2001 PLP 233 (MLD)

upto 30‑6‑1977. From 1‑7‑1977 to 1‑11‑1986 i.e. 9 years 4 moths. Interest payment on the basis of encashment of Deposit Growth Certificate Issued after 30‑6‑1977. Interest on Rs.100.‑ after 9 years 4 months Rs.306.42 " " 1,31,202 X 306.42/100. Rs.4,02.029. Rs.1,31,

202. Amount of interest allowed from 1‑7‑1977 to 1‑11‑1986 Rs.2,70,827.‑ 'B' Total of 'A' plus 'B' comes to Rs.3.30,661.26."

6. Incidentally the disputed item of award before their Lordships in the said case of "Ghulam Abbas" was also made almost in similar terms. Now I may reproduce here the relevant excerpts from the judgment of the Supreme Court in the case of "Ghulam Abbas" in paras. 17, 18, 20, 21, 22, 23 appearing at pages Nos.407, 408, 410, 411, 412 and 413 of the report:‑‑ . (17) "The matter, however, does not conclude here. The question still remains to be determined whether the Arbitrator was competent to award interest in the circumstances of this case or in other words whether in having awarded interest an error of law apparent on the face of the award was committed. Now the general rule of law is that an award is final as to both fact and law but there is a rule that an error of law, if it appears on the face of the award, is a ground for setting it aside which is an exception to the general rules as stated. There is a further rider to this rule, namely, that if the parties have specifically referred a question of law to arbitration then the general rule would apply and the award will be beyond reproach even if such a question is decided erroneously. Before going further it may also be stated that as a general principle the arbitrator has always been considered to have implied authority to follow the ordinary rules of law. The intentional disregard of the law would, therefore, seem to be such a misconduct on the part of Arbitrator as would justify setting his award aside (Russel on Arbitration 19 Edition page 440). " (18) "In order to further examine this question it is necessary to analyse the nature of right to interest on a money claim before a Court of law and on the same analogy before the domestic forum of an Arbitrator. The right to interest, for the period prior to the date of suit or prior to the reference to arbitration is a matter of substantive law, as contrasted with the power given to a Court of law under section 34, C.P.C. or section 29 of the Arbitration Act which is a statutory power within the domain of procedural law. In the present controversy firstly we are concerned with the right claimed substantively by the contractor for a 'period before the matter reached the forum, for adjudication as a liquidated claim based on a legal right. The right to interest, for the period prior to the suit, arises in one of the four following ways:‑‑-- (i) Agreement, express or implied between the parties. (ii) Mercantile usage. (iii)statutory provision (iv)Interest may also be allowed on equitable grounds in proper cases. But admittedly‑ in the present case the claim for interest as incorporated in the statement of claim filed by the appellant before the Arbitrator vide paragraph 4(i) was couched in the following terms:‑‑ "Interest by way of compensation four, wrongful retention of money due to the plaintiff ...... Clearly, therefore, in the submission before the Arbitrator the question was whether the appellant was entitled to interest by way of compensation for breach of contract, in that, the respondents who were required by the terms of the contract to make payment for the works executed did not do so at the stipulated time. It is not the case of the appellant that he was entitled to interest by the express or implied terms of the contract or on the basis of mercantile usage or any statutory provisions. In M/s A.Z. Company v: M/s. S. Maula Bukhsh Muhammad Bashir (PLD 1965 SC 505), this Court has already ruled that generally in the absence of express or implied contract to pay interest, or of usage of trade, interest cannot be allowed on damages for breach of contract. The compensation for breach of contract qua the claims accepted by the Arbitrator as awarded could not, therefore, be subjected to a further liability to pay interest according to the dictum laid down in the aforesaid decision‑" (20) "Having set out the arguments of the learned counsel and the law relied upon by them it now becomes necessary to examine the nature of he direction given by the Arbitrator for payment of interest in respect of the disputed items. In the award after giving a finding as regards the claim of the appellant and determining the amount payable to him in respect of the works done under the contract, the learned Arbitrator allowed interest on the amounts so determined in the following manner:‑‑ "(32) I allow the plaintiff interest on the above sum of Rs.6,19,018.85 (rupees six lacs nineteen thousand and eighteen and paisa eighty five only) at the rate of 6% per annum from 1st July, 1972 to 30th June, 1975, which comes to Rs.1,11,423.39 (Rupees one lac thirty seven thousand one hundred and fifty paisa only) from 19th May, 1973, to 30th June, 1975; which amount to Rs.17,427 (seventeen thousand four hundred twenty seven only) and future interest at the same rate till payment. The arbitrator was appointed at the request of the appellant by the respondent on 19th September, 1973. The appellant filed his statement of claim before the Arbitrator on 27th October; 1973. Therefore, the learned Arbitrator entered on the reference somewhere between these two dates. Accordingly the interest allowed by him under paragraph 32 of the award, as' reproduced above (which comprises the disputed item before us) related to a period prior to his entering upon the reference end extended up to 30th June, 1975, that is just before the date of the award which was made on 14th July, 1975. He also directed future interest at the same rate till the recovery of the principal amount awarded by him. On this analysis the award of interest may be bifurcated in three categories. The first one to be interest as a substantive claim, the second as pendente lite interest and third future interest from the date of the award until payment of the principal." (21) "As noted earlier, in the case before us, interest was being claimed by the contractor as compensation for breach of contract between the parties by way of damages. As discussed above a claim to interest can be based as of right on statute, contract, trade usage or in equity; in absence of such right not being established, in some jurisdiction, it is allowable as damages based on wrongful detention of money. But even in such case as a general rule interest cannot be recovered as matter of right in an action of contract on an unliquidated or disputed claim (25 Corpus Juris) Secundum Damages Note 52 at 538). So far as the law in this country is concerned, in the case of A.Z. Company (Supra), this Court has held that interest on the sum awarded as damages cannot be allowed for period prior to the date of award except on the grounds already mentioned which are not applicable in the present case. Even on the assumption that interest was recoverable as damages for wrongful detention of money since the claim of the appellant was disputed and required to be determined by adjudication in the arbitration proceedings, it was an unliqudated claim until the passing of the award and in any event interest could only be awarded if there were a debt or sum certain payable at a certain time, interest on a claim for damages arising out of breach contract cannot be allowed both on principle and in law. " (22) "The award on the face of it refers to the statement of the claim in which the contractor claimed interest by way of damages and it is on that basis that the decision of the Arbitrator apparently proceeds. As we have held that the Arbitrator in the facts of the present case could not according to law grant interest as claimed, there would be an error of law apparent on the face of record. The mere fact that the pleadings were filed before the Arbitrator and issues were then settled on the pleadings of the parties incorporating the question of interest does not necessarily give rise to the inference that the parties had agreed to refer specifically the question of grant in interest as a question of law for the decision of the Arbitrator, so as to preclude any party to the arbitration front challenging the award on the ground of error of law on the face of the award." (23) The conclusion from the foregoing discussion is that so far as the item of interest in dispute is concerned, the Arbitrator committed an illegality in awarding interest except that the interest awarded from the date of decree onwards has been saved by virtue of section 29 of the Arbitration Act."

