CASE NO.: Appeal (civil) 2153 of 2006 PETITIONER: M/S MUKAND LTD. RESPONDENT: HINDUSTAN PETROLEUM CORPORATION LTD. DATE OF JUDGMENT: 21/04/2006 BENCH: S.B. SINHA & P.K. BALASUBRAMANYAN JUDGMENT:
J U D G M E N T
(Arising out of SLP(C) No.3194 of 2005)
P.K. BALASUBRAMANYAN, J.
Leave granted.
1. This appeal arises out of an award made by the
arbitrator on a reference made to him under the Arbitration
Act, 1940 (for short “the Act”). Though there was controversy
between the appellant and the respondent as to whether there
existed an arbitration clause justifying reference to an
arbitrator, ultimately, the appellant agreed to the appointment
of one of the arbitrators suggested by the respondent clarifying
that the appellant was agreeing to the appointment of the
arbitrator “not under the alleged contract but outside the
alleged contract to decide whether there is a concluded
contract and in any event can you invoke the arbitration
clause under the alleged contract” Thus, the dispute stood
referred to a sole arbitrator. The sole arbitrator while making
an award held that there had come into existence a valid
contract between the parties; that there was an arbitration
clause in the contract and proceeded to adjudicate the claim
on merits and passed an award directing the appellant to pay
a sum of Rs.1,26,67,529.10 and costs of Rs.75,600/- to the
respondent on or before 31.07.1994 and failing payment,
directed the appellant to pay interest at the rate of 11 per cent
per annum on the sum of Rs.1,26,67,529.10 from 28.06.1994
till the date of payment. The award was pronounced on
27.06.1994.
2. The appellant moved the High Court of Bombay in
its original civil jurisdiction seeking to have the award set
aside in terms of Section 30 of the Act. A learned single
Judge of the Bombay High Court rejected the objections of the
appellant to the award except as regards the quantum. The
single judge modified the award by reducing the amount
payable by the respondent to the appellant to Rs.71,31,954.40
with costs of arbitration of Rs.75,600/-, with further interest
at the rate of 11 per cent per annum from the date of the
decree till payment or final realization. An appeal filed by the
appellant before the Division Bench was dismissed by the
Division Bench upholding the finding of the arbitrator that
there had come into existence a concluded contract between
the parties and that there was an arbitration clause based on
which the disputes between the parties could be referred to
arbitration and consequently, the award was one rendered
within jurisdiction. Feeling aggrieved thereby, this appeal by
special leave has been filed by the appellant.
3. Learned senior counsel for the appellant challenged
the decision of the High Court and that of the arbitrator that
there had come into existence a concluded contract between
the parties. He further contended that even if there was a
concluded contract, there was no arbitration agreement in the
contract or in the correspondence relating thereto. He also
contended on merits that the arbitrator was not justified in
awarding damages. Learned senior counsel for the
respondent, on the other hand, submitted that the finding by
the arbitrator that there had come into existence a concluded
contract was based on an appreciation of the materials
available and the circumstances obtaining and such a finding
by the arbitrator was not amenable to correction in
proceedings under Section 30 of the Act which conferred on
the court only a circumscribed jurisdiction. Counsel
submitted that the arbitrator had neither misconducted
himself nor the proceedings. He also submitted that there
was no error apparent on the face of the record justifying
interference by this Court especially when the single judge and
the Division Bench of the Bombay High Court have refused to
interfere with the award subject to the modification of the
quantum realizable by the respondent. The award could not
also be said to be otherwise invalid.
4. We were taken elaborately through the materials by
senior counsel for the appellant in an attempt to show that
there was no concluded contract between the parties and there
existed no arbitration clause. He attempted to argue that
what the appellant had agreed to was to the appointment of an
arbitrator to decide whether there was a concluded contract
between the parties containing an arbitration clause and there
is no consistent finding on this question by the arbitrator, the
learned single Judge and by the Division Bench of the High
Court and the approach and the reasoning of all the three had
differed materially. Counsel for the respondent necessarily
submitted that the question referred to arbitration was
whether there was a concluded contract between the parties,
whether there was an arbitration clause, and what was the
amount, if any, due to the respondent from the appellant. He
submitted that the findings on these aspects based on the
materials was perfectly correct and that there was no occasion
for interfering with the same.
5. We do not think it necessary to deal in detail with
the materials placed before us by learned counsel for the
appellant. During the course of the hearing when we took
note of the nature of the transaction between the parties and
the continuing and prospective business relationship between
them, we put it to the counsel for the appellant that even if we
accept his contention and hold that there was no arbitration
agreement, that may not put an end to the dispute and the
same would lead to the parties fighting another round of
litigation for years to come, thus, further souring their
commercial relationship. Ultimately, counsel for the
appellant submitted that the appellant was really aggrieved by
the award of future interest at 11 per cent per annum from the
date of decree till the date of payment or realization by the
learned single Judge. He pleaded that in the circumstances,
post decree interest be reduced to six per cent per annum.
Learned counsel for the respondent submitted that the
conduct of the appellant did not justify any such reduction of
interest as sought for and considering the nature of the
contract and the default on the part of the appellant, the rate
of post decree interest awarded was justified. Having
considered the rival submissions and having taken note of the
circumstances and the transaction in question in the light of
the correspondence between the parties and on an over all
view of the situation, we are of the view that it would be
appropriate to reduce the post decree interest awarded by the
learned single Judge. We think that in the circumstances
seven and a half per cent per annum would be the reasonable
rate of interest that could be directed to be paid by the
appellant to the respondent, for the period subsequent to the
decree. Therefore, while we confirm the decision of the
Division Bench upholding the modified award made by the
learned single Judge, we reduce the interest awarded by the
learned single Judge subsequent to the decree from eleven per
cent per annum to seven and a half per cent per annum. In
other words, we hold that the amount awarded by the learned
single Judge in terms of paragraph 13 of his judgment would
bear interest at the rate of seven and a half per cent per
annum from the date of that decree (18.08.1998) till the date
of final payment and/or realization plus costs of the
arbitration proceedings as awarded therein. In the
circumstances we direct the parties to bear their respective
costs in this Court.
6. The appeal is disposed of on the above terms.