1. This is an appeal by the Bihar State Electricity Board, under Section 39 (1) (ii) of the Arbitration Act, 1940, against the judgment and order dated the 31st March, 1979, passed by the First Subordinate Judge, Patna, in ‘Title Suit No. 41 of 1978, decreeing the plaintiff’s suit in terms of an award dated the 18th Aug., 1977. The appeal has been, admitted only on a limited question. The question is whether the rate of interest at 9 per cent given by the arbitrator and decreed by the Court below from the date of the award until the date of the decree is legal and reasonable.
2. Briefly stated, the facts of this case are these. Modern India Construction Company Limited, the respondent in this appeal, entered into an agreement with the appellant, Bihar State Electricity Board, in May, 1962, for the construction of Nalkari Dam and site, levelling for the Patratu Power Station. The agreement contained an arbitration clause for referring disputes and differences arising out of or in connection with the said contract to an arbitrator. Some differences arose between the contractor and the Bihar State Electricity Board regarding the payment of the claims preferred by the contractor. The dispute was referred to the sole arbitrator, Shree U. K. Verma, the then Chief Engineer. The arbitrator finally made and published his award on the 18th Aug., 1977 in favour of the contractor (respondent) for payment of Rs. 6,98,500/- and payment of interest at the rate of 9 per cent per annum on the above amount from the date of the award till the decree in terms thereof or payment of the amount by the Board, whichever was earlier.
3. The award was filed in Court on the 9th Sept., 1977. Objections seem to have been filed by the parties, and, from the judgment of the trial Court it appears that in course of the hearing, learned counsel appearing on behalf of the Bihar State Electricity Board conceded that he did not challenge the correctness and the legality of the award relating to the principal sum awarded to the contractor. He pressed the limited objection regarding the rate of interest awarded to the contractor by the arbitrator.
4. By the judgment and order dated the 31st March, 1979, the Court below decreed the suit and made the award a rule of the Court and directed that a decree be passed in terms thereof. No future interest was given by the trial Court.
5. As stated above, the appeal was also confined to the question relating to the rate of interest and was admitted on this limited question only.
6. Learned Advocate General, appearing on behalf of the appellant, Bihar State Electricity Board contended that the rate of interest at 9 per cent per annum on the principal amount is arbitrary and excessive. He referred to Section 34 of the Chit P. C. and submitted that even though Section 34 of the Civil P. C. does not in terms apply to arbitration proceedings, but it furnishes a guide-fine for the purpose of granting interest. Re submitted that in respect of future interest. Section 34 of the Code provides that the rate should not exceed 6 per cent per annum. Learned Advocate General contended that this should be taken to be the basis for considering the reasonableness of the rate of interest, while fixing the rate of interest pen-dente lite. He, therefore, contended that the interest should be brought down to 6 per cent from 9 per cent, as awarded m favour of the respondent.
7. Learned counsel appearing on behalf of the respondent, however, disputed this position and submitted that the rate of 9 per cent was neither exorbitant nor excessive. He relied on a decision of the Supreme Court in the case of State of Madhya Pradesh v. Saith and Skelton (P.) Ltd., (AIR 1972 SC 1507). In that case also interest at the rate of 9 per cent per annum half been awarded and it had been contended that that was exorbitant. The argument was negatived by the Supreme Court on the ground that in the claim statement Sled by both the parties each of them had claimed for payment of the amount due to them with interest at the rate of 12 per cent per anmum, under Section 61 of the Sale of Goods Act. In that context it was held that the interest awarded at the rate of 9 per cent was not excessive when both the parties had claimed 12 per cent interest.
8. So far as the present case is concerned the claim for interest was made at the rate of 9 per cent per annum. It was contended on behalf of the appellant that this was excessive on the facts and in the circum-stances of this case. Learned. Advocate General has contended that 6 per cent interest would be reasonable. In this connection as slated above, fee has referred to S. 34 of the Civil P. C., as it stood before the proviso was added to it by the amendment of 1976. His contention is that a guideline has been fixed in Section 34 of the Civil P. C., inasmuch as, interest should not exceed 6 per cent per annum on the principal sum after the date of the decree up to the date of the payment. According to him, the interest on the principal amount, even prior to the decree should not, in the ordinary circumstances, exceed 6 per cent per annum. From the award, it will appear that the claim for interest prior to the making of the award had not been found to be justified by the arbitrator. Learned Advocate General submitted that in such a background, interest should not have been granted even after the date of the award, but, at any rate, it should not exceed 6 per cent per annnm.
9. Learned counsel appearing on behalf of the respondent submitted that the matter as entirely within the discretion of the arbitrator and if the arbitrator has exercised has discretion in granting 9 per cent interest, this Court should not interfere with the exercise of that discretion. In this connection, he relied upon a decision of the Delhi High Court in the case of Krishna Kumar Madhok v. Union of India (AIR 1982 Delhi 332). In that case what had happened was that 18 per cent interest had been allowed by the arbitrator, which was reduced to 6 per cent in appeal by a learned since Judge of the High Court. A Division Bench, sitting in appeal, over the judgment of the learned single Judge, reversed the decision of the learned single Judge and found that the interest at the rate of 18 per cent was not arbitrary. It was held that the rate of interest was a discretionary power of the arbitrator and should not normally be interfered with. We agree that if the arbitrator’s award of interest is reasonable, the Court should not normally interfere with that, but, with great respects, it is not possible to agree that 18 per cent interest was not exorbitant and was reasonable. In a case where the exercise of the discretion by the arbitrator does not seem to be reasonable, the Courts may step m and interfere with such unreasonable exercise of discretion. The claim in the present case related to the period in the early sixties. The agreement had been entered into in 1962 and the work bad been done by the contactor in the early part of sixties. The arbitrator should have kept that thing also in view. The interest must be correlated with the rate of interest at the time the work was done and when the claim arose. The arbitrator, in the present case, refused to grant any interest pendente lite, that is to say, prior to the date of making of the award. If fee was to grant any interest on the principal amount after the date of the award, be should have kept in view the possible rate of interest at the time when the claim arose. After all, it is the (public money which has to be paid as interest to the con-TRactor. For future, six per cent interest is quite reasonable on the facts and in the circumstances of the present case.
10. Accordingly, we allow this appeal on the limited question of the rate of interest. The rate of interest granted by the arbitrator and decreed by the trial Court is thus reduced to six per cent per annum from nine per cent. Let a decree be accordingly prepared. There will be no order as to costs.
11. We are told that the principal amount, including the interest at nine per cent has already been paid to the contractor and received by him. If that be so, the appellant shall be entitled to recover the amount equal to three per cent interest from the respondent.