7. An examination of the said judgment and particularly relevant portions thereof reproduced by me above leaves no manner of doubt that in the present case as well the Arbitrator was not vested with the jurisdiction to award interest and consequently he has committed an illegality which renders the award void to the said extent as error is apparent on the face of record.

8. However, I find that said award against Claim No.29 is separable and entire award need not be set aside or be remitted back to the Arbitrator and I find that this Court is sufficiently empowered under section 15 of the Arbitration Act, 1940 correct the error by modifying award, I, therefore, proceed to modify the award by deleting amount of Rs.3,30,661.26 awarded by Arbitrator against claim No.29 in the award, dated 23‑11‑1986. The award shall now stand corrected and modified inasmuch as the amount awarded to the respondent shall be read as Rs.78,417.74.

9. The award was made on 23‑11‑1986. The decree in terms of award was passed on 24‑1‑1987. A sum of Rs.2 lacs was paid by the petitioner to the respondent in compliance with order, dated 18‑5‑1987 of this Court as admitted by learned counsel for the respondent. According to the learned counsel this amount was paid on 25‑5‑1987. In terms of section 29 of Arbitration Act, 1940, the respondent would be entitled to interest from the date of decree till 25‑5‑1987. I note that he had already been retaining the sum of Rs.2,00,000 (about Rs.1,20,000 in excess of the amount lawfully due to him). I am, therefore, not inclined to award any interest for the period between the date of decree and the date of payment of Rs.2,00,000.

10. As a result of above discussion, this civil revision is allowed, the order and decree passed by learned trial Court is set aside. The award is modified as stated above and decree is passed in‑ terms of the award so modified in the sum of Rs.78,417.74 in favour of the respondent and against the petitioner. The respondent to refund a sum of Rs.1,21,582.26 to the petitioner on or before 31‑10‑2000 failing which the learned Trial/Executing Court shall on application of the petitioner recover the said amount from the respondent employing all legal process available under Order 21, C.P.C. and upon recovery pay the same to the petitioner. At the moment the parties are left to bear their own costs. Q.M.H./M.A.K./U‑8/L Order accordingly.