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SUPREME COURT OF INDIA
PAMIDIGHANTAM SRI NARASIMHA, PANKAJ MITHAL, JJ.
Pam Developments Private Limited – Appellant
Versus
The State of West Bengal and Another – Respondents
Civil Appeal Nos. 9781-9782 of 2024, SLP (C) Nos. 8128-8129 of 2021
Decided On : 23-08-2024
(A) Arbitration and Conciliation Act, 1996 – Section 37 – Appeal against arbitral award – Dispute arising from work contract – While exercising jurisdiction under Section 37, High Court examined relevant clauses of contract and held claim is impermissible under contractual provisions – High Court did what Arbitrator should have done – Contract is foundation of legal relationship – Arbitrator did not even refer to contractual provisions and District Court dismissed objections under Section 34 with a standard phrase – High Court exercising jurisdiction under Section 37 did its duty – Conclusions of High Court are correct and cannot be interfered with – High Court exercising jurisdiction under Section 37 merely recounted dates on which bills were raised and payments made – Thereafter, High Court formulated certain questions which it felt that Arbitrator and District Judge should have answered, but failed to hold any discussion on such questions – Judgment of High Court partly set aside. (Paras 7.3,7.5, 8.4 and 8.6)
(B) Arbitration and Conciliation Act, 1996 – Section 31(7) – Grant of interest – Power of Arbitrator to award pre-reference and pendente lite interest is not restricted when agreement is silent on whether interest can be awarded or does not contain a specific term that prohibits the same – While pendente lite interest is a matter of procedural law, pre-reference interest is governed by substantive law – Grant of pre-reference interest cannot be sourced solely in Section 31(7)(a) (which is a procedural law), but must be based on an agreement between parties (express or implied), statutory provision (such as Section 3 of Interest Act, 1978), or proof of mercantile usage – High Court had no reason to interfere with Arbitral Award with respect to grant of pre-reference interest, since Contract between parties does not prohibit the same – Judgment of High Court in so far as it modified claim to the extent of rejecting pre-reference interest awarded by Arbitrator, as upheld by District Judge under Section 34, set aside. (Paras 9.5(V), (VI), 9.6 and 10(c))
Facts of the case:
State of West Bengal, respondent herein, issued a notice inviting tenders on 08.09.2010, for the widening and strengthening of Egra Bajkul road. Appellant raised a bill for Rs. 77,85,290 and that was in addition to seven other claims under different heads, owing to alleged delays on part of the Respondent. As the respondent denied any liability, the dispute was referred to Arbitration for resolution.
Findings of Court:
Civil Appeal arising out of SLP (C) No. 8128 of 2021 is allowed in part and Civil Appeal arising out of SLP (C) No. 8129/2021 stands disposed of accordingly.
Result : Appeal allowed in part.
JUDGMENT :
PAMIDIGHANTAM SRI NARASIMHA, J.
1. Leave granted.
2. State of West Bengal, respondent herein, issued a notice inviting tenders on 08.09.2010, for the widening and strengthening of Egra Bajkul road under the Tamluk Highway Division in Purbo Medinipur District and accepted appellant’s offer, leading to grant of a Work Order for the project to be completed within 18 months from 23.12.2010. The project got delayed by about five months, but the work was completed by 09.11.2012.
3. The appellant raised a bill for Rs. 77,85,290 and that was in addition to seven other claims under different heads, owing to alleged delays on part of the Respondent. As the respondent denied any liability, the dispute was referred to Arbitration for resolution.
4. The Arbitrator gave his award on 30.01.2018, holding the respondents are liable to the tune of Rs. 1,37,25,252, with interest. There were seven claims. Claim no. 1 related to loss of business, with respect to which Rs. 3,87,530 was awarded; claim no. 2 related to uneconomic utilization of plant and machinery, with respect to which Rs. 61,22,000 was awarded and claim no. 3 related to labour charges for uneconomical stoppage of work, with respect to which Rs.5,80,500 was awarded; claim no. 4 related to interest on delayed payment of running account bills and escalation bill for which the Arbitrator awarded Rs. 54,84,024; claim no. 5 related to escalation with respect to which Rs.11,51,198 was granted; and claim 6 related to interest on the sum awarded, with respect to which interest @12% p.a. was awarded from 12.04.2016 to 30.01.2018 and @ 9.25% p.a. post award interest till date of actual payment. Finally claim no. 7 pertained to costs and the Arbitrator awarded 4 lakhs to the appellant, being the successful party.
4.1. The Respondents challenged the award under Section 34 of the Arbitration and Conciliation Act, 19961 [Hereinafter referred to as the ‘Act’] and it was allowed in part by the District Judge setting aside claim no. 1 for loss of business, since the same had never been claimed by the appellant and was thus beyond the Arbitrator’s jurisdiction. Claim no. 2 for uneconomic utilization of plant and machinery was also set aside because the Arbitrator didn’t account for the loss of 135 days at the behest of the appellant while determining the alleged 200 days of ‘wasted machine’.
4.2. Aggrieved by the decision of the District Judge, the appellant filed an appeal under Section 37 of the Act against the order setting aside the award on claims 1 and 2. On the other hand, the Respondent filed a cross appeal seeking setting aside of the rest of the claims as well. By the order impugned before us, the Calcutta High Court exercising jurisdiction under Section 37 of the Act set aside claim no. 1 as well as claim nos. 3 and 4, but restored the Award with respect to claim no. 2. However, while retaining claim no. 5 as it is, the High Court slightly modified claim no. 6 relating to pre-reference interest.
5. A comprehensive table of the claims and the decision in the Award, Section 34 and Section 37 jurisdiction is as follows:
| Claim No. | Arbitral Award | Section 34 | Section 37 |
| 1. Loss of business | Awarded Rs. 3,87,530. | Award Set aside, because it was never claimed by the appellant and was the basis for granting of-site expenses. | Affirmed the decision of District judge. |
| 2. Uneconomic utilization of plant and machinery | Awarded Rs. 61,22,000 for deploying plant and machinery on all 200 wasted days as required under the Contract. | Award set aside, as Arbitrator did not account for wastage of 135 days by the appellant itself. | Awarded claim no. 2, thereby reversing decision by the District Judge. |
| 3. Labour Charges for uneconomical stoppage of work. | Arbitrator granted 3% of the contract amount Rs.5,80,500/- as per the Hudson’s formula. | Award upheld by the District Court. | Set aside, because it is contrary to the Special Terms and Con |
Grant of interest – Power of Arbitrator to award pre-reference and pendente lite interest is not restricted when agreement is silent on whether interest can be awarded or does not contain a specific ....
The court confirmed the validity of the Arbitrator's findings regarding excess work claims and the correct application of interest, highlighting that overlapping interest claims were erroneous.
Award of interest by Arbitrator – When discretion is vested to Arbitral Tribunal to award interest at a rate which it deems reasonable, then a duty would be cast upon Arbitral Tribunal to give reason....
The court established that an arbitrator has the authority to award interest as an implied term of reference in monetary claims, applicable to both pre-reference and post-reference periods.
Section 31(7)(a) of Act deals with grant of pre-award interest.
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