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2010 (8) TMI 1086 - SC - Indian LawsPetition filled u/s 34 of the Arbitration and Conciliation Act 1996 ( Act ) - non-award of interest pendente lite - HELD THAT - We are of the view that the decisions in Engineers-De-Space-Age 1995 (12) TMI 400 - SUPREME COURT and Madnani 2009 (12) TMI 1007 - SUPREME COURT are inapplicable for yet another reason. In Engineers-De-Space- Age and Madnani the arbitrator had awarded interest for the pendente lite period. This court upheld the award of such interest under the old Act on the ground that the arbitrator had the discretion to decide whether interest should be awarded or not during the pendente lite period and he was not bound by the contractual terms insofar as the interest for the pendente lite period. But in this case the arbitral tribunal has refused to award interest for the pendente lite period. Where the arbitral tribunal has exercised its discretion and refused award of interest for the period pendente lite even if the principles in those two cases were applicable the award of the arbitrator could not be interfered with. On this ground also the decisions in Engineers- De-Space-Age and Madnani are inapplicable. Be that as it may. For the aforesaid reasons we find no merit in these appeals and they are dismissed.
Issues Involved:
1. Whether the contract between the parties contains an express bar regarding the award of interest. 2. If so, whether the arbitral tribunal was justified in refusing interest for the period between the date of cause of action to the date of the award. Issue-wise Detailed Analysis: Issue 1: Whether the contract between the parties contains an express bar regarding the award of interest. Clause 16(2) of the General Conditions of Contract: - The contract explicitly states, "No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract, but Government Securities deposit in terms of sub-Clause (1) of this Clause will be repayable (with) interest accrued thereon." - The court noted that the two claims awarded (claim No. 4 related to erroneous billing and claim No. 6 related to security deposit) fall under this clause. - Since the amount awarded under claim No. 4 was for work executed as part of the contract and the payment was in accordance with the Agreement Schedule Item No. 19, it was deemed an "amount payable to the contractor under the contract." - Consequently, the court concluded that no interest could be paid on these amounts due to the bar under Clause 16(2). Issue 2: If so, whether the arbitral tribunal was justified in refusing interest for the period between the date of cause of action to the date of the award. Jurisdiction and Authority of Arbitrator to Award Interest: - The court referenced several precedents, including Sayeed Ahmed & Co. v. State of U.P., which clarified that under the Arbitration and Conciliation Act, 1996, the arbitrator could award interest for the pre-reference period, pendente lite, and future period unless there was an express bar in the contract. - Section 31(7) of the Act specifies that unless otherwise agreed by the parties, the arbitral tribunal may award interest from the date of cause of action to the date of the award and from the date of the award to the date of payment at 18% per annum unless otherwise directed. Specific Bar in the Contract: - The court reiterated that if the contract expressly bars the payment of interest, the arbitrator cannot award interest for the pre-reference period or pendente lite. - The court cited Union of India v. Saraswat Trading Agency, which supported this stance. Contention on Interest Pendente Lite: - The appellant argued that even if pre-reference interest was barred, interest pendente lite should be allowed based on the decisions in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age and Madnani Construction Corporation Pvt. Ltd. v. Union of India. - However, the court noted that these cases arose under the old Arbitration Act, 1940, which did not have a provision similar to section 31(7) of the new Act. Therefore, the logic from these cases was not applicable under the new Act. Discretion of the Arbitrator: - The court observed that under the new Act, the arbitrator's discretion is limited by the terms of the contract. If the contract bars interest, the arbitrator cannot award it for the period from the date of cause of action to the date of the award. - The court further noted that even if the logic from Engineers-De-Space-Age and Madnani applied, the arbitral tribunal in this case had exercised its discretion to refuse interest for the pendente lite period, and such discretion could not be interfered with. Conclusion: The appeals were dismissed, and the court upheld the arbitral tribunal's decision to refuse interest for the pre-reference period and pendente lite due to the express bar in the contract. The court emphasized that the arbitrator is bound by the terms of the contract as per Section 31(7) of the Arbitration and Conciliation Act, 1996.
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