Summary
A road contractor finished an Orissa highway link in 1977 but did not raise a claim until 1989. After obtaining a 1990 decree under Section 20 of the Arbitration Act, 1940, he took no steps for about ten years. An arbitrator appointed in 2001 under the 1996 Act awarded about Rs. 9.2 lakh, plus interest at 18% from 1976 that came to about five times the principal, and 18% future interest. The award was upheld under Sections 34 and 37. The Supreme Court held that because Section 31(7)(a) allows interest 'at such rate as it deems reasonable' on the whole or part of the sum and period, the tribunal must give reasons and apply its mind. It had done neither. A party cannot profit from its own delay, so no interest was allowed for the two idle periods. Under Article 142, interest at all stages was reduced to 9%, leaving the principal award intact.
Issues
- Whether an arbitral tribunal awarding interest under Section 31(7)(a) of the Arbitration and Conciliation Act must give reasons for the rate and for the sum and period on which interest runs.
- Whether a claimant who stayed inactive for long periods could recover interest for those periods.
- Whether interest at 18% at all stages should be reduced in the circumstances.
Provisions considered
- Section 31(7)(a), Arbitration and Conciliation Act, 1996The tribunal's discretion over the rate, and over the part of the money and the period carrying interest, requires it to apply its mind and give reasons for treating the rate as reasonable. An unreasoned 18% award at every stage failed this test. (¶¶ 9, 10, 11)
- Section 20, Arbitration Act, 1940The contractor obtained a decree for reference in 1990 but did not file the original agreement for about ten years. That delay disentitled him to interest for the idle period. (¶¶ 3, 13, 14)
- Article 142, Constitution of IndiaFollowing Rajendra Construction, McDermott and Krishna Bhagya Jala Nigam, and given the claimant's delays, interest at all three stages was reduced to 9% while leaving the principal award untouched. (¶¶ 15, 16, 17, 18, 19, 20)
Held
- Section 31(7)(a) gives the tribunal discretion over the rate and over the portion of money and period carrying interest. That discretion carries a duty to give reasons and apply its mind, and neither the arbitrator nor the courts below had done so. (¶¶ 10, 11)
- The contractor was silent for twelve years after the 1977 final measurement and again for about a decade after the 1990 decree. His conduct disentitled him to interest for those periods, since a party cannot benefit from its own lapses. (¶¶ 12, 13, 14)
- Given the long delays and the change in interest rates, and without disturbing the principal award, interest at the pre-reference, pendente lite and post-award stages was reduced to 9% a year under Article 142. (¶¶ 20, 21)
Result
Appeal partly allowed. No interest was allowed from 30.08.1977 to 25.07.1989 or from 14.02.1990 to 04.02.2000, and interest for the remaining periods was fixed at 9% a year. The executing court was to quantify the amount and the appellants to pay within the stated timelines. No costs.