Supreme Court Clarifies Arbitrators' Power on Interest Awards under Arbitration Act

The Supreme Court allowed the appeal, setting aside the orders of the District Judge and Single Judge of the High Court under section 39 of the Arbitration Act, 1940. The Court clarified arbitrators' power to award interest at different stages and emphasized the entitlement to interest if an amount is wrongfully withheld. It highlighted the need for non-discrimination in awarding interest and directed the respondent to bear litigation costs.

---

---

Issues:
1. Dismissal of appeal under section 39 of the Arbitration Act, 1940 by the Single Judge of the High Court.
2. Denial of pendente lite and future interest to the appellant.
3. Competence, jurisdiction, and power of arbitrators to award interest at different stages.
4. Legal tenability of the reasoning that arbitrators are not mandated to award interest.
5. Discrepancy in treatment of interest awarded to the respondent's counterclaim compared to the appellant.

Analysis:

1. The appeal arose from the dismissal of the appellant's appeal under section 39 of the Arbitration Act, 1940 by the Single Judge of the High Court, which was based on orders passed by the District Judge, Jaipur, in an arbitration case. The appellant sought to challenge the orders dated 13.09.2005 and 26.11.2005, which pertained to the awarding of interest and making the award a rule of the court.

2. The appellant was aggrieved by the denial of pendente lite and future interest by the learned District Judge and the Single Judge of the High Court. The appellant contended that despite the arbitrators awarding interest for the counterclaim of the respondent, the same was not granted to the appellant, leading to the filing of the appeal.

3. The Supreme Court clarified the competence, jurisdiction, and power of arbitrators to award interest at different stages. Referring to previous judgments, the Court established that arbitrators have the authority to grant interest for pre-reference, pendente lite, and post-award periods, provided the amount awarded is reasonable and not prohibited by any agreement between the parties.

4. The Court addressed the legal tenability of the reasoning that arbitrators are not mandated to award interest. It emphasized that if an amount has been wrongfully withheld without justification, the aggrieved party is entitled to claim interest, as per section 34 of the Code of Civil Procedure and section 29 of the Arbitration Act.

5. Highlighting the discrepancy in the treatment of interest awarded to the respondent's counterclaim compared to the appellant, the Court emphasized the principle of non-discrimination. It held that two parties in similar situations should not be treated differently, and thus, the interest awarded to the appellant should also be restored.

In conclusion, the Supreme Court allowed the appeal, setting aside the impugned orders passed by the District Judge and the Single Judge of the High Court, and restoring the award along with the interest as awarded by the arbitrators. The respondent was directed to bear the cost of litigation.

---