IMPORTANT POINT
Arbitrator is bound by the terms of the contract as regards award of interest.

JUDGMENT

R.V.Raveendran, J. —

Leave granted.

2. The first respondent entrusted certain construction work to the appellant under a contract in the year 1995. Alleging breach by the first respondent (for short ‘Railways’) the appellant invoked the arbitration Clause and the disputes were referred to an arbitral tribunal of which respondents 2 to 4 are the members. The arbitral tribunal made a non-speaking award dated 14.5.1999 in favour of the appellant. The High Court by order dated 9.1.2001 set aside the said award and remitted the matter to the arbitral tribunal with a direction to make a reasoned award after fresh consideration. The arbitral tribunal accordingly passed an award dated 5.12.2001 awarding certain amounts with a direction that the award amount should be paid to the appellant by 4.1.2002 and if it failed to do so, the appellant will be entitled to simple interest at 10% per annum on the amounts awarded from 5.12002 till date of payment. That is, the arbitral tribunal awarded only future interest and refused to award the interest for pre-reference period and interest pendente lite. It may be mentioned that the award rejected two of the claims of the appellants and rejected all the claims of the Railways.

3. Feeling aggrieved by the award, the Railways filed a petition under section 34 of the Arbitration and Conciliation Act, 1996 (‘Act’ for short). Aggrieved by the rejection of its claims 1 and 2 and the failure to award interest for the pre-reference period and pendente lite, the appellant also filed a petition under section 34 of the Act. A learned Single Judge of the High Court rejected both the challenges to the award. Insofar as the interest is concerned the learned Single Judge held that having regard to the bar contained in Clause 16(2) of the General Conditions of contract. Again both Railways and the appellant filed appeals against the order of the learned Single Judge. The Division Bench of the Madras High Court by the impugned judgment dated 18.7.2007 dismissed the appeal by the appellant- contractor. It allowed the Railways appeal and set aside the award made on claim No.3 (damages for idle labour) and claim No.5 (damages for overstay). As a result what remained was award of Rs.38,92,455/- under claim No. (4) (erroneous billing with reference to unit of measurement/unit rate of payment for the work covered under the optional item No. 19 of Schedule of Work) and award of Rs.94,100 (refund of security deposit) under claim 6 with interest at 10% per annum from 5.1.2002 till date of payment. The appellant has challenged the said common judgment in these appeals. This court on 7.7.2008 granted leave only in regard to the non- award of interest pendente lite and for pre-reference period. This court refused to interfere with the decision of the division bench, setting aside the award insofar as claim Nos. 3 and 5.

4. The appellant urged the following contentions : (i) Clause 16(2) of the General conditions of contract did not prohibit or prevent arbitrator to direct payment of interest; and therefore the award insofar as it denied interest for pre-reference period and pendente lite by relying upon Clause 16(2) was liable to be interfered with. (ii) As the arbitrators had recorded a clearfinding that the delay in completion of the work was occasioned due to reasons attributable to Railways and not on account of the appellants, the appellant cannot be denied interest for pre-reference period and pendente lite. On the other hand Railways contended that the contract contained a specific bar against award of interest on any amount payable to the contractor under the contract or upon the earnest money or security deposit and therefore the arbitral tribunal was barred from awarding interest for the said periods under section 31(7)(a) of the Act. It was further submitted that if the contract between the parties barred payment of interest, arbitral tribunal cannot award interest for the period between the date on whic