2009 (7) TMI 1219 - SC - Indian Laws

Whether arbitrator has the power to award the interest pendente lite, and if so on what principle? Whether the respondent shall be entitled to interest?

Summary

Issues Involved:
1. Validity of the arbitration award.
2. Claim for increase in rates during the contractual period.
3. Claim for increase in rates during the extended period.
4. Payment of interest on the claims.

Detailed Analysis:

1. Validity of the Arbitration Award:
The Union of India challenged the arbitration award dated September 9, 2000, which favored the respondent. The Calcutta High Court's Single Judge upheld the challenge substantially, setting aside the award on two out of three issues. The Division Bench of the High Court, however, restored the arbitrator's award entirely. The Supreme Court was approached to resolve this conflict.

2. Claim for Increase in Rates During the Contractual Period:
The respondent claimed an increase in rates from August 3, 1991, to December 31, 1992, due to revised wages for casual laborers. The Railway authorities rejected this claim, citing the contract as a "fixed price contract" without an escalation clause. The Supreme Court referenced the decision in *Tarapore & Co. vs. State of M.P.*, which supported the contractor's right to reimbursement for increased wages, implying that the authorities must have visualized the necessity of paying fair wages without reducing the contractor's profit. The Court also cited *Food Corporation of India vs. M/s. A. M. Ahmed & Co.*, which reiterated the reasonableness of allowing escalation due to statutory wage revisions.

3. Claim for Increase in Rates During the Extended Period:
The respondent continued work under protest from January 1, 1993, to August 31, 1994, after the contract was terminated, based on the appellant's request. The arbitrator awarded the respondent a sum for this period, which the High Court's Division Bench upheld. The Supreme Court found no infirmity in this award, as the work was carried out beyond the contractual period, making the bar of clause 31 inapplicable.

4. Payment of Interest on the Claims:
The arbitrator awarded interest on the claims for both pre-reference and pendente lite periods. The appellant contested this, citing clause 31 of the agreement, which barred interest for delay in payment. The Supreme Court differentiated between the two periods:
- Contractual Period (Item No.3): The Court ruled that clause 31 barred pre-reference and pendente lite interest for this period, making the arbitrator's award unsustainable.
- Extended Period (Item No.4): Since this period was beyond the contract's termination, clause 31 did not apply. The Court upheld the award of pre-reference and pendente lite interest for this period.

The Supreme Court directed that the respondent is entitled to interest on the amount determined under Item No.4 at 16% per annum from November 1, 1994, to September 9, 2000, with post-award interest at 18% per annum until payment.

Conclusion:
The appeal was partially allowed. The respondent's entitlement to interest was limited to the extended period, with the final award recalculated accordingly. No costs were ordered.