2016 Supreme(SC) 249

SUPREME COURT OF INDIA
Ranjan Gogoi, Arun Mishra, Prafulla C. Pant, JJ.
Union of India – Petitioner
Vs.
M/s. Ambica Construction – Respondent
Special Leave Petition [C] Nos. 11114/2009 & 17219/2009
Decided on : 16-03-2016

IMPORTANT POINT
Arbitrator is expected to act and make his award in accordance with the general law of the land but subject to an agreement, provided, the agreement is valid and legal.

Headnote:(a) Arbitration Act, 1940 – Section 3 r/w First Schedule, and Sections 29, 34 – Power of arbitrator to award interest – Regulated by terms of arbitration agreement – If the agreement expressly bars interest pendente lite, Arbitrator shall have no power to award pendente lite interest – Similarly, unless expressly excluded by arbitration agreement, arbitrator will have jurisdiction to award interest for pre-reference period – Principle of Section 34, CPC applied – Award of interest pendente lite depends upon nature of the ouster clause – Section 31(7)(a), Arbitration and Conciliation Act, 1996. (Para 8, 9, 10, 14, 16, 19)

       (1992) 1 SCC 508; (2001) 2 SCC 721; (2009) 12 SCC 26; (2015) 9 SCC 695; (2010) 8 SCC 767; (2011) 7 SCC 279 – Relied upon

       (1988) 1 SCC 418; (1997) 2 SCC 469; (1999) 1 SCC 63; (1999) 4 SCC 423; (2009) 12 SCC 1; (1989) 2 SCC 721; AIR 1960 SC 307; AIR 1961 SC 908; AIR 1967 SC 1030; AIR 1967 SC 1032; (1971) 3 SCC 66; (1972) 1 SCC 702 – Referred

       (b) Arbitration law – Power of arbitrator to award interest pendente lite – Not available if expressly taken away by the contract. (Para 22, 24)

       (2012) 12 SCC 10 – Relied upon

       (1996) 1 SCC 516; (2010) 1 SCC 549 – Diluted

       Facts of the case:

       The issue involved in the reference is in regard to the 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 (the Act). A Division Bench of Supreme Court had doubted the correctness of the decisions in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516; and Madnani Construction Corporation (P) Ltd. v. Union of India and Others (2010) 1 SCC 549. In view of the decision of the Constitution Bench judgment in Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy (1992) 1 SCC 508 and Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa & Ors. v. N.C. Budharaj (D) by L.Rs. & Ors. (2001) 2 SCC 721 which held that the Arbitrator had the jurisdiction and authority to award interest for pre-reference period, pendente lite and future period if there was no express bar in the contract regarding award of interest. A doubt was expressed about the correctness of the decision in Engineers-De-Space Age (supra) in Sayeed Ahmed & Co. v. State of U.P. & Ors. (2009) 12 SCC 26 and Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palghat & Ors. (2010) 8 SCC 767.

       The tender of M/s. Ambica Construction for fabrication of tie bars from M.S. Flats in CST-9 sleepers was accepted on 8.9.1989. Final agreement was executed on 30.11.1989. The work was completed on 21.11.1990.

       Certain differences and disputes arose between the parties with respect to payments. M/s. Ambica Construction prayed for appointment of an Arbitrator. On 5.3.1991 as the petitioner M/s. Ambica Construction being in serious financial difficulties, accepted the amount in full and final settlement.

       Arbitrator was not appointed. An application was filed before the High Court for referring the case to arbitration. The High Court appointed two Arbitrators in terms of the arbitration clause. Said Arbitrators failed to publish the award and as such another sole Arbitrator was appointed. The sole Arbitrator ultimately published the award.

       On an application filed by the Union of India, the High Court remitted the award to the Arbitrator to give an item-wise break-up. The sole Arbitrator published the item-wise award. Again the Union of India questioned the same before the High Court. The award was set aside on the ground that the Arbitrator had not given an intelligible award and had not taken into effect the supplementary agreement dated 5.3.1991.

       The appeal preferred by the petitioner was dismissed by the Division Bench of the High Court, Civil Appeal against which was allowed and case was remitted to the Arbitrator for assigning reasons and to pass fresh award. Thereafter, Arbitrator passed a fresh award.

       Single Judge set aside the award with regard to interest for pre-reference period and directed that interest would be allowed on the principal sum of Rs.9,82,660/- at the rate of 10% per annum from 1.9.1992 the date from which the original Arbitrator entered upon the reference.

       An appeal was preferred before the Division Bench and the same had been partly allowed with regard to claim Nos.6 and 7. Aggrieved thereby, M/s. Ambica Construction had preferred S.L.P. [C] No.17219/2009 in this Court and Union of India has also assailed the judgment and order of the High Court in S.L.P. [C] No.11114/2009.

       Finding of the Court:

       If contract expressly bars award of interest pendente lite, the same cannot be awarded by the Arbitrator.

       Result: Reference answered in terms of (1992) 1 SCC 508.