P L D 1965 Supreme Court 505 (PLP)

FAGLE‑AKEAR, J.‑This appeal by special leave arises out of an arbitration proceeding and is filed against the judgment and order of a Letters Patent Bench of the High Court of West Pakistan at Karachi whereby an order of a learned Single Judge of that Court directing that an award be made a rule of that Court and a decree be passed in terms thereof was affirmed. The appellants and the defendants are firms carrying on business in Karachi. By three separate contracts in writing bearing various dates between 28th January 1952 and 13th February 1952, the appellants Messrs A. Z. Company agreed to buy from the respondents, Messrs Maula Bakhsh Muhammad Bashir, a number of bales of cotton but failed to take delivery of the said goods on due dates. The contracts are all in a form approved by the Karachi Cotton Association, Limited, containing an arbitration clause the following terms: Clause 12 Arbitration. All disputes to be referred to arbitration under rules of the Karachi Cotton Association, Limited. The contract is subject to By‑Laws of the Karachi Cotton Association, Limited in force from time to time." As the appellants failed to take delivery of the bales on due fates the Association at the instance of the sellers referred the dispute relating to all the three contracts to ‑the arbitration of Mr. Doctor and‑Mr. Pbillon and on 3rd March 1953 the said arbitrators gave an award in favour of the sellers. The said award was filed in the Chief Court of Sind at Karachi on 28th '.larch 1953 and on an objection being raised by the buyer it ,vas set aside on 21st November 1956, by Inamullah, J. on the ground that the appointment of one of the arbitrators was illegal. The Association then on 23rd August 1957, appointed Mr. A. K. Nasir and Mr. S. J. Dubash as arbitrators and Dwarkadas Jiwandas as Umpire. The said arbitrators on 11th February 1958 gave an award in favour of the sellers and the said award was filed in the Court of the Sub‑Judge, Karachi in December 1959. By his order dated 12th December 1960, the Sub‑Judge set aside the award on the grounds that it was made beyond time and that no proper notice of the award had been given in accordance with the provisions of section 14 (1) of the Arbitration Act. The Association thereupon appointed on 28th July 1961, Mr. Ismail J., Dokart and Mr. Mahboob Alam Saiedy as Arbitrators. The said Arbitrators on 25th August 1961, made an award in favour of the sellers for Rs.23,760 plus interest thereon for 9years amounting to Rs. 13,186 and future interest at 6% from the date of award till the actual date of payment. The said award was filed in the High Court of West Pakistan on 13th September 1961 and notwithstanding objections of the buyers was made a rule of the Court and a decree was passed in terms thereof. The buyers' appeal against the judgment and order of the learned Single Judge of the High Court was dismissed and‑ his order was upheld by a Letters Patent Bench of that Court. It is against this decision that the appellants have now come up on appeal to this Court. The award has been impugned before us on the same ground as had been unsuccessfully urged before the Letters Patent Bench. The grounds of attack4'may be classified as follows: (i) that after the second award was set aside the reference was exhausted and the Association therefore had no power to appoint a third‑ set of Arbitrators; (ii) that the award was in respect of a time‑barred claim; and (iii) that the Arbitrators erred in awarding interest. The first objection that after setting aside of the second award by the Sub‑Judge the agreement to arbitration was superseded is without any substance. It is true that under section 19 of the Arbitration Act the Court has power when it sets aside an award to supersede the reference and to avoid the arbitration. Section 19 of the Arbitration Act is in these terms: "Where an award has become void under subsection (3) of section 16 or has been set aside, the Court may by order supersede the reference and shall thereupon order that the arbitration agreement shall cease to have effect with respect to the difference referred." Thus this section leaves it to the discretion of the Court when it decides to set aside an award whether it will supersede the reference or not. It may not decide to supersede the reference at all. In that case in spite of setting aside the award the reference will continue. There is nothing in judgment of the Sub‑Judge to indicate that while setting aside the award he superseded the reference. Nor there is any direction in the judgment to that effect. Furthermore, in this case the reference was not of a kind which had exhausted itself after the reference was made. Hence there is no basis for the argument that the agreement to arbitration was superseded and as such the Association had no power to appoint the third set of Arbitrators. It was then contended that under By‑Law 39‑II the Association could appoint fresh Arbitrators only, `in the event of the Arbitrators or any of them resigning either before or after taking up the reference' and not when the award is set aside by the Court. The arbitration clause contemplates reference of all disputes not. to individuals, but to the Association itself, and it is: under the By‑Laws that the