Contractual bar and arbitral interest: idle labour claim failed, but delayed bill and pre-reference interest survived.

A contractual bar on claims for idle labour, machinery and related establishment costs prevents recovery of those heads, and an arbitral award contrary to that prohibition may be interfered with in Section 37 proceedings. Interest on delayed payment of running account bills may still be sustained where the tribunal gives a reasoned basis and the contract does not justify denial of such compensation. Pre-reference interest can also be awarded when the contract does not exclude it, consistent with Section 31(7) of the Arbitration and Conciliation Act, 1996. The result was partial affirmation of the contractual bar, with restoration of the interest awards.

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Issues: (i) whether the contractual special terms barred the award of compensation for idle labour, machinery and related establishment costs; (ii) whether interest on delayed payment of running account bills was payable; and (iii) whether pre-reference interest could be denied when the contract did not prohibit it.

Issue (i): whether the contractual special terms barred the award of compensation for idle labour, machinery and related establishment costs.

Analysis: The contract expressly provided that, on extension of time, no claim for idle labour, additional establishment, cost of materials and labour, or hire charges of tools and plants would be entertained. The arbitral award did not address this prohibition, whereas the High Court examined the contract and found the claim inconsistent with the agreed terms. In proceedings under Section 37, the court's interference was justified because the award ran contrary to the contractual bar.

Conclusion: The claim for idle labour, machinery and related establishment costs was rightly rejected; the decision was in favour of the respondent on this issue.

Issue (ii): whether interest on delayed payment of running account bills was payable.

Analysis: The arbitral tribunal treated the delayed payment of running account bills as blocked capital and granted compensation by way of interest. The High Court interfered on the footing that the bills were paid soon after preparation and that the tribunal had not answered certain questions posed by it. That approach was held to be insufficient to dislodge the arbitral reasoning, since the award contained a reasoned basis and the contractual materials did not justify denial of interest on delayed payments.

Conclusion: The award of interest on delayed payment of running account bills was restored; the issue was decided in favour of the appellant.

Issue (iii): whether pre-reference interest could be denied when the contract did not prohibit it.

Analysis: Section 31(7) of the Arbitration and Conciliation Act, 1996 recognises the power to award interest for the relevant period unless the parties agree otherwise, while the law also requires a separate foundation for pre-reference interest where such interest is not contractually excluded. As the contract did not bar pre-reference interest, there was no basis to interfere with the arbitrator's grant of such interest.

Conclusion: The modification made by the High Court was set aside and pre-reference interest was held payable; the issue was decided in favour of the appellant.

Final Conclusion: The appeal succeeded only in part: the rejection of the idle labour claim was maintained, while the award on delayed bill interest and pre-reference interest was restored.

Ratio Decidendi: In arbitration, a claim expressly barred by the contract cannot be sustained, but an award of interest will not be interfered with in Section 37 jurisdiction where the contract does not prohibit it and the arbitral tribunal has given a reasoned determination within the scope of Section 31(7) of the Arbitration and Conciliation Act, 1996.

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