2012 (12) TMI 1234 - HC - Indian Laws

Summary

Issues Involved:
1. Award of interest on claims under the arbitration award.
2. Interpretation of contractual clauses prohibiting interest payments.

Summary:

Issue 1: Award of Interest on Claims

The majority award dated October 10, 2010, addressed two claims and the interest thereon. Claim No.1 for reimbursement due to fluctuations in foreign exchange rates was partially allowed at Rs. 18,59,377/- against the prayed amount of Rs. 38,75,887/-. Claim No.2 related to the supply of Micro Silica, with Rs. 6,13,160/- awarded against the claimed Rs. 35,17,760/-. Interest was awarded at 10% per annum from the arbitration invocation date (October 9, 2007) until 60 days post-award, and thereafter at 18% per annum until payment.

Issue 2: Interpretation of Contractual Clauses Prohibiting Interest Payments

Objections u/s 34 of the Arbitration and Conciliation Act, 1996, were filed by Tehri Hydro Development Corporation Ltd., now THDC India Ltd., focusing solely on the interest awarded. The impugned order dated November 15, 2011, set aside the majority award concerning the interest awarded.

Clauses 50 and 51 of the General Condition of Contract were scrutinized. Clause 50 prohibits interest on any guarantee or payments in arrears, while Clause 51 prohibits interest or damages for delayed payments due to disputes or omissions by the Engineer in charge.

The majority arbitrators relied on the Supreme Court decision in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516. However, the respondent cited subsequent Supreme Court decisions distinguishing this precedent, including Sayeed Ahmed & Co. v. State of U.P. (2009) 12 SCC 26 and UOI v. Saraswati Trading Agency (2009) 16 SCC 504.

The learned Single Judge, referencing Sub Section 7 of Section 31 of the Arbitration and Conciliation Act, 1996, concluded that if a contract prohibits interest on claims, arbitrators cannot award pendente lite or future interest. Clause 50 was interpreted as applicable only to ascertainable sums, while Clause 51 was found to broadly prohibit interest on any unpaid amounts due to disputes or delays.

The appellant argued that Clause 1.9 in State of U.P. v. Harish Chandra & Co. (1999) 1 SCC 63 is pari materia with Clause 51 of the instant contract. However, the respondent highlighted that similar clauses in another contract were interpreted by the Supreme Court in Tehri Hydro Development Corporation Ltd. & Anr. v. Jai Prakash Associates Ltd. (2012) 4 Arb.LR 88 (SC) as prohibiting interest.

The court contrasted the clauses in the instant contract with those in Jai Prakash Associates' case, concluding that the latter's interpretation governs the instant contract. The rule of ejusdem generis was applied, affirming that the prohibition on interest extends to all types of claims, not just specific categories.

Thus, the appeal was dismissed, affirming the learned Single Judge's conclusion that the contractual clauses prohibit the award of interest on the claims.