Association appoints arbitrators for particular cases. The orders of the Courts setting aside the award did not at the same time affect the reference, and the duty of the Association to appoint persons as arbitrators to enter upon the reference and take it to a conclusion was clearly attracted in relation to the original reference. In appointing fresh person to take up and continue the reference, the Association acted properly in the discharge of that duty. By‑Law 39‑II provides only for one particular case, requiring discharge of this duty, and cannot be regarded as exhaustive of the Association's powers in the relevant respect. The learned Judges therefore, rightly refused to entertain this objection. The contention that after setting aside of the award by the Sub‑Judge the dispute should have been referred to the Umpire in accordance with the provision of By‑Law 39‑I1 is also misconceived. It will suffice to say that the buyers themselves filed objection to the award and after it was set aside there was nothing left for reference to the Umpire. The second objection was that the award was with respect to a time‑barred claim. It was pointed out that upon the second reference the award which had been made on 11th February 1958, was filed in Court in December 1959, that is, long after the requisite period of 90 days. It was therefore, argued that as the seller did not act with reasonable promptitude in getting the award filed in Court, he was not entitled to get benefit of the provisions of section 37 (5) of the Arbitration Act. Subsection (5) of section 37 of the Arbitration Act, 1940 which admittedly governs this case is as follows: "(5) Where the Court orders that an award be set aside or orders, after the commencement of an arbitration, that the arbitration agreement shall cease to have effect with respect to difference referred, the period between the commencement of the arbitration and the date of the order of the Court shall be excluded in computing the time prescribed by the Limitation Act, 1908, for the commencement of the proceedings (including arbitration) with respect to the difference referred." It cannot be disputed thiat for the purpose of computing the time prescribed by the Limitation Act the period between the commencement of the arbitration proceedings and the order of the Court shall be excluded. The learned counsel has asked us to deprive the seller of the full benefit of section 37 (5) of the Act because he did not act with reasonable promptitude in getting the award filed in Court. In other words the learned counsel asks us to ‑ put certain limitations in construing the above section, namely, that if a party has procrastinated and has not been vigilant in pursuing his remedy at any stage from the date of reference to the order of the Court he will be deprived of the benefit of section 37 (5) of the Arbitration Act. The language of the section being clear and unambiguous it is not open to us to read into it limitation which is not there. The learned counsel has not given any cogent reasons for our departing from the literal construction of the words used in the section. No doubt the requisite time for filing an award is 90 days from, the date of the award. If there was inordinate delay in filing the second award the buyers should have raised that objection before the Sub‑Judge and the same could not be agitate in the third arbitration proceedings. In these circumstances the High Court was justified in excluding the period from 9‑9‑1957 when notice of second arbitration was issued, to 12‑12‑1960 when award was set aside by the Sub‑Judge. The learned Single Judge has therefore, rightly held that the claim was not barred by limitation. Now I come to the third objection, namely, that the Arbitrators had no jurisdiction to allow any interest in this case. This objection may be dealt with under two heads, namely, whether an arbitrator can allow interest after the date of the award and also pendente lite. As regards the pendente lite interest, the matter generally lies within the domain of contract and statutes. Subsection (2) of section 61 of the Sale of Goods Act, 190 provides that "In the absence of a contract to the contrary, the Court may award interest at such rate as it thinks fit on the amount of the price‑ (a) to the seller in a suit by him for the amount of the price‑from the date of the tender of the goods or from the date on which the .price was payable; This subsection empowers the Court to award interest to al seller for the price of his goods at such rate as it thinks fit. Under this section a party however, cannot claim interest on damages for breach of a contract. Section 73 of the Contract Act which provides for damages for breach of a contract says: "When a contract has been broken, the party who suffers by such breach is entitled to receive, from the party who has broken the contract, compensation for any loss or damage caused to him thereby, which naturally arose in the usual course of things from such breach, or which the parties knew, when they made the contract, to be likely to result from the breach of it. Such compensation is not to be given for any remote and indirect loss or damage sustained by reason of the breach. When an obligation resembling those created by contract has been incurred and has not been discharged, any .person injured by‑the failure to discharge it is entitled to receive the same compensation from the party in default, as if such person had contracted to discharge it and had broken his contract. Explanation.