2012 (2) TMI 655 - HC - Indian Laws

Summary

Issues Involved:
1. Objections to the arbitration award u/s 30 & 33 of the Arbitration Act, 1940.
2. Jurisdiction of the Arbitrator to award pendente lite interest in light of contractual provisions.

Summary:

1. Objections to the Arbitration Award u/s 30 & 33 of the Arbitration Act, 1940:

The Union of India challenged the orders dated 5.4.2010 by the learned Single Judge in CS(OS) 122/2009, which was a petition u/s 14 & 17 of the Arbitration Act, 1940 filed by the respondent for making the award passed by the Arbitrator as a rule of the Court. The appellant had filed objections u/s 30 & 33 of the Arbitration Act, 1940. Specific objections were raised concerning Claims No. 1, 2, 5, 6, and 8. The objections to Claims No. 1, 2, 5, and 6 were rejected, while the objection to Claim No. 8 was sustained, reducing the awarded amount to Rs. 1,75,000/-. The appellant did not dispute this part of the order during arguments, focusing instead on the award of pendente lite interest by the Arbitrator.

2. Jurisdiction of the Arbitrator to Award Pendente Lite Interest:

The appellant argued that the Arbitrator could not award interest on the awarded amount due to Section 16(2) of the General Conditions of Contract (GCC). However, the learned Single Judge held that the Arbitrator had the jurisdiction to award interest despite the contractual provision. Various judgments were considered, leading to the matter being referred to a Larger Bench due to conflicting views. The Larger Bench examined the issue, noting that the Supreme Court in G.C. Roy (1992) 1 SCC 508 and N.C. Budharaj 2001 (2) SCC 721 had established that an Arbitrator could award pendente lite interest unless explicitly prohibited by the contract.

The Supreme Court's recent judgment in Union of India Vs. Krafters Engineering and Leasing Private Ltd. (2011) 7 SCC 279 reiterated that if the agreement is silent on interest, the Arbitrator has discretion to award it. However, if the contract explicitly prohibits interest, the Arbitrator cannot grant it. Clause 16(2) of the GCC in this case clearly stipulated that no interest would be payable on amounts due under the contract. Therefore, the Arbitrator had no power to award pendente lite interest, and the learned Single Judge's order on this aspect was set aside.

The appeal was disposed of accordingly, with no order as to costs.