the  arbitrator as a witness to depose on  any  matter which  could  legitimately be examined by the court  in  the proceedings.  This alone is sufficient to justify  the  view taken by the High Court. This contention of learned  counsel for the appellant is, therefore, rejected.      The only point surviving for consideration now  relates to the grant of interest by the arbitrator and its effect on the  validity of the award. It is obvious from the  contents of  the  award  and the details of  the  respondent’s  claim before   the   arbitrator   that   a   lumpsum   amount   of Rs.21,11,835.00  awarded in the respondent’s favour  by  the arbitrator  was  in full and final satisfaction of  all  the respondent’s  claims before the arbitrator till the date  of the  award.  As mentioned earlier,  the  respondent’s  claim before  the arbitrator mentioned the sum of  Rs.19,04,689.00 plus  the  security deposit of Rs.28,000.00 or  in  all  Rs. 19,32,689.00 only as the total principal amount of the claim and  the  sum claimed in excess thereof was  on  account  of interest.  The grant of a lumpsum amount of  Rs.21,11,835.00 in the award in full and final 827 satisfaction  of all the claims till the date of  the  award must,  therefore,  obviously include interest  also.  It  is equally plain that the claim for the entire principal amount was not accepted by the arbitrator. The effect on the  ques- tion  of  validity of the award has to be  decided  on  this basis.     It is settled by the decision of this Court in Executive Engineer (Irrigation), Balimela and others v. Abhaduta  Jena and  others,  [1988] 1 SCC 4 18 that in  cases  wherein  the reference to arbitration was made prior to the  commencement of the Interest Act, 1978, on August 19, 1981, the  arbitra- tor is not empowered to grant interest for the period either before  the  commencement of the proceedings or  during  the pendency of the arbitration. This is clear from the position summarized in Abhaduta Jena’s case (supra), as under:               "In the remaining cases which arose before the               commencement  of the Interest Act,  1978,  the               respondents are not entitled to claim interest               either before the commencement of the proceed-               ings  or during the pendency of  the  arbitra-               tion. They are not entitled to claim  interest               for  the period prior to the  commencement  of               the  arbitration  proceedings for  the  reason               that the Interest Act, 1939, does not apply to               their  cases and there is no agreement to  pay               interest  or  any usage or  trade  having  the               force  of  law or any other provision  of  law

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             under  which  the claimants were  entitled  to               recover  interest.  They are not  entitled  to               claim pendente lite interest as the arbitrator               is  not  a  court nor were  the  reference  to               arbitration made in suits."     The  learned counsel for the respondent placed  reliance on  the decision of this Court in Gujarat Water  Supply  and Severage  Board  v. Unique Erectors (Gujarat) (P)  Ltd.  and another, [1989] 1 SCC 532 in support of his primary  conten- tion  that  the arbitrator was empowered to  grant  interest upto  the  date  of award. We are unable  to  construe  this judgment in the manner suggested by learned counsel for  the respondent.  The decision clearly refers to Abhaduta  Jena’s case (supra) and also follows it. The primary contention  of the  learned counsel for the respondent that the award  does not  suffer from any infirmity by grant of interest  therein upto the date of award is, therefore, rejected.     It  cannot, therefore, be disputed that in  the  present case wherein the reference to arbitration was made and  even the award was given prior to the commencement of the  Inter- est  Act,  1978, on August 19, 1981, the arbitrator  had  no jurisdiction to grant any amount as interest 828 for  any  period either upto the date of submission  of  the claim  before  him  or pendente lite upto the  date  of  the award.     From the above, it follows that inclusion of the  amount of  interest in the lumpsum award of Rs.21,11,835.00 by  the arbitrator does render that part of the award invalid.     The question now is of the consequence of this invalidi- ty  on the entire award. The learned counsel for the  appel- lant contended that the invalid part of the award not  being severable from the rest the entire award must be set  aside. On  the other hand, the learned counsel for  the  respondent urged that there is no difficulty in separating the  invalid part from the rest and this could easily be done by  deduct- ing  from  the total sum of Rs.21,11,835.00 granted  in  the award,  the maximum interest calculated at the rate  of  18% per  annum  which was claimed by the respondent  before  the arbitrator upto the date of the award (2.12.1980). He  urged that such a view cannot, in any manner, prejudice the appel- lant and if at all it can work only to the detriment of  the respondent who make this suggestion.     In  our  opinion it is possible in the present  case  to sever  the  invalid part relating to interest  in  order  to sustain  the valid part of award. Accordingly, we  requested both  sides  to calculate the total amount of  interest  and give  to  us  the agreed figure. The agreed  figure  of  Rs. 12,65,87  1.97 has been given by them as the maximum  amount of  interest which could be included in the award of  Rs.21, 11,835.00, in accordance with the respondent’s claim  before the arbitrator. It is common ground that the invalid part of the  award on the basis of grant of interest  by the   arbi- trator cannot exceed the amount of Rs. 12,65,87 1.97 out  of the  total Sum of Rs.21, 11,835.00. It is also not  disputed that  the  balance amount remaining after deduction  of  Rs. 12,65,871.97  cannot  be tainted with  any  invalidity.  The learned counsel for the respondent has confined the respond- ent’s  claim  in the alternative to upholding of  the  award only in respect of this balance amount and no more.     We  do  not see any reason why the award should  not  be modified and sustained to this extent only. We are conscious of the fact that the interest amount of Rs. 12,65,871.97  so calculated  for  deduction from the total amount  of  Rs.21, 11,835.00 granted in the award is in excess of the  interest

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calculated  on  the remaining balance treated  as  principal amount  at this stage on the above suggestion.  However,  in the  peculiar circumstances of this case and in view of  the alternative contention on 829 behalf of the respondent, we see no reason for rejecting, in the  present case, this alternative contention also.  Viewed in this manner, the balance amount of the award would not be tainted with any invalidity and, therefore, it would also be just  and proper to sustain the award to this  extent  only. We, therefore, reject the contention of learned counsel  for the appellant that the entire award should be set aside  and instead accept the alternative contention of learned counsel for the respondent.     In view of the above, the agreed amount of interest upto the date of the award (2.12.1980), that is, Rs. 12,65,871.97 is  deducted from the amount  of   Rs.21,11,835.00   leaving the  balance  amount  of Rs.8,45,963.03 say  Rs.8,45,963.00. This amount of Rs.8,45,963.00 survives as the valid part  of the award and, therefore, the decree of the courts below  is modified to this extent so that the decree in favour of  the respondent  now remains for the sum of  Rs.8,45,963.00  only together  with interest thereon at the rate of 6% per  annum from the date of the decree passed by the trial court  until payment.  In view of the partial success of both sides,  the parties shall bear their own costs throughout. The appeal is partly allowed in this manner.     We  are  informed that the respondent  has  withdrawn  a certain  amount  against the decree during the  pendency  of this appeal. We direct that the amount due to the respondent shall be calculated on the basis of this modified decree. In case, the amount obtained by the respondent is less than the amount to which the respondent is found entitled as a result of this modified decree, the remaining amount shall be  paid to  the respondent with interest @ 12% per annum from  8.12. 1981  in terms of the interim order of that date  passed  in this  appeal;  and in case, the amount obtained by  the  re- spondent is in excess of that to which he is found entitled, the excess amount shall be refunded by the respondent to the appellant  similarly with interest at the same rate  of  12% per annum from 8.12. 1981 upto the date of its refund. T.N.A.                           Appeal allowed partly. 830