An arbitrator has the authority to award interest even in the face of a prohibitory clause in the agreement if the clause is found to be a penal provision and the enforcement of such clause would be against equity and good conscience.

The Court: This is an appeal from a judgment and order dated the 25th of November, 1997 whereby the Hon'ble Justice Amitava Lala refused to set aside an award of Rs. 6,00,000/- passed by the arbitrator S.S. Ganguly, a retired Secretary of the Government of West Bengal.

2. The award is dated the 11th of December, 1996 and is for the said round sum.

3. Payment was directed to be made within three months but no interest from the date of the award was allowed. The counter claim of the appellants was rejected. No order was passed as to costs.

4. Mr. Roychowdhury, appearing for the appellant, has urged two points before us. He first submitted that the arbitrator was compelled to give reasons for his award and, though the award runs into several pages, and contains many sentences, yet it cannot be called a reasoned award. His argument was that on a substantial reading of the award no sufficient reasons for the award of the sum of Rs. 6,00,000/- can be found.

5. The second argument was about interest. In the award a sum of Rs. 1,90,545/- has been awarded by the arbitrator as interest by way of damages. Mr. Roychowdhury argued that because of an express clause contained in the agreement between the parties, the arbitrator could not award any interest and had no jurisdiction to make any award on that head.

6. The respondent disputed the correctness of both these above submissions. Parties argued for a number of days before us and cited several authorities. We take up the point of reasons in the award first.

I. Facts about reasons

7. The learned arbitrator has earlier passed an award, dated the 29th of March, 1995, for the very same sum of Rs. 6,00,000/-. By an order dated the 21st of December, 1995 the matter was remitted because the learned arbitrator had not given any reasons. The parties agreed, as is recorded in the said order, that the agreement compelled the arbitrator to give, reasons in case of claims exceeding Rs. 50,000/-.

8. We have examined clause 25 of the agreement appearing amongst others at page 34 of the Paper Book and we find that it was indeed so agreed. The relevant portion of the said agreed clause as follows:-

"In all cases where the amount of the claim in dispute is Rs. 50,000/- and above, the arbitrator shall give reasons for the award".

9. Therefore, it is the undisputed position before us that the arbitrator was compelled to give reasons for his award. The issue is whether the arbitrator has sufficiently discharged his duty.

II. History of reasons

10. Under the old Arbitration Act, 1940, the law was that the arbitrator was not in general compelled to give reasons. Some 30/40 years ago, in practice, arbitrators hardly, if ever, gave reasons for awards. Experienced arbitrators knew that the giving of reasons rendered the award liable to attack on various grounds, including error apparent. Even when I joined the bar in 1970, if an award fell for consideration in a case, and the arbitrator had given reasons, it never failed to cause a which of the lips or a raising of the eyebrows of learned advocates experienced in the law of arbitration.

11. In those years, cases had not even started to come before the courts, where parties by agreement, were seeking to compel the arbitrators to give reasons. The time upto the decade of the 70's was the time of no reasons in awards.

12. Thereafter things changed a little. In the field of administrative law reasons for orders became compulsory. The administrative waves of demand for reasons hit the arbitral shores. After all, the same Judges were sitting on the bench. Parties also started thinking that if they agreed to have a reasoned award then they could compel arbitrators to make a reasoned award.

13. Cases then came before the Court, and the law developed into this, that if the parties expressly agreed that the arbitrator shall give reasons, then a breach of that obligation by the arbitrator might well amount to misconduct and cause the award to be upset.

14. In the stage of the law