IMPORTANT POINT
The Arbitral Tribunal's authority to award interest is governed by the arbitration agreement, with specific provisions for pre-award and post-award interest under the Arbitration Act.

JUDGMENT:

(Moushumi Bhattacharya, J.) :

The appeal arises out of an impugned order dated 22.04.2016 passed by the Trial Court dismissing the appellants’ application for setting aside of the Award dated 14.09.2007 under section 34 of The Arbitration and Conciliation Act, 1996.

2. The appellants herein were the respondents in the arbitration initiated by the respondents in the appeal for various claims in relation to the work done by the respondents in terms of a contract executed between the parties. The work related to construction of a bridge across the Godavari River. The claims included extra work, price escalation, interest and overhead charges. The contract was in accordance with the General Conditions of Contract, 1998 (G.C.C).

3. The Arbitral Tribunal consisting of 3 Senior Officials of the South Central Railways made the Award on 14.09.2007. The Award allowed most of the claims in favour of the respondent No.1/claimant and refused/partly allowed the other claims.

4. The impugned order dated 22.04.2016 dismissed the appellants’ (respondents in the arbitration) application for setting aside the Award on the ground that the appellants (petitioners) before the Trial Court failed to establish that the findings of the Arbitral Tribunal were opposed to public policy. The Trial Court was of the view that the award of interest in favour of the respondent No.1/claimant was correct and in accordance with the power conferred on the Arbitral Tribunal in the Act of 1996. The Trial Court refused to interfere with the findings of the Arbitral Tribunal relying on the limited supervisory powers of the Court under section 34 of the said Act.

5. Learned counsel appearing for the appellants prays for setting aside of the impugned order dismissing the appellants’ section 34 application primarily on the award of interest to the respondent No.1/claimant. Counsel relies on section 31(7)(a)(b) of the Act to say that the Arbitral Tribunal could not have awarded pendente lite interest contrary to the arbitration agreement. Counsel relies on Clauses 16(3) and 64.5 of the G.C.C which provides inter alia that no interest will be payable on the amounts payable to the Contractor and that no interest shall also be payable on the whole or in part of the money for any period till the date on which the Award is made where the Arbitral Award is for payment of money. Counsel assails the finding that Clauses 16(3) and 64.5 of the G.C.C do not prohibit the Arbitrator from awarding interest.

6. Learned counsel appearing for the respondents, including the respondent No.1/claimant, relies on the findings of the Arbitral Tribunal, particularly with regard to attributing the delay of 28 months in completing the work of the appellants/Railways. Counsel submits that the claimant/Contractor was unable to complete the work within the agreed timelines due to the laches on the part of the Railways. Counsel relies on K.N. Sthyapalan Vs. State of Kerala, (2007) 13 SCC 43 which held that the Arbitrator is vested with the authority to compensate the party with extra costs incurred by it as a result of the failure of the other party to live up to its obligations.

The law with regard to award of Interest under The Arbitration and Conciliation Act, 1996:

7. Section 31(7) of the Act draws the boundaries within which an Arbitral Tribunal can award interest including the rate at which the interest should be awarded. While section 31(7)(a) of the Act gives exclusive authority to the parties to the arbitration to decide the inclusion of interest, section 31(7)(b) of the Act shifts the focus of that decision to the Award.

8. The 2 clauses of sub-section (7) of section 31 of the Act are however not as easily-severable as appears from the above. The finer nuances are inlaid in the provision itself; which is set out below:

“31. Form and contents of arbitral award.—

(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the