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Arbitrator Can Award Interest On Interest Under The A&C Act: Orrisa High Court

Ausaf Ayyub
14 Sep 2022 12:45 PM GMT
Arbitrator Can Award Interest On Interest Under The A&C Act: Orrisa High Court
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The Orissa High Court has held that the arbitrator can award separate interest on claims which are in nature of interest for delayed payment.

The Bench of Justice Arindam Sinha held that bar under Section 3 of the Interest Act, 1978 does not apply interest under the A&C Act. It held that under Section 31(7)(a) of the A&C Act there is no bar on the grant of interest on interest.

The Court further held that a party cannot challenge the arbitral award on the ground that the arbitration clause from the original agreement was scored out unless such an issue was raised before the arbitrator.

Facts

The parties entered into an agreement for execution of the project work. There was a delay of two years in making the payment against the final bill. Aggrieved by the delay in the release of the payment, the respondent invoked the arbitration clause.

The arbitrator rejected the application filed by the appellant under Section 16 of the Act. The arbitrator passed the final award and allowed the claims of the respondent. Aggrieved by the award, the appellant challenged it under Section 34 of the Act, however, the lower court dismissed the application and upheld the award.

Aggrieved by the award and the decision of the court below, the appellant filed an appeal under Section 37 of the Act.

Grounds of Challenge

The appellant challenged the award on the following grounds:

  • There was no arbitration clause between the parties as the arbitration clause was scored out of the original agreement, therefore, the award is passed without any jurisdiction.
  • The claims of the respondent were non-arbitrable as it had furnished a no-claim certificate.
  • The arbitrator has also erred in allowing interest on claims that were purely claims of interest due to alleged delay in payment, therefore, the arbitrator has erred in allowing interest on interest which is prohibited under the Interest Act, 1978.
  • Moreover, the arbitrator has not assigned any reasons for allowing the claims of the respondent.

Analysis by the Court

The Court held that on perusal of the record of the case it appears that the issue as to non-existence of the arbitration clause due to scoring it out was not pleaded before the arbitrator, therefore, the appellant cannot now contend that there was no agreement between the parties. Moreover, there is no additional signature of respondent in any page of the agreement. Court has noticed three pages in the agreement bear stamp and signatures on behalf of appellant. There is no other signature to indicate that the scoring out was done, in presence of and acknowledged by the parties on putting their signatures in addition, on the relevant pages.

The Court rejected the contention of the appellant that the arbitrator could not award interest on interest, the Court held that Claim No. 1 & 5 were claim of damages in the form of interest due to delay in release of payment. Moreover, there is nothing in the A&C Act that prevents grant of interest on interest.

The Court held that the arbitrator can award separate interest on claims which are in nature of interest for delayed payment. It held that bar under Section 3 of the Interest Act, 1978 does not apply interest under the A&C Act. Further, it held that under Section 31(7)(a) of the A&C Act there is no bar on the grant of interest on interest.

Accordingly, the Court dismissed the appeal.

Case Title: Mahanadi Coalfields Ltd. v. B.S. Agarwal, Engineers and Contractors, ARBA No. 47 of 2005.

Date: 06.09.2022

Counsel for the Appellant: Mr. Somadarsan Mohanty, Advocate

Counsel for the Respondent: Mr. Adarsh Kumar Tiwari, Advocate Mr. Tathagat Kumar Divyanshu Chaubey, Advocate

Click Here To Read/Download Order

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