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High Court of Jammu and Kashmir and Ladakh Clarifies Rules as to Interest on Arbitral Awards

Overview

In this case, the High Court of Jammu and Kashmir and Ladakh dealt with a very specific question as to whether a person who has already been awarded money in arbitration can also claim interest on that particular amount. The petitioners approached the court after the arbitrator granted them ?5.2 lakhs for the work done by them, but refused to grant any additional interest on the same. 

So the dispute was not about whether the money was payable, but it was about whether the delay in receiving that money should also be subject to compensation. The Court had to examine whether an arbitrator can deny interest even when the terms of the contract are silent, and whether the Court can interfere with the same and modify such an award. 

 

Facts of the Case

The dispute arose from a contract granted in May 1995 to the petitioners, National Engineers, for supplying and installing water pumps at Nagrota by the respondents, Union of India. The work involved designing, supplying, testing, and commissioning the pumps within four months.

The petitioner claimed that they delivered the pumps and completed their part, but no payment was provided for the same. On the other hand, the respondents argued that the work was delayed, and that the pumps did not meet proper specifications. Even after extending the deadline till April 1996, the work remained unsatisfactory and the contract was eventually cancelled. 

Later in 1997, a Board of Officers inspected the pumps and suggested that they could be accepted with some changes. Despite the same, the issue as to payment remained unresolved. 

The dispute was referred to arbitration in 2003 and in August 2005, the arbitrator awarded ?5.2 lakhs to the petitioner but refused to grant any interest. The petitioner then filed an application under Section 33 of the Arbitration and Conciliation Act, asking the arbitrator to collect the award and include interest. However, in October 2005, the arbitrator clarified the payment timeline, and no interest was granted. 

Due to this, the petitioner challenged the award under Section 34 of the Act before the J&K High Court.

 

Legal Issues

  1. Whether an arbitrator can refuse to grant interest after an award has been passed, even when the contract is silent as to the same.
  2. Whether the court can modify an arbitral award under Section 34 of the Arbitration Act, only with respect to the component of interest. 
  3. Whether a party who has been deprived of money for a long period of time should be compensated through interest. 
  4. Whether the conduct of the claimant leading to delay affects their entitlement to interest.

 

Decision

The High Court partly allowed the petition and the award was modified to a limited extent.

The Court agreed that the arbitrator has the power to grant interest even if the contract is silent to the same. It was also recognised that when someone is kept away from the money which rightfully belongs to them, they should be compensated in case of delay. 

The Court, however, also looked at the conduct of the petitioner where it was found that there were delays and shortcomings in completion of the work as per the contract. Due to this, the Court held that the arbitrator was justified in refusing past and pendente lite interest.

When it came to future interest, the Court was of a different opinion. It was held that once an arbitrator has already decided that ?5.2 lakhs is to be payable, any further delay in payment after the award should be compensated. 

Following the same, the Court directed that the awarded amount would carry a simple interest at the rate of 10% per annum from the date of the award until full payment is made. 

 

Case Reference:- National Engineers, through its partner Brij Wallia (Petitioners) Vs. Union of India through Commander Works Engineer (Respondents) AA No. 6/2006 (SJB, Delivered by M.A. Chowdhary, J.)