10 January 2022, Monday

1 year ago

Power to grant pre-reference and pendente lite interest is subject to agreement but court’s or tribunal’s discretion to award costs under ACA overrides CPC and parties agreement (unless post-disputes): Delhi High Court

20 December 2021 | Union of India v. Om Vajrakaya Construction Company | OMP 299 of 2021 | Vibhu Bakhru J | Delhi High Court

Considering a challenge to an arbitral award, the Delhi High Court set aside the grant of interest pendente lite because it was contrary to a term of the GCC that stated, “where the arbitral award is for the payment of money, no interest shall be payable on whole or any part of the money for any period till the date on which the award is made.” The court noted:

  1. The Supreme Court’s Bright Power (2015) 9 SCC 695 (3-judge) has held that where the parties’ agreement “proscribes award of interest, award of pre-reference would be impermissible.”
  2. The view was reiterated in Jaiprakash Associates (2019) 17 SCC 786 (3-judge), and the “question is no longer res integra.” Thus, “the impugned award to the extent it awards pendente lite interest, is liable to be set aside.”

[Editor's Note: Subject to the parties’ agreement, Section 31 (7) (a) ACA provides for the grant of interest between the date on which the cause of action arises, and the date of the award is made. Broken further, this involves two components: interest pre-reference (i.e., from the date of cause of action till the date of reference to the arbitrator) and pendente lite (from reference till the award). For convenience, the period covered by Section 31 (7) (a) ACA may also be termed pre-award interest. Bright concerned pendente lite interest and Jaiprakash both pre-reference and pendente lite.

For a discussion and survey of case laws under the 1940 Act and the changes brought in the 1996 ACA, also see Reliance Cellulose (2018) 9 SCC 266.

For post-award interest, see Hyder Consulting (2015) 2 SCC 189 and also our Biweekly Highlight here.]

However, the court rejected the other ground of challenge that the tribunal granted costs contrary to the contract terms. The court ruled that because the argument was raised for the first time in the set-aside proceedings, the argument “is liable to be rejected on this ground alone.” Nonetheless, the argument was without merit because:

  1. Unlike the power of the tribunal to award interest under Section 31 (7) (a) ACA (that starts with “unless otherwise agreed by the parties”), the courts or the tribunal’s discretion to grant costs under Section 31A ACA is not fettered by parties’ agreement.
  2. Also, because of the opening non-obstante wording of Section 31 A ACA, the discretion remains despite any repugnancy with the CPC (“notwithstanding anything contained in the Code of Civil Procedure”).
  3. Section 31A (5) ACA “makes it amply clear that an agreement which has the effect that a party is to pay the whole or part of the costs of the arbitration” is valid only if made after the disputes arise. In this case, the term of the contract --parties to bear their own costs—is an agreement for a party to pay the part of the costs and is invalid.
  4. The court also examined a contention that the tribunal erred in holding the Railways responsible for the delay and rejected it after a “plain reading” of the award that indicated the tribunal’s view was well considered.

Read the decision here.


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