Arbitrator jurisdiction and pre-reference interest upheld, with no patent error found and interest rate reduced.

SC held that the arbitrator did not exceed jurisdiction in deciding workmanship and contractual deduction claims because the clauses reserving finality to the Managing Director did not extend to poor workmanship, and the findings were supported by evidence with no perversity or patent illegality. It further held that, absent an express contractual bar, pre-reference interest could be awarded under the Arbitration Act, 1940; interest on an amount that had merged interest into the principal was not impermissible interest on interest, and interest on costs was also sustainable in principle. The award disclosed no patent error warranting interference, though the rate of interest was reduced from 15% to 7%.

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Issues: (i) whether the arbitrator exceeded his jurisdiction in deciding claims relating to workmanship and deductions under the contract, (ii) whether interest was awardable for the pre-reference period and whether the award could include interest on interest and interest on costs, and (iii) whether the award suffered from any patent error warranting interference.

Issue (i): whether the arbitrator exceeded his jurisdiction in deciding claims relating to workmanship and deductions under the contract

Analysis: The disputed contractual clauses reserved only specified matters for the Managing Director's final decision. Poor workmanship was not covered by those clauses, and the expression relating to negligence or lack of proper care could not be equated with bad workmanship. The findings on balance steel and workmanship were based on appreciation of evidence and did not disclose any perversity or patent illegality.

Conclusion: The arbitrator did not exceed jurisdiction in deciding the workmanship and related deduction claims, and the findings were not liable to be interfered with.

Issue (ii): whether interest was awardable for the pre-reference period and whether the award could include interest on interest and interest on costs

Analysis: In the absence of an express contractual bar, the arbitrator could award interest for the pre-reference period under the governing law. The award of interest upon an amount that already included interest did not amount to impermissible interest on interest, because the interest component had become part of the principal for the purpose of the award. The award of interest on costs was also not unsustainable in principle under the 1940 Act, though the rate of interest required reduction in view of the long lapse of time.

Conclusion: The award of pre-reference interest, interest on interest, and interest on costs was sustained, but the rate of interest was reduced from 15% to 7%.

Issue (iii): whether the award suffered from any patent error warranting interference

Analysis: The challenge did not disclose any error apparent on the face of the award or any legal infirmity that would justify setting aside the arbitral award. The courts below had correctly declined to interfere except to the limited extent of interest.

Conclusion: No patent error or ground for setting aside the award was established.

Final Conclusion: The appeal failed in substance, and the award as affirmed below was maintained with only the modification of reducing the rate of interest.

Ratio Decidendi: In the absence of an express contractual prohibition, an arbitrator under the Arbitration Act, 1940 may award pre-reference interest, and an award of interest on an amount that has already merged interest into the principal does not, by itself, amount to impermissible interest on interest.

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