Case: Chittaranjan Maity Vs. Union Of India

under:“31(7)(a) - Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made.”In this Section, a specific provision has been created, whereby if the agreement prohibits award of interest for the pre-award period (i.e. pre-reference and pendente lite period), the Arbitrator cannot award interest for the said period.16. Admittedly, the GCC, governing the contract between the parties, contains a clause which bars the payment of interest, which is as under:“16(2) – No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but government securities deposit in terms of sub-clause (1) of this clause will be repayable (with) interest accrued thereon.”17. Relying on a decision of this Court in M/s. Ambica Construction vs. Union of India (2017) SCC OnLine SC 678, (C.A.No.410 of 2008, disposed of on 26.04.2017) learned senior counsel for the appellant submits that mere bar to award interest on the amounts payable under the contract would not be sufficient to deny payment on pendente lite interest. Therefore, the Arbitrator was justified in awarding the pendente lite interest. However, it is not clear from M/s. Ambica Construction (supra) as to whether it was decided under The Arbitration Act, 1940 (for short ‘the 1940 Act’) or under the 1996 Act. It has relied on a judgment of Constitution Bench in Secretary, Irrigation Department, Government of Orissa and Others. vs. G.C. Roy (1992) 1 SCC 508. This judgment was with reference to the 1940 Act. In the 1940 Act, there was no provision which prohibited the Arbitrator from awarding interest for the pre-reference, pendente lite or post award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the pre-award period, the Arbitrator cannot award interest for the said period. Therefore, the decision in M/s. Ambica Construction (supra) cannot be made applicable to the instant case.18. Learned Additional Solicitor General appearing for the respondent submits that the position of law for cases covered under the 1996 Act, i.e. if agreement prohibits award of interest then the grant of pre-award interest is impermissible for the Arbitrator, has been reiterated by this Court in various judgments.19. In Sayeed Ahmed and Company vs. State of Uttar Pradesh and Others (2009) 12 SCC 26 , this Court noted that the 1940 Act did not contain any provision relating to the power of the Arbitrator to award interest. However, now a specific provision has been created under Section 31(7)(a) of the 1996 Act. As per this Section, if the agreement bars payment of interest, the Arbitrator cannot award interest from the date of cause of action till the date of award. The Court has observed that in regard to the provision in the 1996 Act, the difference between pre-reference period and the pendente lite interest has disappeared insofar as award of interest by the Arbitrator is concerned. Section 31(7)(a) recognizes only two periods, i.e. pre-award and post-award period.20. In Sree Kamatchi Amman Constructions vs. Divisional Railway Manager (Works), Palghat and Others (2010) 8 SCC 767 , this Court was dealing with an identical case wherein Clause 16 of the GCC of Railways had required interpretation. This is the same Clause 16(2) of the GCC prohibiting grant of interest which is also applicable in the facts of the present case. The Court held that where the parties had agreed that the interest shall not be payable, the Arbitral Tribunal cannot award interest between the date on which the cause of action arose to the date of the award.21. In Union of India vs. Bright Power Projects (India) Private Limited (2015) 9 SCC 695 , a three-Judge Bench of this Court, after referring to the provisions of Section 31(7)(a) of the 1996 Act, held that when the terms of the agreement had prohibited award of interest, the Arbitrator could not award interest for the pendente lite period. It has been held thus:“10. Thus, it had been specifically understood between the parties that no interest was to be paid on the earnest money, security deposit and the amount payable to the contractor under the contract. So far as payment of interest on government securities, which had been deposited by the respondent contractor with the appellant is concerned, it was specifically stated that the said amount was to be returned to the contractor along with interest accrued thereon, but so far as payment of interest on the amount payable to the contractor under the contract was concerned, there was a specific term that no interest was to be paid thereon.11. When parties to the contract had agreed to the fact that interest would not be awarded on the amount payable to the contractor under the contract, in our opinion, they were bound by their understanding. Having once agreed that the contractor would not claim any interest on the amount to be paid under the contract, he could not have claimed interest either before a civil court or before an Arbitral Tribunal.”Therefore, it is clear that the appellant is not entitled for any interest on the amount awarded by the Arbitral Tribunal.22. The Arbitral Tribunal had determined the amount payable to the appellant in a sum of Rs.11,13,136/- and interest of Rs.12,44,546/-. A sum of Rs.38,82,150/- was deposited by the respondent which includes the award amount, interest for the pre-reference period, pendente lite and post-award interest. We have held that the appellant is not entitled for any interest. The appellant has already withdrawn 50% of the amount deposited by the respondent, which is in excess of the award amount exclusive of interest.

Decision (1 = appeal accepted, 0 = rejected): 1

Explanation:
1[ds]is evident from the materials on record that the dispute had arisen between the parties in relation to the contract in question. Therefore, the appellant filed an application before the Chief Justice of the High Court of Calcutta under Section 11(6) of the 1996 Act, for appointment of an Arbitrator in terms of the contract which was allowed and an Arbitral Tribunal was constituted for adjudication of the dispute. The Arbitrator after giving the parties opportunities of hearing and after considering the materials placed on record made and published the award.It is also necessary to observe that intervention of the court is envisaged only in few circumstances like fraud or bias by the Arbitrators, violation of natural justice. The court cannot correct the errors of the Arbitrators.Therefore, the Division Bench was not justified while considering the arbitrability of the disputes for the first time, particularly, when the respondent has not urged the issue relating to ‘No Claimsbefore the Chief Justice, Arbitral Tribunal or before the learned Singleit is not clear from M/s. Ambica Construction (supra) as to whether it was decided under The Arbitration Act, 1940 (for short ‘the 1940or under the 1996 Act. It has relied on a judgment of Constitution Bench in Secretary, Irrigation Department, Government of Orissa and Others. vs. G.C. Roy (1992) 1 SCC 508.   This judgment was with reference to the 1940 Act. In the 1940 Act, there was no provision which prohibited the Arbitrator from awarding interest for thependente lite or post award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for theperiod, the Arbitrator cannot award interest for the said period. Therefore, the decision in M/s. Ambica Construction (supra) cannot be made applicable to the instantit is clear that the appellant is not entitled for any interest on the amount awarded by the Arbitral Tribunal.22. The Arbitral Tribunal had determined the amount payable to the appellant in a sum of Rs.11,13,136/and interest of Rs.A sum of Rs.38,82,150/was deposited by the respondent which includes the award amount, interest for theperiod, pendente lite andinterest. We have held that the appellant is not entitled for any interest. The appellant has already withdrawn 50% of the amount deposited by the respondent, which is in excess of the award amount exclusive of interest.