Case Note & Summary
The appellant, M/s Shahi and Associates, a registered partnership firm, entered into an agreement dated 08.07.1993 with the Superintendent Engineer, Drainage Division, Gonda, U.P. for construction work related to the Gola Pump House. Disputes arose regarding payment for additional work, leading the appellant to invoke arbitration. Shri B.M. Arora was appointed sole arbitrator on 12.10.1999, and proceedings commenced on 27.10.1999 under the Arbitration and Conciliation Act, 1996. The arbitrator passed an award on 24.12.2001 granting Rs. 17,86,339 with interest at 18% per annum from the date of award till payment under Section 31(7)(b) of the 1996 Act. The respondents challenged the award under Section 34 of the 1996 Act before the District Judge, Gorakhpur, who upheld the principal sum but reduced interest to 6% per annum relying on para 7A of Section 24 of the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976 (U.P. Amendment Act), which amended the First Schedule of the Arbitration Act, 1940. Both parties appealed to the High Court of Allahabad, which dismissed both appeals and upheld the reduced interest. The appellant appealed to the Supreme Court. The Supreme Court allowed the appeal, holding that the Arbitration Act, 1940, including its State amendments, stood repealed by Section 85 of the 1996 Act. Since the arbitration proceedings commenced on 27.10.1999 under the 1996 Act, the U.P. Amendment Act had no application. The arbitrator's award of 18% interest under Section 31(7)(b) was lawful and could not be reduced. The Court set aside the judgments of the High Court and District Judge only regarding the reduction of interest and restored the original award of 18% interest. No order as to costs.
Headnote
A) Arbitration Law - Interest on Award - Section 31(7)(b) Arbitration and Conciliation Act, 1996 - Applicability of State Amendment - The appellant, a contractor, was awarded Rs. 17,86,339 with 18% interest under Section 31(7)(b) of the 1996 Act. The District Judge and High Court reduced interest to 6% relying on para 7A of Section 24 of U.P. Amendment Act, which amended the First Schedule of the Arbitration Act, 1940. The Supreme Court held that since the 1940 Act was repealed by Section 85 of the 1996 Act, the State amendment became obsolete and could not apply to proceedings commenced under the 1996 Act. The interest awarded by the Arbitrator was restored. (Paras 9-13) B) Arbitration Law - Repeal and Savings - Section 85 Arbitration and Conciliation Act, 1996 - Effect on State Amendments - The Supreme Court clarified that the only exception for continued application of the 1940 Act is under Section 85(2)(a) where proceedings commenced under the old Act and parties agreed. Since the arbitration commenced on 27.10.1999 under the 1996 Act, the U.P. Amendment Act had no application. (Paras 11-12)
Issue of Consideration
Whether the High Court and District Judge were justified in reducing the rate of interest from 18% p.a. to 6% p.a. by relying on para 7A of Section 24 of the Uttar Pradesh Civil Laws (Reforms and Amendment) Act, 1976, which amended the First Schedule of the Arbitration Act, 1940, when the arbitration proceedings were conducted under the Arbitration and Conciliation Act, 1996.
Final Decision
The Supreme Court allowed the appeal, set aside the judgments of the High Court and District Judge only insofar as reduction of interest, and restored the interest awarded by the Arbitrator at 18% per annum under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996. No order as to costs.
Law Points
- Arbitration Act
- 1940 stands repealed by Section 85 of Arbitration and Conciliation Act
- 1996
- State amendment to First Schedule of 1940 Act becomes obsolete
- Section 31(7)(b) of 1996 Act mandates 18% interest unless otherwise directed
- U.P. Amendment Act para 7A not applicable to proceedings under 1996 Act
