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             REPORTABLE

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO. 3559 OF 2010

M/S SHAHI AND ASSOCIATES   … APPELLANT(S)  

VERSUS

STATE OF U.P. & ORS.   … RESPONDENTS

J  U  D  G  M  E  N  T

S.ABDUL NAZEER, J.

1. M/s. Shahi and Associates has filed this appeal impugning

the common final judgment and order dated 05.12.2007 passed

by the High Court of Judicature at Allahabad in F.A.F.O Nos.

3728 of 2007 and 947 of 2007, whereby the High Court has

upheld the award of the Arbitrator.  However, relying on para 7­

A of Section 24 of the Uttar Pradesh Civil Laws (Reforms and

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Amendment) Act, 1976 (for short 'U.P. Amendment Act'), it has

reduced the statutory interest to  6% p.a. from 18% p.a. as

awarded by  the Arbitrator.  The appellant  has questioned the

reduction of the interest in this appeal.

2. The appellant is a registered partnership firm engaged in

civil construction projects for the government of Uttar Pradesh.

The appellant entered into an agreement dated 08.07.1993 with

the Superintendent Engineer, Drainage Division, District

Gonda, U.P. for work related to the Gola Pump House.   Owing

to certain disputes that arose between the parties with respect

to the rate of payment for additional work under the agreement,

the appellant served a notice invoking arbitration on the

respondents and filed the claim petition on 11.09.1999.   Shri

B.M. Arora was appointed as the sole Arbitrator on 12.10.1999

and the proceedings commenced on 27.10.1999 under the

Arbitration  and  Conciliation  Act, 1996 (for short 'the  Act of

1996').

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3. The sole Arbitrator passed an award on 24.12.2001,

whereby the appellant was awarded a sum of Rs. 17, 86, 339/­

(seventeen lakhs eighty six thousand three hundred thirty

nine).  The Arbitrator further held that the interest on the sum

awarded would be payable in accordance with Section 31(7)(b)

of the Act of 1996, i.e. 18% p.a. from the date of the award till

the date of actual payment.  The operative portion of the award

is:

"According to the above, the petitioner becomes entitled for receiving a total amount of Rs. 17,86,339.00 (Rs. Seventeen lac eighty six thousand three hundred thirty nine only) and the petitioner is hereby awarded the same. From the date of award to the actual date of payment an interest at the rate  which is given in the provisions of section 31(7)(b) of the  Arbitration and Conciliation Act,  1996 shall  also be payable on Rs.  17,86,339.00 which is the amount of declared award. Both the parties would bear their own cost related with the arbitration."

4. The respondents 1 and 2 being aggrieved by the aforesaid

award filed civil  miscellaneous case No. 5 of 2002 before the

District Judge, Gorakpur, under Section 34 of the Act of 1996.

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The District  Judge while  upholding  the sum awarded by the

Arbitrator, reduced the rate  of interest  on  the  sum awarded

from 18% p.a. to 6% p.a. by relying on para 7­A of Section 24 of

the U.P. Amendment Act.

5. Being aggrieved by the aforesaid judgment dated

28.10.2006, both the parties filed F.A. F.O. Nos. 3728 of 2007

and 947 of 2007 before the High Court.  The High Court by way

of impugned common final judgment and order has dismissed

both the appeals.   In the course of the order, the High Court

has observed that the District Judge has correctly reduced the

rate of interest from 18% p.a. to 6% p.a. in view of para 7­A of

Section 24 of the U.P Amendment Act.

6. Learned counsel for the appellant submits that the

arbitration proceedings were commenced on 27.10.1999 under

the Act of 1996 and the provisions of Arbitration Act, 1940 will

have no application to the proceedings between the parties. The

U.P. Amendment Act was a State amendment which introduced

para 7­A  to the  First  Schedule  of the  Arbitration Act,  1940.

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Since the Arbitration Act, 1940, has been repealed under

Section 85 of the Act of 1996, the Schedule to Arbitration Act,

1940  also stands repealed  and para 7­A has become obsolete.

Therefore, the Arbitrator  has rightly  awarded  interest  @ 18%

p.a.  under  Section 31(7)(b)  of the  Act  of  1996.  The District

Judge  as  also the  High  Court  have  wrongly relied  upon  the

repealed provision and reduced a statutorily permissible

interest rate.

7. On the other hand,  learned Additional Advocate General

appearing for the  respondent­State  has  sought to justify the

impugned judgment.   

8. We have carefully considered the submissions of the

learned counsel made at the Bar.   

9. The Act of 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 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 7­A

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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.  The provisions

of the Arbitration Act, 1940 including the State amendment will

have no application to the proceedings commenced after coming

into force of the Act of 1996.

10. 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 pre­award and post­award interest. This

Section clearly states that unless otherwise specified, the

awarded sum would carry an interest @ 18% p.a, as extracted

below:

"31. Form and contents of arbitral  award – (7)(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of  money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on

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which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment".

     (Emphasis supplied)

11. Section 31(7)(b) of the Act of 1996 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  of the  Act  of  1996, the

Schedule to the Arbitration Act, including the State

amendment, also stands repealed.   The only exception is

provided in sub­section (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 namely para 7­A of Section 24

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of U.P. Amendment Act will have no application to the

proceedings commenced after  coming  into  force of  the Act of

1996.     

12. 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 7­A of

Section 24 of the U.P. Amendment Act 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) of the Act of

1996, the High Court and the District Judge were not justified

in reducing the rate of interest by following the U.P.

Amendment Act.  

13. The appeal, therefore, succeeds and it is accordingly

allowed.  The judgments  of the  High Court  of  Judicature  at

Allahabad dated 05.12.2007 in F.A.F.O Nos.3728 and 947 all of

2007 and the order of the District Judge, Gorakhpur in Misc.

Case No.5 of 2002 dated 28.10.2006 are set aside only insofar

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as reduction of rate of interest is concerned.   The interest

awarded by the Arbitrator in accordance with Section 31(7)(b) of

the Act of 1996 is restored.

14. There will be no order as to costs.     

…………………………………………J.       (ARUN MISHRA)

…………………………………………J.       (S. ABDUL NAZEER)

…………………………………………J.       (M.R. SHAH)

New Delhi; August 8, 2019.