What the Supreme Court held on grant of pendente lite interest by Arbitrator [Read Judgment]

The Supreme Court has reaffirmed that if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases..The judgment was delivered by a Bench of Justices AK Sikri, S Abdul Nazeer and MR Shah..The Court summed up the following as regards the power of the arbitral tribunal in granting pre-reference and/or pendente lite interest..As laid down in the case of Secretary, Irrigation Department, Government of Orissa & Ors. v. State of Orissa, under the general law, the arbitrator is empowered to award interest for the pre-reference, pendente lite or post award period. This is based on the general principle that a person who is deprived of the use of money to which he is legitimately entitled to, has a right to be compensated for the deprivation and, therefore, such compensation may be called interest compensation or damages..As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not..If the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principle that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement..The judgment was delivered in the case of Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation India Ltd..There was an agreement between the above two parties which provided for arbitration in case of dispute between them. When differences arose, the matter was referred to arbitration..The Arbitral tribunal while awarding claims also granted interest at the rate of 10 percent per annum from the date when the arbitration was invoked. This was challenged in the High Court. Both the single judge and the Division Bench of the High Court quashed the award of interest based on the clauses in the agreement which provided that no interest would be payable to the contractor on the money due to him..The High Court judgment was challenged in Supreme Court..The Supreme Court noted the principles governing the field as settled by various case laws. It observed that in the instant case, right from the stage of arbitration proceedings till the High Court, the clauses in the agreement were interpreted to hold that they put a bar on the arbitral tribunal in awarding interest. The Court also noted that even the majority award of the arbitral tribunal recognised this. Notwithstanding the same, it awarded the interest by relying upon Board of Trustees for the Port of Calcutta case..However, the said judgment was under the Arbitration Act, 1940 and not under the Arbitration and Conciliation Act, 1996, the Supreme Court noted..The Court held that the legal position in this regard has undergone a paradigm shift and the same has been clarified in another subsequent judgment in Sayeed Ahmed and Company case which was correctly noted by the High Court..“The High Court, both Single Bench as well as Division Bench, rightly noted that the aforesaid judgment was under the 1940 Act and the legal position in this behalf have taken a paradigm shift which position is clarified in Sayeed Ahmed and Company case. This rationale given by the High Court is in tune with the legal position which stands crystallised by catena of judgments as noted above”.The Court also noted that the judgment in State of Uttar Pradesh v. Harish Chandra and Company, which was also relied upon by the appellant was also distinguished by Sayeed Ahmed and Company case and the Sayeed Ahmed case has been consistently followed by Supreme Court thereafter..Hence, the Supreme Court upheld the High Court judgment and dismissed the appeal..Senior Advocate RS Suri appeared for the appellant while Senior Advocate Gourab Banerji represented the respondent..Read the judgment below.