2016 (3) TMI 653 - SC - Companies Law

Power of the Arbitrator to award pendente lite interest when contract contains bar for grant of interest in a case covered by the Arbitration Act, 1940 - Held that - Our answer to the reference is that if contract expressly bars award of interest pendente lite, the same cannot be awarded by the Arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of Arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.

Issues Involved:
1. Power of the Arbitrator to award pendente lite interest when the contract bars such interest under the Arbitration Act, 1940.
2. Interpretation of arbitration agreements and the statutory provisions implied therein.
3. Jurisdiction of the Arbitrator to award interest for pre-reference, pendente lite, and future periods.
4. Impact of specific contractual clauses on the Arbitrator's power to award interest.

Detailed Analysis:

1. Power of the Arbitrator to Award Pendente Lite Interest:
The primary issue was whether an Arbitrator can award pendente lite interest when the contract explicitly bars it. The Supreme Court examined past judgments, including the Constitution Bench decisions in G.C. Roy and N.C. Budharaj, which established that an Arbitrator has jurisdiction to award interest unless expressly prohibited by the contract. The Court noted that if the arbitration agreement or contract expressly bars pendente lite interest, the Arbitrator lacks the power to award it.

2. Interpretation of Arbitration Agreements:
The Court analyzed Section 3 of the Arbitration Act, 1940, which implies certain provisions into arbitration agreements unless explicitly excluded. The provisions include the appointment of Arbitrators, the finality of awards, and the discretion to award costs. The Court emphasized that an Arbitrator must act within the confines of the agreement and the law, and cannot assume powers not granted by the contract or statute.

3. Jurisdiction to Award Interest:
The Court reviewed the jurisdiction of Arbitrators to award interest for different periods:
- Pre-reference period: As per N.C. Budharaj, Arbitrators can award interest for the pre-reference period unless the contract explicitly excludes it.
- Pendente lite period: The Constitution Bench in G.C. Roy held that Arbitrators could award pendente lite interest if the contract does not expressly prohibit it. The Court reiterated that this principle holds unless an express bar exists in the contract.
- Future period: The Arbitrator can award interest post-award unless explicitly barred by the contract.

4. Impact of Specific Contractual Clauses:
The Court examined various contractual clauses and their interpretations in past judgments:
- Engineers-De-Space-Age: The Court noted that the clause prohibiting the Commissioner from entertaining claims for interest did not extend to the Arbitrator. However, this interpretation was questioned in Sayeed Ahmed, which emphasized that the nature of the clause and the agreement's overall intention must be considered.
- Madnani Construction Corporation: Followed the reasoning in Engineers-De-Space-Age, but the Court clarified that express stipulations barring interest must be respected.
- Tehri Hydro Development Corporation: The Court held that clauses explicitly barring interest for delayed payments or amounts in deposit prevent the Arbitrator from awarding pendente lite interest.

Conclusion:
The Supreme Court concluded that if a contract expressly bars the award of pendente lite interest, the Arbitrator cannot award it. The decision in Engineers-De-Space-Age was diluted to clarify that express contractual bars must be respected. The Court emphasized that the interpretation of such clauses depends on the specific language and intention of the agreement, and it is for the Division Bench to consider the merits of each case based on these principles.

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