Case Note & Summary
This case involved an appeal by the Union of India against the dismissal of their appeal by the High Court concerning an arbitration award. The respondent, M/s Krafters Engineering & Leasing (P) Ltd., had been awarded a contract for signaling arrangements by the Central Railway. After disputes arose, the matter was referred to arbitration, where the Umpire awarded certain claims but also granted interest, which the Union contested. The primary legal question was whether the arbitrator had the jurisdiction to award interest given the contract's prohibition against it. The Union argued that Clause 1.15 of the contract explicitly barred any interest on amounts payable to the contractor, while the respondent contended that the arbitrator had the discretion to award interest regardless of the contract terms. The court analyzed various precedents, including the Constitution Bench decisions, and concluded that the prohibition in the contract was absolute. It held that the arbitrator could not award interest in light of this prohibition, thus setting aside the arbitrator's award and the High Court's orders. The appeal was allowed with no costs awarded.
Headnote
A) Arbitration Law - Jurisdiction of Arbitrator - Power to Award Interest - Arbitration Act, 1940, Section 29 - The court held that where the contract expressly prohibits the payment of interest, the arbitrator does not have the power to award interest pendente lite. The specific prohibition in Clause 1.15 of the contract was deemed absolute, thus preventing the arbitrator from granting interest (Paras 10-15).
Issue of Consideration
Whether an arbitrator has jurisdiction to grant interest despite the agreement prohibiting the same?
Final Decision
The Supreme Court set aside the arbitrator's award granting interest and the orders of the High Court, ruling that the prohibition in the contract was absolute and binding.
Law Points
- arbitration jurisdiction
- interest pendente lite
- contract interpretation
- Arbitration Act
- 1940
- express prohibition
