2003 (5) TMI 537 - HC - Indian Laws

Summary

Issues Involved:
1. Rate of future interest allowable by the Arbitrator/Registrar from the date of claim/suit till realization of the debt.
2. Applicability of the Supreme Court decision in N.M. Veerappa v. Canara Bank to arbitration proceedings.
3. Jurisdiction of Arbitrators/Registrars under the Co-operative Societies Act.
4. Inclusion of penal interest in the contract rate of interest for future interest.
5. Discretion of Arbitrators/Registrars in awarding future interest.

Detailed Analysis:

1. Rate of Future Interest Allowable by the Arbitrator/Registrar:
The primary issue was the rate of future interest that could be awarded by the Arbitrator/Registrar from the date of claim/suit till the realization of the debt. The Arbitrators/Registrars had passed awards allowing future interest at the contract rate, including penal interest. However, the Co-operative Tribunal in some cases modified this to 6%, relying on the Supreme Court's decision in N.M. Veerappa v. Canara Bank. The judgment clarified that Rule 67(10)2 of the Co-operative Societies Rules permits the Arbitrator/Registrar to allow future interest at the contract rate but does not include penal interest.

2. Applicability of the Supreme Court Decision in N.M. Veerappa v. Canara Bank:
The banks argued that the decision in Veerappa's case, which limited future interest to 6%, was not applicable to arbitration proceedings under the Co-operative Societies Act. The judgment affirmed that Veerappa's case applied to civil court proceedings, specifically mortgage suits under Order 34 CPC, and not to arbitration proceedings under the Co-operative Societies Act. Therefore, the Tribunal's reliance on Veerappa's case to limit future interest to 6% was incorrect.

3. Jurisdiction of Arbitrators/Registrars under the Co-operative Societies Act:
The judgment emphasized that disputes under the Co-operative Societies Act are to be adjudicated by Arbitration Courts/Arbitrators/Registrars as per the Act and its Rules. The provisions of the CPC are not applicable to these proceedings, except as specified in Section 98 of the Act. The judgment reiterated that the Arbitrators/Registrars are not courts and thus the general provisions of the CPC, including Section 34, are not directly applicable.

4. Inclusion of Penal Interest in the Contract Rate of Interest for Future Interest:
The judgment clarified that penal interest cannot be included in the contract rate of interest for the purpose of awarding future interest. The Supreme Court in Central Bank of India v. Ravindra held that penal interest is separate from the contract rate of interest and cannot be capitalized. Therefore, awards including penal interest in the future interest rate were beyond the jurisdiction conferred under Rule 67(10)2.

5. Discretion of Arbitrators/Registrars in Awarding Future Interest:
The judgment highlighted that Rule 67(10)2 gives Arbitrators/Registrars the discretion to grant future interest up to the contract rate but not necessarily at the contract rate. They can award a lower rate of interest based on the facts and circumstances of each case. The judgment also noted that in cases where the contract rate of interest appears exorbitant or unconscionable, the Arbitrator/Registrar can award a lower rate. The principles under Section 34 CPC, which allow for discretion in awarding future interest, were deemed applicable to arbitration proceedings under the Co-operative Societies Act.

Conclusion:
The awards by the Arbitrators/Registrars allowing future interest at the contract rate, including penal interest, were set aside. Similarly, the Tribunal's judgments reducing the interest to 6% based on Veerappa's case were also set aside. All cases were remanded to the respective Arbitrators/Registrars for fresh disposal in accordance with the principles laid down in the judgment. The remand was limited to the determination of future interest only, which should be done within one month from the date of production of a copy of the judgment.