The issue of this case is regarding the power of the Arbitrator, whether the Arbitrator has the power to award pendente lite interest in the case the contract bars the same.
Facts of the case: The tender of M/S Ambica Construction for the fabrication of the tie bars from M.S. Flats CST-9 sleepers was accepted on 8th of September 1989. A final agreement was executed on 30th of November 1989. By 21st of November, 1990 the work was completed. However, certain disputes and difference arose between the parties regarding the payments. Due to the disputes, M/S Ambica Construction requested for the appointment of an Arbitrator. On the 5th of March 1999, M/S Ambica Construction being in financial crisis accepted the payment in the full and final settlement.
But on the 11th of March 1991, the Union of India informed the M/S Ambica Construction that the matter was not under consideration. Even an Arbitrator was not appointed. An application was filed under Section 20 of the Arbitration Act 1940 before the honourable Calcutta High Court. It was filed to seek any direction regarding the Arbitration matter.
On the 2nd of July, 1992, the Calcutta High Court directed to file the arbitration agreement in the Court, and the Court also appointed two arbitrators for this case in terms of Arbitration Clause. However, the said arbitrators were unable to publish the award. But as the application was filed for revocation of the authority of joint arbitrators, another sole arbitrator was appointed. Finally, 30.12.1997, the sole Arbitrator published the award. However, the Union of India requested before the honourable Calcutta High Court to give directions so that the sole arbitrator could give the item-wise breakup. On 12.5.1998, the sole Arbitrator gave the item-wise breakup. Again, the Union of India requested the same before the Calcutta High Court. However, the award was set aside on the ground that the Arbitrator had not given an intelligible award following Clause 64(3)(a)(iii) of the agreement dated 5.3.1991. An appeal was filed by the petitioner which was eventually dismissed by the Division Bench Of High Court on which SLP was filed and leave was granted and ultimately CA. .No. 6621/2005 was allowed and the Arbitrator was appointed to give a fresh award. A fresh award was passed by Arbitrator on 11.02.2006.
Again under Section 30 and Section 33 of the Arbitration Act, 1940, the Union of India applied before the High Court. The appeal was dismissed. However, the Union of India filed an application on recall. And therefore, the learned Single Bench Judge set aside the award concerning interest for pre interface period and directed that interest will be allowed on the principal sum of Rs 9,82,660 at 10% per annum rate from 1.9.1992. However, this case was produced before the honourable Supreme Court regarding the power of Arbitrator to award pendente lite.
Argument By the petitioner in this case: The Union of India stated that the Arbitrator must be bound by the terms of the contract and cannot award interest in the case the contract bars the same.
Argument by the respondent of this case: The learned counsel of M/S Ambica Construction referred to some cases like Engineers De Space case, Madnami Construction Limited Case, where irrespective of the terms of the contract agreement barring the award of interest would cover the pre reference period and not pendente lite interest.
Judgment Analysis: The honourable Supreme Court started looking into the facts of the case. Section 3 of the Arbitration Act 1940 was observed properly. The Court stated that this section was required to be observed vividly for deciding on this case. Section 3 of the Arbitration Act 1940 dealt with the provision of which are implied in the arbitration agreement.
The honourable Supreme Court also referred to several previous cases while deciding on this case. The honourable Supreme Court looked into the G.C. Roy case. In G.C. Roy case, the Supreme Court stated that regarding the question of the power of the Arbitrator to award pendente lite interest, it mostly depends on the contract or agreement. The Court further stated that if in the terms of the agreement or contract it expressly does provide for interest, then the Arbitrator has the jurisdiction to do so. But if in the terms of the contract or the agreement it is not expressly mentioned about interest, the Arbitrator has no power to award pendente lite.
In another case I.e. Union of India v Bright Power Project Limited, the Court started to consider the provisions of Section 31(7)(a) of Arbitration and Conciliation Act 1996. On considering the provision of Section 31(7)(a) of the Arbitration and Conciliation Act 1996, The Court stated that the Arbitrator is bound by the terms of the Contract. The Court further stated that if in the contract the party had already mentioned that he/she would not claim interest, then he/she can't claim it later on. In Haris Chandra Case, the Court observed that claim for interest or damages would not be entertained by the government concerning any money which might be lying with the government.
Judgment: The honourable Supreme Court stated that the grant of pendente lite interest depends upon several factors like phraseology in the contract, clauses mentioned in the contract regarding the power of Arbitrator, nature of claim etc. The Court further stated that if the contract expressly bars an award of interest pendente lite, the same can't be awarded by Arbitrator.