Summary
In a road-works arbitration, the Supreme Court upheld the High Court's setting aside of the claim for idle labour and establishment, which the contract expressly barred. It restored the award of interest on delayed running-account bills, which the High Court had wrongly reappraised under Section 37, and the pre-reference interest, since the contract did not prohibit interest. It also restated the principles governing an arbitrator's power to award interest under Section 31(7) of the 1996 Act.
Issues
- Whether the High Court under Section 37 rightly set aside the award for idle labour and on-site establishment (claim 3) as barred by the special terms of the contract.
- Whether the High Court could set aside the award of interest on delayed running-account bills (claim 4) on its own reading of the payment chronology and questions it said the arbitrator should have answered.
- Whether the High Court rightly deleted pre-reference interest (claim 6) on the footing that the contract prohibited it.
- What principles govern an arbitrator's power to award pre-reference, pendente lite and post-award interest under the 1940 and 1996 Acts.
Provisions considered
- Section 37 (read with Section 34), Arbitration and Conciliation Act, 1996The appellate court rightly enforced express contract terms the arbitrator ignored (claim 3), but exceeded its jurisdiction on claim 4 by reappraising facts and faulting the arbitrator for not answering questions it framed, when the award was neither perverse nor against public policy. (¶¶ 7.5, 8.4, 8.5, 8.6)
- Section 31(7)(a) and (b), Arbitration and Conciliation Act, 1996Construed to allow interest from the date of the cause of action to the award unless otherwise agreed, and post-award interest unless the award directs otherwise; as the contract did not bar interest, pre-reference interest was within the arbitrator's power. (¶¶ 9.3, 9.4, 9.5, 9.6)
- Arbitrator's power to award interest (judicially recognised), Arbitration Act, 1940Contrasted with the 1996 Act: under the 1940 Act interest was treated as an implied term unless prohibited, and only an express, specific exclusion of the arbitrator's jurisdiction barred it. (¶ 9.5)
- Section 3, Interest Act, 1978Mentioned as one statutory source for pre-reference interest, which, being substantive, must rest on agreement, statute or mercantile usage rather than on Section 31(7)(a) alone. (¶ 9.5)
- Clauses on extension of time and idle labour, Contract between the parties (Special Terms and Conditions)These clauses bar any claim for idle labour, additional establishment, or hire charges of tools and plant 'under any circumstances'; the Court held they foreclosed claim 3. (¶¶ 7.3, 7.5)
Held
- Examining what the contract provides is the duty of every arbitral tribunal and court, since the contract is the foundation of the parties' legal relationship. Where the arbitrator did not even refer to clauses expressly barring claims for idle labour and establishment, and the Section 34 court dismissed objections with a stock phrase, the High Court under Section 37 rightly set aside the award on claim 3. (¶¶ 7.2, 7.5)
- A Section 37 court cannot set aside an award because it thinks the bills were paid soon after they were prepared, or because the arbitrator did not discuss questions the court itself formulated; the arbitrator's reasoning on interest for delayed running-account bills (blocked capital) was neither perverse nor against public policy, so the award on claim 4 was restored. (¶¶ 8.4, 8.5, 8.6)
- Under the 1940 Act, interest was presumed to be an implied term where the agreement did not prohibit it, and only an express, specific bar on the arbitrator excluded it. Under Section 31(7)(a) of the 1996 Act, pre-reference and pendente lite interest are treated alike, and party autonomy prevails: the power is restricted the moment the agreement bars payment of interest, even without a specific bar on the arbitrator. (¶ 9.5)
- The arbitrator's power to award pre-reference and pendente lite interest is not restricted where the agreement is silent or lacks a specific term prohibiting interest. Pendente lite interest is procedural, while pre-reference interest is substantive and must rest on an express or implied agreement, a statute such as Section 3 of the Interest Act, 1978, or proof of mercantile usage. (¶ 9.5)
- As the contract did not prohibit interest, the High Court had no reason to interfere with the arbitrator's grant of pre-reference interest under claim 6. (¶¶ 9.6, 10)
Result
Appeal from SLP (C) No. 8128 of 2021 partly allowed: setting aside of claim 3 upheld; award on claim 4 restored; pre-reference interest under claim 6 restored. Appeal from SLP (C) No. 8129 of 2021 disposed of; parties to bear their own costs.