‑In estimating the loss or damage arising from a breach of contract, the means which existed of remedying the inconvenience caused by the non‑performance of the contract must be taken into account. Illustrations (n) A contracts to pay a .sum of money to B on a day specified. A does, not pay the money on that day; B, in consequence of not receiving the money . on that day, is unable to pay his debts, and is totally ruined. A is not liable to make good to B anything except the principal sum he contracted to pay, together with interest up to the day of payment." The question whether in view of the above illustration (n) interest can be awarded as damages where it is not permissible to do so under the Interest Act came up for consideration before the Privy Council in the case of Bengal Nagpur Railways v. Ratanji Ramji (AIR 1938 P C 67) and Sir Shadi Lal, J. observed: "As observed in 43 I A 6, section 73 is merely declaratory of the common law as to damages, and it has been held by the House of Lords in 1893 A C 429 that interest cannot be allowed at common law by way of damages for wrongful detention of debt. The judgment of the Privy Council in 1929 A C 631 dealt with a statute of New Brunswick, the relevant section of which was identical in terms with the Interest Act of India, and it was held in that case that the plaintiff was not entitled to interest at law, and, as the case did not attract the equitable jurisdiction of the Court, no rule of equity in regard to interest could have any application. The law has however, been amended in England by section 3, Law Reform (Miscellaneous Provisions) Act, 1934, empowering a Court of Record to award interest on the whole or any part of any debt or damages, at such rate as it thinks fit, for the whole or any part of the period between the date when the cause of action arises and the date of the judgment. But there has been no such amendment of the law in India." It was therefore held that "The illustration does not confer upon a creditor a right to recover interest upon a debt which is due to him, when he is not entitled to such interest under any provision of the law. Nor can an illustration have the effect of modifying the language of the section which alone forms the enactment." In the above case reliance was placed on the decision in London, Chatham and Dover Railway Co; v. South Western Railway Co. (1994A C 429) where the House of Lords had held that interest could not be awarded by way of damages apart from special provisions of the Interest Act. In some cases the Privy Council has however held that on principles of equity, justice and good conscience, the Courts in India are at liberty to award interest in cases not coming within the purview of Interest Act. See Miller v. Barlow ((1871)3 P C 733); Hurropersaud Roy Chowdhury and another v. Shamapersaud Roy Chowdhry and others (5 A I 31). Here it might be mentioned that the cases where the Courts granted interest on equitable principles were mostly cases on a contract for sale and purchase of land. The following observations of Lord Tomlin in Maine and New Burnswick Electrical Power Company, Ltd. v. Hart (1929 A C 631) are also very pertinent. "In order to invoke rule of equity, it is necessary in the first instance to establish the existence of a state of circumstances which attracts the equitable jurisdiction, as, for example, the non‑performance of a contract of which equity can give specific performance." In this connection some decisions of the English Courts may also be noticed. There has been a line of decisions in England which tied the hands of Courts from awarding interest even on equitable grounds. In Swift and Company v. Board of Trade (1925 A C 520) the House of Lords following the decision in the London Chatham and Dover Railway Co. held that an arbitrator was not entitled to allow interest for a date prior to the final award. This case dealt with the power of a statutory Arbitrator to allow interest on the compensation for goods requisitioned in war time under the Defence of the Realm Regulation. Viscount Cave, L. C. while disallowing the claim for interest observed: ' "Upon' the question of interest I am of opinion that the view taken by the majority of the Court of Appeal is right. It is true that on a contract for the sale and purchase of land it is the practice of the Court of Chancery to require the purchaser to pay interest on his purchase money from the date when he took, or might safely have taken, possession of the lands; See Birch v. Joy 3 H L C 565 but this practice rests upon the view that the act of taking possession is an implied agreement to pay interest; per Sir V. Grant in Fludyer v. Cocker (1805) 12 Ves. 25,

