In the instant case, the Hon’ble Supreme Court has held that the Arbitrator has the power to award pre-reference & pendente lite interest even when agreement is silent about the same. The facts of the present case are that the State of West Bengal (“Respondent”) had issued a notice in 2010 inviting tender for road widening work and strengthening of Egra Bajkul road under the Tamluk Highway Division in Purbo Medinipur District. The Respondent accepted Pam Developments Private Limited’s (“Appellant”) offer and subsequently, the Respondent issued a Work Order for the project to be completed within a period of 18 months. The project was delayed, (by about 5 months); however, the work was finally completed in November 2012. Accordingly, upon completion of the said project, the Appellant raised a bill for Rs. 77,85,290/- and the same was in addition to seven other claims under different heads, owing to alleged delays on part of the Respondent. The Respondent denied its liability towards making any payment whatsoever to the Appellant. As such disputes and differences arose between the parties and the matter was ultimately referred to the Arbitration. The Ld. Arbitrator passed an award in 2018, and awarded an interest of 12% p.a. from April 2016 to January 2018 and 9.25% p.a. post award interest till date of actual payment.
The Respondents filed a Petition under Section 34 of the Arbitration and Conciliation Act, 1996 (“1996 Act”) challenging the said award passed by the Ld. Arbitrator. The Hon’ble District Judge partly allowed the said Petition filed by the Respondent thereby setting aside claim no. 1 for loss of business and claim no. 2 for uneconomic utilization of plant and machinery as the Ld. Arbitrator didn’t account for the loss of 135 days at the behest of the Appellant while determining the alleged 200 days of ‘wasted machine’. Being aggrieved the Appellant filed an Appeal under Section 37 of the 1996 Act and the Respondent filed a Cross Appeal whereby it sought to set aside the rest of the claims as well. The Hon’ble Calcutta High Court set aside the claim no. 1 as well as claim nos. 3 and 4 but restored the award with respect to claim no. 2. However, while retaining claim no. 5 as it is, the Hon’ble Calcutta High Court slightly modified claim no. 6 relating to pre-reference interest. Being aggrieved, the Appellant filed an Appeal in Supreme Court. One of the issues of dispute between the parties was regarding the award of pre-reference, pendete- lite and post award interest, despite the contract not providing for an express provision for the grant of pre-reference interest.
The Hon’ble Supreme Court observed that Section 31(7)(a) of the 1996 Act, does not make a distinction between pre-reference and pendente lite interest, and it also sanctifies party autonomy by restricting the power to grant pre-reference and pendente lite interest if the agreement bars the payment of interest. However, if the agreement is silent on grant of interest or does not specifically prohibit the same, arbitrator’s power to grant pre-reference and pendente lite interest is not restricted. The Hon’ble Supreme Court observed that the pendente lite interest is a matter of procedural law and pre-reference interest is governed by the substantive law. Therefore, grant of pre-reference interest cannot be sourced solely on Section 37 of 1996 Act. Being substantive law, it has to be based on agreement between the parties (express or implied) or statutory provision. Hence, on the issue of grant of interest, the award was upheld. Accordingly, the Hon’ble Supreme Court disposed of the said Appeals.