Interest on claims awarded by Arbitral Tribunal, decision of Supreme Court in appeal filed by Union of India

December 9, 2017

Interest awarded by Arbitral Tribunal

A Bench of Supreme Court Judges Justice Abhay Manohar Sapre and Justice Navin Sinha passed Judgment in an appeal filed by Union of India against the order of Arbitral Tribunal granting interest on various claims of the Respondent.

A works contract was awarded by the Union of India (Railways) to respondent No.1 on 19.12.1994. In execution of the works contract, various disputes arose between the parties. Since the General Conditions of Contract (in short, "GCC") contained Clause 56(1) to decide the disputes arising out of the contract through arbitration, claimant invoked the arbitration clause and filed an application in the High Court of Bombay under Section 11(5) of the Arbitration and Conciliation Act praying therein for appointment of the Arbitral Tribunal in terms of Clause 56(1) and to make a reference to the Arbitral Tribunal for deciding the disputes which had arisen between the parties.

The Arbitral Tribunal, by their unanimous reasoned award dated 11.09.2002, partly allowed the claims. Union of India, felt aggrieved of the Arbitral Award, challenged its legality by filing an application under Section 34 of the Act in Bombay High Court. The Single Judge, by order dated 21.04.2003, allowed the appeal in part and made two modifications in the arbitral award with respect to the date of award of interest on the claim of respondent No.1 for damages and on the claim of one purchase item. The Single Judge made the interest payable from the date of award till realization. So far as the challenge to other claims including award of interest on such claims were concerned, the Single Judge rejected the appellant's all objections and upheld the award in totality for all purposes.

The claimant felt aggrieved against that part of the order of the Single Judge which interfered in part in the arbitral award, filed appeal before the Division Bench. So far as the appellant-Union of India was concerned, they did not file any appeal against that part of the order of the Single Judge which had rejected substantially their application filed under Section 34 of the Act. In this view of the matter, the award to that extent became final.

The Division Bench of the High Court allowed the claimant's appeal and set aside the order of the Single Judge. It was held that no ground under Section 34 of the Act had been made out by the Union of India to modify the award to the extent of awarding interest on the claim.

The Court said that "In our opinion, the appellant could have registered their objection before the Single Judge at the time of making a reference to the Arbitral Tribunal by pointing out Clause 13(3) of GCC or could have reserved their right to raise such objection before the Arbitral Tribunal. It was, however, not done."

"Not only that, we further find that the appellant, in their reply, filed before the Arbitral Tribunal also did not raise this plea and allowed the Arbitral Tribunal to adjudicate the said issue on merits."

The court opined that "In our opinion, the appellant is otherwise not entitled to raise the plea on yet another ground. It is not in dispute that the appellant's application filed under Section 34 of the Act was partly allowed by the Single Judge only to the extent of two claims regarding award of interest. In other words, the application suffered dismissal substantially on all other claims except two claims mentioned above. However, despite suffering substantial dismissal, the appellant did not file any appeal to challenge the part dismissal of their application."

"Therefore, this is yet another infirmity which renders the appeal devoid of any merit".

"In our considered view, the grant of award of interest on arbitrable claims by the Arbitral Tribunal is not inherently illegal or against any public policy or per se bad in law or beyond the powers of the Arbitral Tribunal. In other words, it is permissible to award interest in arbitrable claims by the Arbitral Tribunal."

Since the court find no merit in the appeal, which thus fails and is dismissed.

Read the Judgment of Supreme Court dated 08.12.2017