The facts were as follows: A division bench of the AP high court in proceedings arising out of the Arbitration Act 1940 made the award as given by the arbitrator. The high court dismissed the appeal filed by the superintending engineer and allowed the cross objections of the respondent-contractor.

An agreement was entered into between the appellant and the respondent for execution of the work of providing lining to the slopes of Pamidipadu branch canal. There were disputes and the matter was referred to the sole arbitrator who gave awards dated April 18, 1986. The arbitrator awarded an amount of Rs 85,000 in respect of four claims which were not challenged. However, the arbitrator awarded interest as measure ofdamages at the rate of 15 per cent per annum on the amount of Rs 85,000 for three years from October 21, 1982 till the date of reference ie, October 21, 1985 amounting to Rs 38,250. The arbitrator gave further interest to respondent at 18 per cent per annum on the total amount of award of Rs 85,000, earnest money deposit, bank guarantee and Rs 38,250 being damages from the date of reference till the date of actual payment of the decree whichever is earlier.

The appellant raised the following objections-(1) Cross objections are not maintainable under Section 41 of the Act; (2) the arbitrator could not award interest for the period prior to reference of disputes to him. The arbitrator also awarded interest over interest which he had no authority to do. The Supreme Court has observed that the arbitrator has given in the shape of damages on interest on the amount of Rs 85,000 for a period prior to the date of reference of disputes to him. Interest for the period prior to the date of reference could be awardedonly if there was an agreement or it was allowable under the Interest Act, 1978. The Supreme Court held that giving the name of damages when in fact it is a claim for interest cannot be permitted. Hence award of Rs 38,250 as damages has to be set aside by the Supreme Court following its decision in Secretary, Irrigation Department, government of Orissa vs GC Roy (1992) ISCC 508 and State of Orissa vs BN Agarwalla (1997)2 Section 469, stated that the arbitrator could award interest both pendente life and future which he gave at the rate of 18 per cent per annum and when the matter was pending before principal subordinate judge he reduced the award of interest from 18 per cent per annum to 12 per cent per annum. When present appellant appealed to the high court against the judgement of the principal subordinate judge and upon receipt of the notice, the respondent filed cross objection under Order 41 Rule 22 of the Code of Civil procedure challenging the judgement of the principal subordinate judge. The highcourt while dismissing the appeals allowed the cross objections and restored the award of interest at the rate of 18 per cent per annum. The appellant contended that high court should not have allowed cross objections as it was not permissible in appeal filed under Sec 39 of the Act.

The Supreme Court examined in detail Sections 39 and 41 of the Act and relevant provisions of Code of Civil Procedure and in particular Order 41 and Rule 22 thereof. The Supreme Court referred to following decisions of the court to consider the nature, scope and substance of cross appeals and cross objections (1) Sahadu Gangaram Bhagade vs Special Deputy Collector Ahmednagar, 1970 (1) Section 685 (ii) Hakam Singh vs Gammon India Ltd 1971(1) Section 286 (iii) N Jayram Reddy vs Revenue Divisional Officer and Land Acquisition Officer, Kurnool 1979, (3) Section.578 (iv) HM Kamalauddin Ansai and Co vs Union of India 1983(4) Section 417(v) R Macill and Co Pvt Ltd vs Gouri Shankar Sarda and Others 1991(2) Section 548 (vi) BhanuKunal-Shastri vs Mohanlal Sukhadia and Others (1971) 1 Section 370. from the examination of these judgements and provisions of Section 41 of the Act and Order 41 Rule 22 of Code of Civil procedure following principles emerge:

(1) Appeal is a substantive right. It is a creation of the statute. Right to appeal does not exist unless it is specifically conferred (2) cross objection is like an appeal. It is filed in the form of memorandum and the provisions of Rule 1 of order 41 of the Code, so far as relate to form and contents of the Memorandum of appeal apply to cross objections as well (3) Court fee is payable on cross objection like that on memorandum of appeal. (4) Even where the appeal is withdrawn or is dismissed for default cross objection may nevertheless be heard and determined, (5) The respondent even though he has not appealed may support the decree on any other ground but the one it wants to modify. Time for filing objections which is in the nature of appeal is extended by one month after serviceof notice on him, of the day fixed for hearing the appeal. This time could be extended by the court like in appeal (6) Cross objection is nothing but an appeal, a cross appeal at that. It may be that the respondent wanted to give quietus to whole litigation by accepting the judgement and the decree or order even if it be partly against his interest. When however the other party challenged the same by filing an appeal, statute gave respondent a second chance to file an appeal by way of cross objection if he still felt aggrieved by the judgement and decree or order.

The Supreme Court pointed out that respondents in present case did not file any appeal under Section 39 of the high court particularly since interest rate at 18 per cent per annum was reduced 12 per cent per annum by trial court. The Supreme Court observed that Section 41 of the act is merely procedure in nature. If there is no right of cross objection given under Section 39 of the Act it can not be read in to Section 41 of the Act. Filing ofcross objection is not procedural in nature, Section 41 of the Act merely prescribes that procedure of the code would be applicable to the appeal under Section 39 of the Act.

The Supreme Court held that cross objection by the respondent was not maintainable and the high court was not correct in holding otherwise and restoring the award of interest at 18 per cent per annum and thus interfering in the decree of trial court.

The Supreme Court set aside award so far it grants damages by way of interest at the rate of 15 per cent per annum on the amount due to the respondent for the period prior to the date of reference. The Supreme Court further restored the award of interest at the rate of 12 per cent per annum as decreed by the trial court. Hence judgement of high court is reversed to the extent aforesaid.

The author is a Mumbai-based chartered accountant