Interest On Awarded Amount Cannot Exceed Rate Of 6% As Provided U/S 30(7) Of J&K Arbitration Act: High Court

Brief Facts

This petition under section 34 of the Jammu and Kashmir Arbitration Act has been filed assailing an order passed by Sole Arbitrator Satish Chander (C.E.) (for short „Arbitrator‟), granting an amount of ₹ 5,24,735/- with interest, in favour of the respondent-contractor

The Disputes arose out of a contract for “Provision of Storage Shed, Road and Infrastructure at Rakh Muthi/Jourian” vide No. CEUZ-31/2003-2004 and Chief Engineer Satish Chander was appointed as sole arbitrator who passed the impugned award.

Contentions:

The petitioner submitted that the learned Arbitrator had passed the award granting claims of the respondent – contractor arbitrarily and that the interest has also been wrongly granted to the contractor in the impugned award in contravention to sub-section (7) of Section 31 of the J&K Arbitration and Conciliation Act, 1997.

It was also submitted that in view of the amendment in Section 31 in the year 2010, the interest has been wrongly granted @ 10% and 12% instead of uniform simple interest @ 6% as statutorily provided.

Per contra, the respondent submitted that the learned Arbitrator has passed the award perfectly in consonance with law and does not call for any interference by this Court with regard to all the claims filed by the petitioner as a contractor and after consideration of the evidence led by both the sides before the learned Arbitrator.

It was further submitted that Section 31(7) of the J&K Arbitration and Conciliation Act, 1997 provided for grant of interest by the arbitrator for any pre-reference and pendent-lite period at such rate, as the Arbitrator may deem reasonable and after passing of the award @ 18% per annum till the date of payment.

It was also submitted that this section came to be amended on 21.04.2010, whereby the jurisdiction of the Arbitrator to award interest was confined to 6% per annum for all the periods. This amendment was prospective in nature, therefore, the Arbitrator awarded interest @ 10% on the awarded amount from 13.02.2008 to 20.04.2010 and further at the rate of 6% from 21st April 2010 onwards till date of award.

Decision of The Court:

The court, at the outset, referred to the Supreme Court judgment in Executive Engineer (R and B) & Ors. Vs. Gokul Chandra Kanungo (Dead) through his LRs” 2022 wherein it was held 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.”

The court in the above case also observed that it could further be seen that the arbitral tribunal has also a discretion to award interest on the whole or any part of the money or for the whole or any part of the period between the date of cause of action and the date on which the award is made.

Section 31 of the J&K Arbitration and Conciliation Act,1997 the court observed, deals with the “Form and contents of arbitral award”, providing that it shall be made in writing and shall be signed by the members of the arbitral tribunal, stating the reasons upon which it is based except that the parties have agreed that no reasons are to be given or the award is based on agreed terms under section 30 of the Act, on a settlement.

Section 30(7) of the Act further provides that from the date when the cause of action arose, till the award is made, the Arbitrator has powers to award interest as he/she may deem reasonable but not exceeding 6% on the whole or any part of the money or for the whole or any part of the period.

In other words, the Arbitrator can exercise powers for grant of interest from the date of the cause of action arose, to the date the award is made, at any rate, not exceeding 6%, per annum as may be deemed reasonable.

Reverting to the impugned award, it appears that the same was passed on 06.12.2013 after the amendment was made in the year 2010, as such, the learned Arbitrator was bound by the amended provision as contained in subsection (7) of Section 31 of the J&K Arbitration and Conciliation Act, 1997, the court observed.

It was further observed that it is clear from the bare reading of the amended provision that amendment made by Amendment Act No. VI of 2010 which is quoted as “at such rate not exceeding 6% as it may deem reasonable for 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.

The court further observed that therefore, with the sweeping phraseology used in the section itself, it is explicitly clear that the amendment is not of prospective but was that of retrospective nature, making the limit of 6% interest applicable from the date the cause of action arose and not from the date of the amendment of the Act, came into force.

It was observed that since no reason has been assigned and the learned Arbitrator had granted interest @ 6% per annum for past and pendente lite period, this Court is of the considered opinion that the learned Arbitrator has taken an erroneous view of the matter, with regard to rate of interest imposed on the award. The same requires to be modified.Accordingly, the award to this extent was modified.

Case Title: Union of India Vs M/S Sharma Construction Co. Akhnoor District Jammu

Case Number: AA No. 09/2014

Date Of Judgment: 29/11/2024

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