Case Note & Summary
The appellant, Union of India, challenged an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996, which was rejected by the Principal District Judge, Raigad. The dispute arose from a railway contract where the respondent contractor was awarded certain claims including interest at 21% on Rs.2,42,107/- and pendente lite interest of Rs.4,68,263/-. The appellant contended that Clause 16(2) of the General Conditions of Contract prohibited payment of interest on any amount payable to the contractor, and the arbitrator ignored this term. The District Judge relied on Section 29 of the Arbitration Act, 1940, which the appellant argued was inapplicable. The High Court examined the clause and held that the prohibition on interest applies only to amounts payable under the contract, not to the award amount. The court distinguished between pre-award and post-award interest, noting that Section 31(7)(b) of the 1996 Act allows post-award interest unless otherwise agreed. The Supreme Court's decision in Sree Kamatchi Amman Constructions was cited, which held that the arbitrator is bound by the contract for pre-award interest under Section 37(1) of the 1996 Act. However, the High Court found that the arbitrator's award of interest was not in conflict with the clause as the clause did not bar interest on the awarded sum. The appeal was dismissed, upholding the District Judge's order.
Headnote
A) Arbitration - Interest - Contractual Prohibition - Clause 16(2) of General Conditions of Contract - The arbitrator awarded interest at 21% on principal amount and pendente lite interest despite Clause 16(2) prohibiting interest on amounts payable under the contract. The High Court held that the prohibition applies only to amounts payable under the contract, not to the award amount. The arbitrator's award of interest was upheld as the clause did not bar interest on the awarded sum. (Paras 2-6) B) Arbitration - Applicable Law - Section 29 of Arbitration Act, 1940 vs. Section 31(7)(b) of Arbitration and Conciliation Act, 1996 - The District Judge erroneously relied on Section 29 of the 1940 Act, which is not applicable to proceedings under the 1996 Act. The High Court corrected this, noting that Section 31(7)(b) of the 1996 Act governs post-award interest and allows interest unless otherwise agreed. (Paras 3-5) C) Arbitration - Pre-award Interest - Section 37(1) of Arbitration and Conciliation Act, 1996 - The Supreme Court in Sree Kamatchi Amman Constructions held that the arbitrator is bound by the terms of the contract regarding interest from the date of cause of action to the date of award. However, in this case, the arbitrator's award of pre-award interest was not challenged on that ground, and the clause was interpreted as not prohibiting interest on the award. (Paras 3-6)
Issue of Consideration
Whether the arbitrator could award interest in contravention of Clause 16(2) of the General Conditions of Contract which prohibits payment of interest on amounts payable to the contractor, and whether the District Judge erred in relying on Section 29 of the Arbitration Act, 1940 instead of the 1996 Act.
Final Decision
The High Court dismissed the appeal, upholding the order of the Principal District Judge, Raigad, Alibaug dated 24th July, 2009 rejecting the appellant's application under Section 34 of the Arbitration and Conciliation Act, 1996.
Law Points
- Arbitrator bound by contract terms for pre-award interest
- Section 31(7)(b) of Arbitration and Conciliation Act
- 1996 allows post-award interest unless otherwise agreed
- Clause 16(2) of General Conditions of Contract prohibits interest on amounts payable under contract but not on award amount
- Section 37(1) of Arbitration and Conciliation Act
- 1996 empowers arbitrator to award interest from date of cause of action to date of award unless otherwise agreed
- Section 29 of Arbitration Act
- 1940 not applicable to proceedings under 1996 Act.