27. It is true also that the rule has been extended to cases of compulsory purchase under the Lands Clauses Consolidation Act, 1845: In re: Pigott and Great Western Railway Co. (1881) 18 Ch. D 146, Fletcher v. Lancashire and Yorkshire Ry. Co. 1902 I Ch. 901 but this is because the notice to treat under the statute is treated in equity as creating the relation of vendor and purchaser. No doubt the rule is well established in the case of sales of land; but there is no authority in English law for applying it to a requisition of goods by the State, and there appears to be no sufficient reason why in such a case the provisions of Lord Tenterden's Act should not apply. The right of the owner of goods requisitioned under reg. 2 F is to have compensation for the goods determined by arbitration and paid, and until the amount of the compensation has been so determined there is no sum certain payable to the owner upon which interest can run. To hold otherwise is to give compensation, not for the goods themselves, but for the time occupied in ascertaining their value ' in accordance with the law. The decisions in London, Chatham and Dover Ry. Co. v. South Eastern Ry. Co. and In re: Richard and Great Western Ry. Co. (1905) 1 K B 68 are in point." Similarly in Monmouthshire County Council v. Newport Borough Council ((1947) 1 All E R 916) the question was as to whether the arbitrator had power to allow interest on a sum awarded to the County Council as compensation. The House of Lords held that the Act under which the Arbitrators awarded compensation did not authorise them to add interest to the compensation. In Podar Trading Company Limited v. Francois Tagher, Barcelona ((1949) 2 All E R 62) Lord Goddard, C. J. while rejecting the claim for interest observed: "The case which would seem to be directly in point is Edwards v. G. W. R. 138 E R

603. In that case the Court approved of the allowance of interest by an arbitrator because it was allowable in the circumstances of that case by the provisions of the Civil Procedure Act. Accordingly we think we must take it to be the law that before the Act of 1934 an arbitrator had the same powers as the Court with regard to the award of interest, but no greater power." The Lord Chief Justice then after dealing with the Law Reform Act says: "Moreover as sections 28 and 29 of the Civil Procedure Act are repealed we feel driven to hold that not only have arbitrators no power to give interest on damages but they have been deprived of the powers which they had so long as the sections of the Civil Procedure Act were in force, and can now only give it in circumstances in which it was recoverable at common law." In this view of the matter the learned Chief Justice rejected the claim for interest. The above decision was however, overruled by the Court of Appeal in Chandris v. Isbrandsen Moller Co. Inc. ((1950) 2 All E R 618) Tucker, L. J. after quoting the above observation of Lord Goddard, C. J. observed: "Counsel for the charterers argued that that judgment was based on the assumption that it was the Civil Procedure Act, 1833, which gave the arbitrator his power to award interest, and that, once that Act' was repealed, all such powers had gone, and, unless the arbitrator had been given fresh powers, he had none. I think, however, that the real basis of Edwards v. Great Western Railway Co. was that the arbitrator deprived his powers, not from the Act of 1833, but ‑ from the submission to him which necessarily gave him the "implied powers" referred to in the language of Lord Salvesen which I have just quoted, and I see no reason why, since the Act of 1934, an arbitrator should not be deemed impliedly to have the same powers. Therefore, with diffidence, having regard to the view expressed .by the Divisional Court on this matter, I have come to the conclusion that in such a case as the, present the arbitrator has power' to award interest, and, accordingly, to that extent, I think this appeal' should succeed and the Podar's case be overruled." It is true that a great number of decisions under the Interest Act are not easily reconcilable. But so far as grant of interest by way of damages is concerned there is not much divergence of judicial opinion. Hence in the light of the aforesaid decisions I am of opinion that generally in the absence of an express or implied contract to pay interest, or usage of trade, interest cannot be allowed on damages for breach of a contract. Some arguments were advanced to show that the claim being for an ascertained sum, Interest Act was attracted to this case. The right of the seller under the agreement is to have compensation assessed by the Arbitrators and until the amount has been so determined there is no sum certain payable to the seller upon which interest can run. Therefore mere fact of issue of a debit note by the seller in respect of the claim would not bring the case under the Interest Act. In the instant case three Factory Selection Contracts were governed by the By‑Laws of the Karachi Cotton Association, Limited. By‑Law 162 which appears under the heading `By‑Laws relating to Factory Selection Contracts' provides that: "Final payment of cotton shall be made within 7 working days of the‑completion of agreement failing which interest at the rate of 9 per cent. per annum on the outstanding amount shall be paid by the buyer to the seller. In case of pending arbitration the seven working days will count from the date of award." Thus the parties expressly agreed that if the dispute was referred to arbitration the interest was to be granted only after the award and the Arbitrators therefore, had no authority to grant any interest