Background of the Case

A dispute arose out of a road-widening and strengthening project in West Bengal. The contractor raised multiple claims for delays and other issues, which were referred to arbitration.

In January 2018, the Arbitrator awarded compensation along with interest under various heads. The State authority challenged the award under Section 34 of the Arbitration and Conciliation Act, 1996, and later the High Court examined it under Section 37. The High Court set aside some claims and modified the pre-reference interest portion of the award.

The contractor approached the Supreme Court challenging the High Court’s interference with the Arbitral Award.

Key Issues Before the Supreme Court

1. Whether the Arbitrator could award pre-reference interest when the contract was silent on the issue.
2. Whether the High Court was justified in interfering with claims relating to idle labour costs, delayed payment interest, and pre-reference interest.

Supreme Court’s Observations

The Supreme Court delivered a detailed judgment summarizing the principles relating to interest awards under Section 31(7) of the Arbitration and Conciliation Act, 1996. The Bench noted:

• The Arbitrator has the power to award pre-reference, pendente lite, and post-award interest unless the contract expressly prohibits it.
• The wording of Section 31(7)(a) is broad and does not distinguish between pre-reference and pendente lite interest. Party autonomy is respected, but the absence of a prohibition gives the Arbitrator full discretion.
• The High Court should not substitute its reasoning for the Arbitrator’s unless the award is perverse or against public policy.

Final Directions of the Supreme Court

1. The decision of the High Court to set aside the award on idle labour (Claim No. 3) was upheld.
2. The Supreme Court restored the Arbitrator’s award on delayed payment interest (Claim No. 4) as previously upheld by the District Judge.
3. The Supreme Court also restored the award of pre-reference interest (Claim No. 6), holding that the High Court had no reason to modify it since the contract did not prohibit such interest.

Significance of the Judgment

This decision provides a clear affirmation that Arbitrators have the authority to award pre-reference and pendente lite interest, unless the agreement explicitly bars it. It also reinforces the principle that appellate courts should exercise limited interference with Arbitral Awards.

Lexcuria Lawyers’ Role

In this matter, Ms. Madhumita Bhattacharjee, Managing Partner at Lexcuria Lawyers, appeared as Advocate-on-Record representing the respondents. Her role was central in presenting the State authority’s position and addressing contractual clauses relating to the challenged claims.

Madhumita Bhattacharjee’s Insight:

“This judgment is important for practitioners and businesses alike. It clarifies that Arbitrators have broad powers to award interest unless explicitly barred, ensuring parties are fairly compensated for delays.”

Key Takeaways

• Contracts must clearly specify if interest awards are to be restricted; otherwise, Arbitrators have full discretion under Section 31(7).
• Courts will defer to the Arbitrator’s interpretation unless there is a clear error or violation of public policy.
• The ruling protects the integrity and finality of the arbitration process.