M/S SHAHI AND ASSOCIATES versus STATE OF U.P. & ORS.

Citation: [2019] 11 S.C.R. 640 · Decided: 08-08-2019 · Supreme Court of India · Bench: ARUN MISHRA · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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640
SUPREME COURT REPORTS
[2019] 11 S.C.R.
M/S SHAHI AND ASSOCIATES
v.
STATE OF U.P. & ORS.
(Civil Appeal No. 3559 of 2010)
AUGUST 8, 2019
[ARUN MISHRA, S. ABDUL NAZEER AND
M. R. SHAH, JJ.]
Arbitration and Conciliation Act, 1996: s. 31(7)(b) – Reduction
of rate of interest – Arbitral award along with interest payable in
accordance with s. 31(7(b), at the rate of 18% pa – District judge
reduced the rate of interest on the sum awarded from 18% to 6%
relying on para 7-A of s. 24 of the UP Amendment Act – Upheld by
the High Court – On appeal, held: Section 31(7)(b) clearly states
that unless otherwise specified, the awarded sum would carry an
interest @ 18% pa – Para 7-A of s. 24 of the U.P. Amendment Act
was an amendment to the First Schedule of Arbitration Act, 1940 –
Since the Arbitration Act, 1940 has been repealed, the Schedule to
the Arbitration Act, including the State amendment, also stands
repealed – Thus, the provisions of Arbitration Act, 1940 including
para 7-A of s. 24 would have no application to the proceedings
commenced after coming into force of the Act of 1996 – On facts,
though the agreement was earlier to the date of coming into force
of the Act of 1996, the proceedings commenced on 27.10.1999 and
were conducted in accordance with the Act of 1996, thus, para 7-A
of s. 24 of the U.P. Amendment Act would not be applicable – High
Court and the District Judge not justified in reducing the rate of
interest by following the U.P. Amendment Act – Award of interest in
accordance with s. 31(7)(b) is restored – Arbitration Act, 1940 –
Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 – s.
24.
Allowing the appeal, the Court
HELD: 1.1 The Arbitration and Conciliation Act, 1996 has
come into force with effect from 22.08.1996. Section 85 of the
Act of 1996 expressly repeals the provisions of the Arbitration
   [2019] 11 S.C.R. 640
640
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Act, 1940. Thus, the Act of 1996 would be applicable to all arbitral
proceedings which have commenced on or after the said Act came
into force. Para 7-A of Section 24 of the U.P. Amendment Act was
an amendment to the First Schedule of Arbitration Act, 1940.
This amendment was introduced by the U.P. Act No. 57 of 1976.
Section 31(7)(b) of the Act of 1996, before its amendment by Act
3 of 2016, which has come into force with effect from 23.10.2015,
is relevant for the purpose of this case, empowers the Arbitrator
to award pre-award and post-award interest. Section 31(7)(b)
clearly mandates that, in the event the Arbitrator does not give
any specific directions as regards the rate of interest on the amount
awarded, such amount ‘shall’ carry interest @ 18% p.a. from the
date of award till the date of payment. Since the Arbitration Act,
1940 has been repealed by way of Section 85, the Schedule to the
Arbitration Act, including the State amendment, also stands
repealed. The only exception is provided in sub-section (2)(a) of
Section 85 where a proceeding which had commenced when the
Arbitration Act of 1940 was in force and continued even after
coming into force of the Act of 1996, and all parties thereto agreed
for application of the old Act of 1940. Therefore, the provisions
of Arbitration Act, 1940 including the State amendment-para 7-A
of Section 24 of U.P. Amendment Act will have no application to
the proceedings commenced after coming into force of the Act of
1996. [Para 9-11][644-C-F; 645-B-D]
1.2 In the instant case, though the agreement was earlier
to the date of coming into force of the Act of 1996, the proceedings
admittedly commenced on 27.10.1999 and were conducted in
accordance with the Act of 1996. If that be so, para 7-A of Section
24 has no application to the case at hand. Since the rate of interest
granted by the Arbitrator is in accordance with Section 31(7)(b),
the High Court and the District Judge were not justified in
reducing the rate of interest by following the U.P. Amendment
Act. The judgments of the High Court and the order of the District
Judge are set aside only insofar as reduction of rate of interest is
concerned. The interest awarded by the Arbitrator in accordance
with s. 31(7)(b) of the 1996 Act is restored.[Para 12,13][645-E-
G]
M/S SHAHI AND ASSOCIATES v. STATE OF U.P. & ORS.
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SUPREME COURT REPORTS
[2019] 11 S.C.R.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3559
of 2010
From the Judgment and Order dated 05.12.2007 of the  High
Court of  Judicature at Allahabad in First Appeal from Order No.

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