Supreme Court clarifies scope of cross-objections in arbitration cases

The Supreme Court held that cross-objections are not maintainable under Section 41 of the Arbitration Act, 1940, as it does not confer a substantive right. The High Court erred in allowing cross-objections and increasing the interest rate from 12% to 18% per annum. The Court set aside the award of interest at 18% per annum, restoring the trial court's decree of 12% per annum. Additionally, the arbitrator's award of interest at 15% per annum for the period prior to the reference was overturned as it lacked a legal basis, resulting in the set aside of the damages awarded for that period.

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Issues Involved:
1. Maintainability of cross-objections u/s 41 of the Arbitration Act, 1940.
2. Arbitrator's authority to award interest for the period prior to the reference of disputes.

Summary:

Issue 1: Maintainability of Cross-Objections u/s 41 of the Arbitration Act, 1940
The appellant contended that cross-objections are not maintainable under Section 41 of the Arbitration Act, 1940. The High Court allowed the cross-objections filed by the respondents under Order 41 Rule 22 of the Code of Civil Procedure (CPC), restoring the interest rate awarded by the arbitrator from 12% to 18% per annum. The Supreme Court examined various precedents and concluded that cross-objections are akin to an appeal and have all the trappings of an appeal. However, it held that Section 41 of the Act is procedural and does not confer a substantive right to file cross-objections. Therefore, the High Court erred in allowing the cross-objections, and the award of interest at 18% per annum was set aside, restoring the trial court's decree of 12% per annum.

Issue 2: Arbitrator's Authority to Award Interest for the Period Prior to Reference
The arbitrator awarded interest at the rate of 15% per annum for the period prior to the reference of disputes, which was challenged by the appellant. The Supreme Court found that the arbitrator awarded interest in the guise of damages for the period before the reference date, which is not permissible unless there is an agreement or it is allowable under the Interest Act, 1978. Since there was no such agreement or provision under the Interest Act, the award of Rs. 38,250 as damages (interest) for the period prior to the reference was set aside.

Conclusion:
The Supreme Court set aside the award of damages by way of interest at 15% per annum for the period prior to the reference and restored the award of interest at 12% per annum as decreed by the trial court. The appeals partly succeeded, and the judgment of the High Court was reversed to the extent mentioned. No order as to costs was made.

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