Article 142 invoked to reduce interest rate awarded by Arbitral Tribunal

Executive Engineer Vs Gokul Chandra Kanungo (Supreme Court of India)

Conclusion: In present case, the Hon’ble Supreme Court invoked the provision of Article 142 of the Constitution of India and reduced the rate of Interest awarded by the arbitral tribunal by considering the fact that the long duration has been passed since filing of the claim.

Facts: In present facts of the case, the Respondent was awarded the contract for construction of 3 kilometers on 16.12.1971. The work was to be completed within one year that is before 15^th December 1972. However, the work completed only on 30^th August 1977. The Respondent, after a long time on 25^th July 1989, issued a notice to the appellant regarding his claim. The said notice was replied to by the appellant on 10^th August 1989 stating therein that, as against the claim of Rs.3,34,744/­, the respondent had been paid an amount of Rs.3,36,465/­. The Respondent moved to Civil Court under Section 20 of the Arbitration Act, 1940 seeking reference of the dispute to arbitration, wherein the suit was decreed in favour of the respondent and he was directed to file the original agreement in the court for referring the dispute to arbitration. However, the respondent did not file the original agreement as directed. In the meantime, the 1940 Act was repealed and the Arbitration and Conciliation Act, 1996 came into force.

The respondent thereafter filed an application appointment of an arbitrator under the provisions of the 1996 Act. The same was rejected by the trial court vide order dated 4^th February 2000 for lack of jurisdiction. The respondent thereafter moved before the High Court for appointment of an arbitrator, wherein the application was allowed. On 15^th March 2002, the respondent filed his claim of Rs.1,45,28,198/­- under 15 heads of claim and demanded 19.5% interest from 1^st April 1976 to 15^th March 2002. The learned Arbitrator, vide award dated 24^th August 2004, awarded a sum of Rs.9,20,650/­ in respect of head Nos. 1 to 14. The learned Arbitrator also awarded interest pendente lite with effect from 1^st April 1976 to the date of the award at the rate of 18% per annum which came to Rs. 46,90,000/­-. The learned Arbitrator further directed the future interest to be paid at the rate of 18% per annum on the total of the aforesaid two amounts till actual payment. Being aggrieved thereby, the appellants herein, filed a petition District Courts under Section 34 of the 1996 Act for setting aside the award. The same was rejected by an order dated 25^th July 2007. Being aggrieved thereby, the appellants filed an appeal under Section 37 of the 1996 Act before the High Court. The same was also dismissed vide the impugned judgment. Being aggrieved thereby, the Appellant have moved the present Appeal.

The Hon’ble Supreme Court after taking submissions of both sides into consideration observed that under the provisions of Section 31(7)(a) of the 1996 Act no doubt, a discretion is vested in the arbitral tribunal to include in the sum for which the award is made interest, on the whole or any part of the money, for the whole or any part of the period between the date on which the cause of action arose and the date on which the award is made. However, it would reveal that the section itself requires interest to be at such rate as the arbitral tribunal deems reasonable. When a discretion is vested to an arbitral tribunal to award interest at a rate which it deems reasonable, then a duty would be cast upon the arbitral tribunal to give reasons as to how it deems the rate of interest to be reasonable. A perusal of the award as also the judgment and order of the District Judge as well as the High Court would reveal that no such exercise has been done.

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