IMPORTANT POINT
Where the parties had agreed that no interest shall be payable, arbitrator cannot award interest for the amounts payable to the contractor under the contract.

JUDGMENT

P. Sathasivam, J. —

1) This appeal by Union of India arises out of the final judgment and order dated 24.04.2006 passed by the High Court of Judicature at Bombay in Appeal No. 219 of 2006 in Arbitration Petition No. 274 of 2005 whereby the Division Bench of the High Court dismissed their appeal.

2) Brief facts:

(a) On 16.05.1988, the respondent was awarded with a contract for the work of Provision of Signaling Arrangements at “C” Class Stations on Igatpuri-Bhusawal Section and 2 “C” Stations on Bhusawal-Badnera Section of Bhusawal Division of Central Railway at the cost of Rs.18,10,400/-. On completion of the contract, the respondent raised certain disputes/claims by filing Suit No. 2822 of 1993 before the High Court and demanded for adjudication through arbitration. The High Court directed the General Manager of the Central Railway to appoint an arbitrator and refer the disputes for adjudication. Since the Arbitrator appointed could not deliberate the matter within the time limit, the respondent invoked the jurisdiction of the Umpire. The Umpire, by order dated 26.04.2005, gave award for Claim Nos. 1, 3, 6, 8, 9, 10, 11, 12 & 13 and rejected Claim Nos. 2, 5, 7 & 14 and mentioned that a bank guarantee towards security deposit against claim No. 4 is to be returned.

(b) Challenging the award given by the Umpire for Claim Nos. 11 & 13, the appellant herein filed Arbitration Petition No. 274 of 2005 before the High Court. The learned Single Judge of the High Court, vide order dated 06.12.2005 dismissed their petition.

(c) Aggrieved by the order passed by the learned single Judge, the appellant herein filed an appeal being Arbitration Appeal No. 219 of 2006 before the Division Bench of the High Court. The Division Bench, by impugned order dated 24.04.2006, dismissed the appeal. Challenging the said order, the Union of India preferred this appeal by way of special leave before this Court.

3) Heard Mr. A. S. Chandhiok, learned Additional Solicitor General for the Union of India and Mr. Ramesh Babu M.R., learned counsel for the respondent.

4) Before the High Court as well as before us, the appellant projected their case only with regard to interest that was granted by the arbitrator and confirmed by the High Court. Therefore, the only point for consideration in this appeal is whether an arbitrator has jurisdiction to grant interest despite the agreement prohibiting the same?

5) Though the appellant has challenged the award of the Umpire in respect of Claim Nos. 11 and 13, they are mainly concerned about grant of interest; hence there is no need to traverse all the factual details except the required one which we have adverted to. According to Mr. A.S. Chandhiok, learned ASG, in view of clause 1.15 of the General Conditions of the Contract between the parties, the arbitrator does not have the power to award interest pendente lite. The said clause reads as under:

“1.15 Interest on Amounts - No interest will be payable upon the Earnest Money or the Security Deposit or amounts payable to the Contractor under the Contract but Government Securities deposited in terms of clause 1.14.4 will be repayable with interest accrued thereon.”

According to the learned ASG, in view of the above-mentioned clause, no interest is payable on the amount payable to the Contractor under the contract. On the other hand, Mr. Ramesh Babu M.R., learned counsel appearing for the respondent submitted that irrespective of the bar in the contract arbitrator has power to award interest for which he strongly relied on the decision of this Court in Board of Trustees for the Port of Calcutta vs. Engineers-De-Space-Age,1 (1996) 1 SCC 516 and Madnani Construction Corporation Private Limited vs. Union of India and Others,2 (2010) 1 SCC 549.

6) We have already extracted the relevant clause wherein the words “amounts payable to the Contractor under the contract” are of paramount importance. If there is no prohibition in the arbitration agreement to exclude the juri