TaxTMI 
TaxTMI 
2009 (7) TMI 1329
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....interest at 14% PA from 1.5.1996 till date of payment; and (iii) The security deposit amount due with interest at 12% PA from 1.10.1996 till date of payment. 3. The civil court by its judgment dated 7.12.2005 dismissed the application to set aside the award, filed by the respondents under section 34 of the Arbitration and Conciliation Act, 1996 ('Act' for short). The appeal filed by the respondents was allowed in part by the High Court by impugned judgment dated 27.2.2008. The High Court held that having regard to the bar contained in clause G 1.09 of the contract, the arbitrator had no power to award interest and consequently, set aside that part of the award granting interest till date of award. The High Court however granted interest at 6% PA from the date of award till the date of payment. Aggrieved by the deletion of interest upto the date of award and reduction of interest from the date of award to 6% per annum, the appellant has filed this appeal. 4. At the outset, it is necessary to refer to an erroneous assumption made by the High Court in para 31 of the impugned judgment. It has proceeded on the basis that the sum of Rs. 24,18,586/- awarded by the Arbitrator in....
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....in time, then, from the date when the debt is payable to the date of institution of proceedings; (b) if the proceedings did not relate to any such debt, then, from the date mentioned in this regard in a written notice given by the person entitled or the person making the claim to the person liable, that interest will be claimed to the date of institution of the proceedings. Sub-section (3) of section 3 provides that nothing in section 3 shall apply to any debt or damages upon which interest is payable as of right by virtue of any agreement; or to any debt or damages upon which payment of interest is barred by virtue of an express agreement. 8. The Arbitration Act, 1940 did not contain any specific provision relating to power of Arbitrator to award interest. That led to considerable confusion about the power of Arbitrators in regard of award of interest from the date of cause of action to date of award, that is pre-reference period (from the date of cause of action upto the date of reference) and pendente lite (from the date of reference to date of award). Ultimately, this Court made it clear that the Arbitrator had the jurisdiction and authority to award interest for the three per....
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....e case may be. 10. The Legislature while enacting the Arbitration and Conciliation Act, 1996, incorporated a specific provision in regard to award of interest by Arbitrators. Sub-section(7) of section 31 of the Act deals with the Arbitrator's power to award interest. Clause (a) relates to the period between the date on which the cause of action arose and the date on which the award is made. Clause (b) relates to the period from the date of award to date of payment. The said subsection (7) is extracted below : "7(a) Unless otherwise agreed by the parties, where and in so far as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. (b) A sum directed to be paid by an arbitral award shall, unless the award otherwise directs, carry interest at the rate of eighteen per centum per annum from the date of the award to the date of payment. Having regard to sub-section (7) of section 31 of the Act, the....
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....he contract did not bar the award of interest. The clause barring interest that fell for consideration in that decision was as under : "1.9 No claim for delayed payment due to dispute etc.-No claim for interest or damages will be entertained by the Government with respect to any moneys or balances which may be lying with the Government owing to any dispute, difference; or misunderstanding between the Engineer-in-Charge in marking periodical or final payments or in any other respect whatsoever." This Court held that the said clause did not bar award of interest on any claim for damages or for claim for payment for work done. We extract below the reasoning for such decision : "A mere look at the clause shows that the claim for interest by way of damages was not to be entertained against the Government with respect to only a specified type of amount, namely, any moneys or balances which may be lying with the Government owing to any dispute, difference between the Engineer-in-Charge and the contractor; or misunderstanding between the Engineer-in-Charge and the contractor in marking periodical or finally payments or in any other respect whatsoever. The words 'or in any other respec....
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....rpreting the said clause (which provided that interest was not payable on the amount which was withheld), this Court held that it referred only to the amount withheld by the employer State towards retention money for the defect liability period. This Court in fact clarified that the position that if the terms of contract expressly stipulated that no interest would be payable, then arbitrator would not get the jurisdiction to award interest. As clause G-1.09 in the present case contains an express bar and is different from the clause considered in B.N. Agarwalla (supra), the said decision is also of no assistance. 14. The learned counsel for the appellant submitted that even though the bar in clause G-1.09 may prohibit the employer from paying interest, it does not bar the Arbitrator from awarding interest. For this purpose, he relied upon the decision of this Court in Board of Trustees for Port of Calcutta vs. Engineers- De-Space-Age [1996 (1) SCC 516]. In that case, this Court considered the validity of award of interest pendente lite by the Arbitrator notwithstanding the prohibition contained in the contract against payment of interest on delayed payments. The following clause f....
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....eriod and that the Arbitrator had the power and authority to award interest pendente lite at his discretion, without reference to the bar in the contract. The observation in Engineers-De-Space-Age (supra) that the term of the contract merely prohibits the department/employer from paying interest to the contractor for delayed payment but once the matter goes to arbitrator, the discretion of the arbitrator is not in any manner stifled by the terms of the contract and the arbitrator will be entitled to consider and grant the interest pendente lite, cannot be used to support an outlandish argument that bar on the Government or department paying interest is not a bar on the arbitrator awarding interest. Whether the provision in the contract bars the employer from entertaining any claim for interest or bars the contractor from making any claim for interest, it amounts to a clear prohibition regarding interest. The provision need not contain another bar prohibiting Arbitrator from awarding interest. The observations made in the context of interest pendente lite cannot be used out of contract. 15. The learned counsel for appellant next contended on the basis of the above observations in E....