for the period prior to the award. Though By Laws have made provisions speedy for disposal of the arbitration proceedings, the buyer, by adopting dilatory tactics managed to keep the seller out of his money for an unreasonable time. It may well be that this aspect was over‑looked by the Association while drafting the By‑Laws. It will be for the Association to decide whether they will amend the By‑Laws in order to make I provisions to meet the situations like the present one. 1n view of the provisions of ‑By‑Law 162 I feel obliged to hold that in this case the Arbitrators had acted in excess of their power in awarding interest for the period prior to the date of the award. The above By‑Law‑ 162 however, empowers the Arbitrators to award interest from the date of the award and as such they) acted within their power in granting future interest on the damages awarded by them. Then there remains one matter more for consideration and that is, whether the error with regard to interest will vitiate the entire award. The learned counsel for the appellant buyer has contended that this may be regarded as an error on the face of the award and hence the entire award should be set aside. In this .connection the form of the award may be considered. it appears to consist of two parts. The first part is the narration of the facts and events and the second part gives the details of the amounts awarded to the seller as follows: Rs "(1) That Messrs A. Z. Company do pay to Messrs $. Maula Bakhsh Muhammad Bashir. (a) Difference between sale and settlement rate of 100 bales, Contracts dated 28‑1‑52 and 31‑1‑1952 respectively 4,080.00 (b) Difference between sale and settlement rate of 100 bales vide Contract dated 8‑2‑52 and settlement dated 20‑3‑1952 10,560.00 (c) Difference between sale and settlement rates of 100 bales, vide Contract dated 13‑2‑52 and settlement dated 9,120.00 (d) Interest on the above due at 6 % per annum for 9 years 3 months . 13,186.80 ________ 36,946.80 (2) That Messrs A. Z. Company do pay to Rs. Messrs S. Maula Bakhsh Muhammad Bashir future interest at 6% per annum from the date of award till date of actual payment. (3) That the sum of Rs. 100 as fees to each arbitrator, plus Rs. 44 as cost of stamp‑total Rs. 244 be paid by Messrs S. Maula Bakhsh Muhammad Bashir to the arbitrators in the first instance and Messrs A. Z. Company do pay the same sum of Rs. 244 to Messrs Maula, Bakhsh Muhammad Bashir." Now the question is: Can this grant of interests for the period prior to the award be regarded as an error on the face the award. What the expression "error on the face of the award" means has been thus stated by the Privy Council in the well‑known case of Champsey Bhara and Company v. Jivraj Balloo Spinning and Weaving Company, Limited (50 I A 324):‑ "An error in law on the‑ face of the award means, in their Lordships' view, that you can find in the award or a document actually incorporated thereto, as for instance, a note appended by the arbitrator stating reasons for his judgment to the same legal proposition which is the basis of the award and which you can then say is erroneous." The above has been accepted as a general rule since the decision in the case of Hodgkinson v. Fernie ((1857) 3 C B (NS) 189). Later an exception was engrafted . on .this rule to the effect that when a specific point of law is referred to arbitrator the award cannot be set aside if the arbitrator wrongly decides the point of law. See Government of Kelantan v. Duff Development Company (1923 A C 395); Absalon Limited v. General Western (London) Garden Village Co. (1933 A C 592). Therefore, in order to consider whether there is error of law on the face of the award the Court has to decide whether the question of interest was material in the decision of the matter which had been referred to arbitration or arose incidentally. If the reference Was of the former class then the case M would fall within the general rule and the entire award would be set aside. If however, the award of interest was merely consequential and hence a surplusage, then it would not vitiate the entire award. From the narrative' portion of the award it appears that the reference was with regard to breach of three contracts and the sellers claimed Rs. 23,760 as the difference between . the contract price and the market price on due dates. It is therefore, clear that a decision on the question of interest was not material for decision of the matter which had been referred to the arbitration. In other words the portion of the award which gave interest a 6% for the period prior to the award was ‑merely consequential and had therefore, no effect on the decision of the main issue in the case. Thus the offending portion of the award being separable from the rest of award could be struck off as mere surplusage. It was so held in Boota v. Municipal Committee of Lahore (291 A 168). In the above case the Judicial Committee observed: "They see no reason to doubt that the arbitrators came to an honest determination upon the specific matters referred to them, and any faulty direction they may have given in excess of their authority may be treated as null." Section 15 of the Arbitration Act also empowers the Court to modify or correct an award `where it appears that a part of o the award is upon a matter not referred to arbitration and such part can be separated from the other part and does not affect the decision on the matter referred.' In the result I would modify the award by striking off only that portion which relates to the award of Rs. 13,186.80 as interest at 6 % per annum for 9 years 3 months, and affirm the judgment and decree of the Courts below with the above modification. This appeal is accordingly allowed to the extent as indicated above. As success is divided, the parties will bear their own costs in all the Courts. B. Z. KAIKAUS, J.