EXECUTIVE ENGINEER (R AND B) AND OTHERS versus GOKUL CHANDRA KANUNGO (DEAD) THR. HIS LRS.

Citation: [2022] 7 S.C.R. 309 · Decided: 30-09-2022 · Supreme Court of India · Bench: BHUSHAN RAMKRISHNA GAVAI · Disposal: Case Partly allowed

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Judgment (excerpt)

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EXECUTIVE ENGINEER (R AND B) AND OTHERS
v.
GOKUL CHANDRA KANUNGO (DEAD) THR. HIS LRS.
(Civil Appeal No. 8990 of 2017)
SEPTEMBER 30, 2022
[B. R. GAVAI AND B. V. NAGARATHNA, JJ.]
Arbitration and Conciliation Act, 1996 – s.31(7)(a) – Arbitral
award – Interest on arbitral awards – Discretion vested in arbitral
tribunal – Reduction of interest u/Art.142 of the Constitution – Held:
s.31(7)(a) itself requires interest to be at such rate as the arbitral
tribunal deems reasonable – When a discretion is vested to an arbitral
tribunal to award interest at a rate which it deems reasonable, then
a duty would be cast upon the arbitral tribunal to give reasons as
to how it deems the rate of interest to be reasonable – Further, the
arbitral tribunal would be required to apply its mind to the facts of
the case and decide as to whether the interest is payable on whole
or any part of the money and also as to whether it is to be awarded
to the whole or any part of the period between the date on which
the cause of action arose and the date on which the award is made
– In the present case, the very conduct of respondent of remaining
silent for a long period disentitled him for interest during such period
– A party cannot be permitted to derive benefits from its own lapses
– Insofar as rate of interest is concerned, in the present case, the
Arbitrator, without assigning any reasons, awarded interest at the
rate of 18% p.a. for the period during which the proceedings were
pending and also at the same rate after the award was made till the
actual payment – Taking into consideration the conduct of the
respondent in delaying proceedings at every stage which led to long
pendency of the dispute, interest at all the three stages, that is pre-
reference period, pendent-lite and post-award period, reduced to
9% p.a. u/Art.142 of the Constitution – Constitution of India –
Art.142.
Partly allowing the appeal, the Court
HELD: 1. A perusal of clause (a) of subsection (7) of Section
31 of the Arbitration and Conciliation Act, 1996 would reveal that,
no doubt, a discretion is vested in the arbitral tribunal to include
[2022] 7 S.C.R. 309
309
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SUPREME COURT REPORTS
[2022] 7 S.C.R.
in the sum for which the award is made interest, on the whole or
any part of the money, for the whole or any part of the period
between the date on which the cause of action arose and the date
on which the award is made. However, it would reveal that the
section itself requires interest to be at such rate as the arbitral
tribunal deems reasonable. When a discretion is vested to an
arbitral tribunal to award interest at a rate which it deems
reasonable, then a duty would be cast upon the arbitral tribunal
to give reasons as to how it deems the rate of interest to be
reasonable. Further, the arbitral tribunal would be required to
apply its mind to the facts of the case and decide as to whether
the interest is payable on whole or any part of the money and also
as to whether it is to be awarded to the whole or any part of the
period between the date on which the cause of action arose and
the date on which the award is made. [Para 10][315-B-F]
2. In the present case, the Arbitrator, without assigning
any reasons, has awarded interest at the rate of 18% per annum
for the period during which the proceedings were pending and
also at the same rate after the award was made till the actual
payment. [Para 11][315-F-G]
3. The very conduct of the respondent of remaining silent
for a long period from August 30, 1997 till July 25, 1989 would
disentitle him for the interest during the said period. Similarly,
though a decree was passed on 14th February 1990 and the
respondent was directed to file the original agreement, he took
no step till 4th February 2000.  In the meantime, the 1996 Act
came into force. Thereafter, the respondent filed an application
in the disposed of suit which came to be dismissed on 4th February
2000. Thereafter, he moved an application before the High Court
for appointment of arbitrator under Section 11 of the 1996 Act
which came to be allowed on 15th October 2001. It could thus be
seen that for a period of almost ten years, the respondent was
again in silent mode. Had he filed the original agreement
immediately after the decree was passed on 14th February 1990,
the arbitration proceedings would have commenced and concluded
immediately thereafter. As such, the Arbitrator was not justified
in awarding interest for the period from 14th

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