By Ankit Parhar
The Hon'ble Supreme Court has recently restated the law vis-à-vis an Arbitrator’s power to grant interest under the Arbitration and Conciliation Act, 1996 (‘1996 Act’) in Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation India Ltd.[Civil Appeal No. 1539 of 2019 decided on 07th February 2019]
The Appellant was awarded a contract to execute certain works by the Respondent. The contract contained an arbitration clause providing for the resolution of disputes by a panel of three Arbitrators. The contract also contained clauses barring interest as under:
The Appellant was awarded a contract to execute certain works by the Respondent. The contract contained an arbitration clause providing for the resolution of disputes by a panel of three Arbitrators. The contract also contained clauses barring interest as under:
"Clause 50.0 Interest on money due to the contractor
No omission on the part of the Engineer in charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any balance which may on the final settlement of his account, be due to him.
Clause 51.0 No claim for delayed payment due to dispute etc.
No claim for interest or damage will be entertained or be payable by the corporation in respect of any amount or balance which may be lying with the corporation owing to any dispute, difference or misunderstanding between the parties or in respect of any delay or omission on the part of the Engineer-in-charge in making intermediate or final payments on in any other respect whatsoever.”
No omission on the part of the Engineer in charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any balance which may on the final settlement of his account, be due to him.
Clause 51.0 No claim for delayed payment due to dispute etc.
No claim for interest or damage will be entertained or be payable by the corporation in respect of any amount or balance which may be lying with the corporation owing to any dispute, difference or misunderstanding between the parties or in respect of any delay or omission on the part of the Engineer-in-charge in making intermediate or final payments on in any other respect whatsoever.”
The Appellant raised certain claims against the Respondent. The Respondent disputed the claims raised by the Appellant. The dispute between the parties was referred to arbitration under the 1996 Act. The Arbitrators allowed the claims raised by the Appellant. The Arbitrators also awarded the Appellant interest at the rate of 10% per annum from the date of invocation of the arbitration clause till sixty days after the award along with future interest at the rate of 18% per annum till the date of payment. The Arbitrators relied upon the judgment of the Supreme Court in Board of Trustees for the Port of Calcutta v. Engineers-De-Space Age [(1996) 1 SCC 516] and held that though the said Clauses barred interest on delayed payments by the Respondent to the Appellant, they did not bar the Arbitrators from awarding interest.
The Respondent challenged the award under Section 34 of the 1996 Act before a Single judge of the Delhi High Court. The Single Judge quashed the award to the extent that it awarded interest to the Appellant. The Appellant preferred an appeal under Section 37 of the 1996 Act before a Division Bench of the Delhi High Court. The Division Bench dismissed the appeal and upheld the decision of the Single Judge. The Single Judge and the Division Bench of the High Court took the view that the said Clauses barred the Arbitrators from awarding interest. The High Court also noted that the aforesaid clauses were on the same terms as Clause 1.2.14 and 1.2.15 of a contract which was the subject-matter of construction in Tehri Hydro Development Corporation (THDC) Limited & Anr. v. Jai Prakash Associates Limited[(2012) 12 SCC 10], wherein the Supreme Court had held that the Arbitrators were barred from awarding interest.
Before the Supreme Court, the Appellant argued that the judgment in Jayprakash Associates Ltd. (supra) was contrary to the earlier judgment of the Supreme Court in State of Uttar Pradesh v. Harish Chandra and Company[(1999) 1 SCC 63]. It was contended that the judgments in Jayprakash Associates Ltd. (supra) and Harish Chandra (supra) were by Benches comprising of three Judges. However, the judgment in Harish Chandra (supra) was not considered in Jayprakash Associates Ltd. (supra). As such, it was contended the judgment in Harish Chandra (supra) being prior in time should hold the field. In the alternative, it was argued that the matter should be referred to a Larger Bench.
On merits, the Appellant contended that even though the said Clauses barred interest on delayed payments by the Respondent to the Appellant, they did not bar the Arbitrators from awarding interest. It was also argued that the said Clauses were similar to the clauses in Harish Chandra (supra) wherein the Supreme Court had interpreted the said clauses to mean that the Arbitrators were not precluded from awarding interest.
The Respondent contended that the clauses in Harish Chandra (supra) and the present case were altogether different. It was contended that the present case would be governed by the law laid down in Jayprakash Associates (supra) which was between the same and was concerned with identical clauses. It was further contended that there was a difference between the scheme under the Arbitration Act, 1940 (“1940 Act”) and the 1996 Act inasmuch as under Section 31(7)(a) of the 1996 Act an Arbitrator had no jurisdiction to award pendente lite interest if there was an agreement to the contrary. In this regard, reliance was placed upon the decision of the Supreme Court in Sayeed Ahmed and Company v. State of Uttar Pradesh & Ors.[(2009) 12 SCC 26]
The Supreme Court referred to the Constitution Bench judgment in Secretary, Irrigation Department, Government of Orissa & Ors. v. G.C. Roy[(1992) 1 SCC 508] and the judgments in Sayeed Ahmed (supra) Sree Kamatchi Amman Constructions v. Divisional Railway Manager (Works), Palghat & Ors.[(2010) 8 SCC 767], Sri Chittaranjan Maity v. Union of India[(2015) 9 SCC 695] and Reliance Cellulose Products Limited v. Oil and Natural Gas Corporation Limited[(2018) 9 SCC 266]. Relying upon the said judgments, the Supreme Court restated the position that under the 1996 Act, an Arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest unless there is an agreement to the contrary.
After restating the legal position, the Supreme Court held that the Clauses in question barred the Arbitrators from awarding interest. The Supreme Court held that the Arbitrators erred in relying upon the judgment in Board of Trustees for the Port of Calcutta (supra) which was under the 1940 Act. The Supreme Court upheld the finding of the High Court that the Clauses in the present case were pari materia with the clauses under consideration in Tehri Hydro Development Corporation (supra) which were held to bar the Arbitrators from awarding interest.
As far as the argument of the Appellant regarding the judgment in Harish Chandra (supra) was concerned, the Supreme Court referred to the judgments in Reliance Cellulose (supra) and Sayeed Ahmed (supra) and noted that the judgment in Harish Chandra (supra) was under the 1940 Act and was distinguished in Sayeed Ahmed (supra). The Supreme Court also noted that the judgment in Sayeed Ahmed (supra) was consistently followed by the Supreme Court in a number of cases and held that there was no reason to deviate from the construction of the Clauses given by the High Court.
This judgment is the latest judgment added to the line of judgments passed by the Supreme Court on an Arbitrator’s power to award interest under the 1940 Act and the 1996 Act. Though the position under the 1996 Act has been largely settled by these judgments, the question of how a particular clause will be interpreted by an Arbitrator or Courts would still remain.
[The author is a Joint Partner in Commercial Dispute Resolution practice, Lakshmikumaran & Sridharan, New Delhi]