Skip to main content

Arbitrator has to abide by the contract while dealing with pendente lite interest

In GARG BUILDERS vs BHARAT HEAVY ELECTRICALS LIMITED, appeal was filed against Order of the Division Bench of the High Court of Delhi, resulting in denial of pendente lite interest on the award amount to the appellant.

The appellant as project contractors had a dispute with the Respondents which was placed before the Arbitrator. Learned Arbitrator after hearing the contentions of both the parties concluded that there is no prohibition in the contract about payment of interest for the pre­suit, pendente lite and future period. The Respondents appeal before the Delhi High Court that the learned Arbitrator being creature of the arbitration agreement travelled beyond the terms of the contract in awarding pendente lite interest on the award amount as the same was expressly barred in terms of the contract. The single judge concluded that As stated earlier, in terms of Section 31(7)(a) of the Act, the power of the arbitral tribunal to award pre award interest is contingent to the parties not agreeing to the contrary. Pre­award interest includes both pre­ reference interest as well as pendente lite interest. Thus, the conclusion of the Arbitrator that award of pendente lite interest was not prescribed by clause 17 of the Agreement is not sustainable. Division Bench agreed.

On appeal, the Supreme Court held that the law relating to award of pendente lite interest by Arbitrator under the 1996 Act is no longer res integra. The provisions of the 1996 Act under Section 31(7)(a), give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre­reference and pendente lite interest when the parties themselves have agreed to the contrary. If the contract prohibits pre­reference and pendente lite interest, the arbitrator cannot award interest for the said period.

It is pertinent to note that interest payments are governed in general by the Interest Act, 1978 in addition to the specific statutes that govern an impugned matter. Section 2 (a) of the Interest Act defines a “Court” which includes both a Tribunal and an Arbitrator. In turn, Section 3 allows a “Court” to grant interest at prevailing interest rates in various cases. The provisions of Section 3 (3) of the Interest Act, 1978 explicitly allows the parties to waive their claim to an interest by virtue of an agreement. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is “barred by virtue of an express agreement”.

Comments

Post a Comment

Most viewed this month

Michigan House Approves 'Right-to-Work' Bill

Amid raucous protests, the Republican-led Michigan House approved a contentious right-to-work bill on  Dec 11 limiting unions' strength in the state where the (Union for American Auto Workers)  UAW was born. The chamber passed a measure dealing with public-sector workers 58-51 as protesters shouted "shame on you" from the gallery and huge crowds of union backers massed in the state Capitol halls and on the grounds. Backers said a right-to-work law would bring more jobs to Michigan and give workers freedom. Critics said it would drive down wages and benefits. The right-to-work movement has been growing in the country since Wisconsin fought a similar battle with unions over two years ago. Michigan would become the 24th state to enact right-to-work provisions, and passage of the legislation would deal a stunning blow to the power of organized labor in the United States. Wisconsin Republicans in 2011 passed laws severely restricting the power of public s...
Post a Comment
Read more

Power to re-assess by AO and disclosure of material facts

In AVTEC Limited v. DCIT, the division of the Delhi High Court held that AO is bound to look at the litigation history of the assessee and cannot expect the assessee to inform him.  In the instant case, the Petitioner, engaged in the business of manufacturing and selling of automobiles, power trains and power shift transmissions along with their components, approached the High Court challenging the re-assessment order passed against them. For the year 2006-07, the Petitioner entered into a Business Transfer Agreement with Hindustan Motors Ltd, as per which, the Petitioner took over the business from HML.  While filing income tax return for the said year, the petitioner claimed the expenses incurred in respect of professional and legal charges for the purpose of taking over of the business from HML as capital expenses and claimed depreciation. Article referred: http://www.taxscan.in/assessing-officer-bound-look-litigation-history-assessee-delhi-hc-read-order/8087/
Post a Comment
Read more

The recovery of vehicles by the financier not an offence - SC

Special Leave Petition (Crl.) No. 8907  of 2009 Anup Sarmah (Petitioner) Vs Bhola Nath Sharma & Ors.(Respondents) The petitioner submitted that  respondents-financer had forcibly taken away the vehicle financed by them and  illegally deprived the petitioner from its lawful possession  and  thus,  committed  a crime. The complaint filed by the petitioner had been  entertained  by  the Judicial Magistrate (Ist Class), Gauhati (Assam) in Complaint Case  No.  608 of 2009, even directing the interim custody of the vehicle (Maruti  Zen)  be given to the petitioner vide order dated  17.3.2009.  The respondent on approaching the Guwahati High  Court against this order, the hon'ble court squashed the criminal  proceedings  pending   before  the  learned Magistrate. After hearing both sides, the Hon'ble Supreme Court decided on 30th...
7 comments
Read more