IMPORTANT POINTS
Arbitrator can award only future interest.
Arbitrator can award any interest within the statutory limit of 18%.

JUDGMENT

R.V. Raveendran, J.—

1. Leave granted. The issue in this appeal is whether the Arbitrator can award interest for pre-reference period and pendente lite, when the contract prohibits the employer from entertaining any claim for interest.

2. The respondents entrusted a construction work to appellant under an agreement dated 30.3.1990. The work was completed by the appellant on 31.3.1996. Disputes arose between the parties by reason by rejection of claims of appellant and they were referred to Arbitration on 13.3.1997. Before the Arbitrator, the appellant made 11 claims aggregating to Rs.133.43 lakhs. The Arbitrator made an award dated 31.7.2001 directing the respondents to pay to the appellant the following:-

(i) Rs.24,18,586/- with interest at 18% PA from 1.4.1996 till date of payment.

(ii) The amount if any, due to appellant on finalizing the final bill with interest at 14% PA from 1.5.1996 till date of payment; and

(iii) The security deposit amount due with interest at 12% PA from 1.10.1996 till date of payment.

3. The civil court by its judgment dated 7.12.2005 dismissed the application to set aside the award, filed by the respondents under section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’ for short). The appeal filed by the respondents was allowed in part by the High Court by impugned judgment dated 27.2.2008. The High Court held that having regard to the bar contained in clause G 1.09 of the contract, the arbitrator had no power to award interest and consequently, set aside that part of the award granting interest till date of award. The High Court however granted interest at 6% PA from the date of award till the date of payment. Aggrieved by the deletion of interest upto the date of award and reduction of interest from the date of award to 6% per annum, the appellant has filed this appeal.

4. At the outset, it is necessary to refer to an erroneous assumption made by the High Court in para 31 of the impugned judgment. It has proceeded on the basis that the sum of Rs.24,18,586/- awarded by the Arbitrator includes the amount due in regard to the final bill as also the amount of security deposit and that interest has been awarded from different dates, on different parts of the said sum of Rs.24,18,586/-. But the award of Rs.24,18,586/- did not include the amount due in regard to the final bill or security deposit . In fact the arbitrator did not quantify the amount due in regard to the final bill or the security deposit, but directed the respondents to calculate and pay the same with interest as indicated in the award. We give below the break up of Rs.24,18,586/- awarded by the arbitrator, to show that the said amount did not include the final bill dues or security deposit :

Sl. No. Claim No. Description of claim Amount awarded

(i) (1) For non-availability of site Rs.6,30,130/-

(ii) (2) For non-payment for 20,000 cubic meters of earth work Rs.3,90,000/-

(iii) (3) For non-availability of drawings & design Rs. 20,000/-

(iv) (4) For variations in quantity of different items of work Rs.1,03,500/-

(v) (5) For extra items Rs. 72,956/-

(vi) (8) For stoppage of work Rs. 31,500/-

(vii) (9) For non-availability of cement Rs. 84,000/-

(viii) (10) For delay in completion of work Rs. 1,55,000/-

Re : Interest from the date of cause of action to date of award

6. The issue regarding interest as noticed above revolves around clause G1.09 of Technical Provisions forming part of the contract extracted below :

“G 1.09 No claim for interest or damages will be entertained by the Government with respect to any money or balance which may be lying with the Government or any become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge on the one hand and the contractor on the other hand or with respect to any delay on the part of the Engineer-in-charge in making periodical or final payment or any other respect whatsoever.”

7. Sub-section (i) of Section 3 of the Interest Act 1978 pro