Arbitrator cannot award interest where contract expressly bars it, even as compensation; limited judicial interference under Sections 34/37.

(Judgment of the Court was made by P.Velmurugan J.)

Aggrieved by the order dated 11.07.2022 passed by the learned Principal District Judge, Coimbatore in A.O.P.No.253 of 2018, the Promoter/Claimant has filed the present civil miscellaneous appeal before this Court.

2. The appellant is the Claimant before the sole Arbitrator. The appellant/Promoter laid the claim petition in Arb Case No.4 of 2015 before the sole Arbitrator with the case that the respondents/land owners entered into a Joint Development Agreement with the promoter on 21.06.2012 for development of the landed property comprised in S.F.No.61 of Vadavalli Village to an extent of 1.02 acres situated in three blocks viz., 42 cents, 14 cents and 46 cents respectively as a multi-storeyed apartment and commercial building. As per the agreement, the Promoter is entitled for 60% of the constructed area and the owners are entitled for 40% of the constructed area. In compliance of the agreement, the Promoter paid a refundable performance guarantee money/advance of Rs.1,05,00,000/- (Rupees One Crore Five Lakhs only) to the respondents and agreed to pay the balance of Rs.15,00,000/- after obtaining the building approval. As per Clause 6 of the Development Agreement, the performance guarantee money is refundable without interest. Since the project could not be completed due to variations in the extent, the Promoter sought for refund of the advance money along with interest. Subsequently, due to disputes that arose between the parties, the Promoter invoked the arbitration clause for appointment of an Arbitrator in the matter. The learned Arbitrator, upon entering reference and after hearing the parties, passed an award directing the land owners to refund the performance guarantee money/advance of Rs.1,05,00,000/- to the Promoter with interest at the rate of 12% per annum from 01.11.2014 till the date of payment. Until such payment is made, the Promoter to have first charge over the property mentioned in Schedule A of the development agreement dated 21.06.2012.

3. Aggrieved by the award so far as the interest portion is concerned, the respondents filed the Arb O.P.No.253 of 2018 before the learned Principal District Judge, Coimbatore under Section 34 of the Arbitration and Concilation Act taking a specific ground that the award of interest is contrary to the very terms of the agreement. The learned Principal District Judge, Coimbatore, after hearing the parties and taking into account clause 6 of the development agreement waiving interest, has set aside the award of the Arbitrator so far as the interest portion is concerned and confirmed the award as to the other issues, by the order dated 11.07.2022. Challenging the said order, the appellant is before this Court.

4. The learned counsel appearing on behalf of the appellant would submit that when the respondents/land owners have frustrated the Development Agreement and breached the very terms of the agreement after receiving the advance of Rs.1,05,00,000/- from the appellant/Promoter and without rectifying the shortfall in the extent as pointed out by the appellant and without providing the correct sub division FMB sketch, as a result of which the appellant lost a considerable amount, the appellant is entitled to the interest as awarded by the learned Arbitrator. However, the learned Principal District Judge, Coimbatore has failed to consider the facts and has erroneously set aside the award passed by the sole Arbitrator. The learned counsel also relied upon the dissenting view expressed by one of the Hon’ble Judges constituting the Full Bench answering the reference in the case of Gayatri Balasamy v. M/s ISG Novasoft Tec