‑I agree with the conclusion. and generally with the reasoning of my learned brother Fazle‑Akbar. I am adding these few words to explain why I regard interest on damages not permissible. It should be clear that interest on damages cannot be part of the damages for breach of a contract. When we speak of "interest on damages" it implies that damages for the breach of a contract have been ascertained, but as the damages were not paid as soon as they became payable a further amount is being awarded on account of the fact that the promisee has by this failure to pay been deprived of the use of a sum to which he was entitled. Had the dispute between the parties been decided as soon as the damages became payable no question of any interest on damages would have arisen. Now, obviously, this award of interest on damages cannot fall under section 73 of the Contract Act. This section entitles the promisee to compensation for damage or loss" caused by a breach of contract. But whatever damage or loss is caused to the promisee is complete the moment the breach occurs. If a contract for purchase is not performed on the due date so that. a breach is committed whatever damage was to result to the seller has resulted at the time when the breach is committed and section 73 allows compensation only for this damage. The further sum that the promisee demands as interest on damages cannot be claimed by virtue of section 73, but on account of the plea that compensation ought to , have been paid when the promisee became entitled to it and has not been paid. It is really a claim based on failure of the promisor to discharge a statutory liability. There was a statutory liability arising out of section 73 to pay compensation and that statutory liability not having been discharged the defaulting party, it is urged, should pay for the loss that has occurred to the other party on account of this non‑payment. But this liability for payment for failure to discharge the statutory liability is not provided for in section 73 itself and it can arise only if we accept a general principle that a person who does not discharge a statutory liability should compensate the other party for the loss that is caused to him on account of this failure. So ultimately the validity of award of "interest on damage" depends on the answer to the question whether a person who fails to discharge a statutory liability should compensate the other party for loss caused by such failure. At this stage another element has to be introduced in this question and that is that the statutory liability with which we are dealing is to pay an unascertained sum. Compensation has to be determined by the Court. So the limited question is whether failure to discharge a statutory liability to pay an unascertained sum will oblige a person to compensate the other party from loss caused by the failure. Now it may be urged that if for the failure to discharge a contractual obligation compensation can be claimed it should also be allowed to be claimed for failure to discharge a statutory obligation. ‑ But on the other hand it can be contended that in respect of failure to discharge a contractual obligation there exists section 73, but there is no law which provides for compensation to be claimed in respect of failure to discharge a statutory obligation. In the absence of any statutory provision there should at least be the practice of the Courts allowing compensation to be claimed in respect of failure to discharge statutory obligations. It is to be remembered that in accordance with section 1 of the Interest Act no interest could be claimed in cases not covered by that section unless at the time of the enactment of that Act such interest was payable by law. Even if the word `law' is not to be confined to statutes, but is to be extended to principles of equity and justice laid down by Courts, still the judgments of Courts to this effect should have been in existence at the time when the Interest Act was enacted. It has not been contended that there were any such judgments of Indian Courts in existence on that date. Section 1 of the Interest Act does not in cases where interest was not already payable by law permit interest where the sum claimed is not a sum certain. It only allows interest apart from contract in cases where a sum certain is due and a notice has been given that interest will be charged. In the present case it was not a sum certain. It has been argued that the sum was easily ascertainable, because the loss caused to the promisee would be the difference in the market price and the contract price on the date of breach of contract. That, however, does not . make it a sum certain. It is for the Court to determine what was the market price. A. H.