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Vidyawati Construction Company v. Union Of India And Others
Factual and Procedural Background
A dispute between the parties was referred by the court to arbitration. The appointed arbitrator, a retired Judge of the High Court, delivered an award on 13-06-2001. In that award he interpreted Section 24 of the U.P. Civil Laws (Reforms and Amendment) Act, 1976—which had inserted Para 7-A into the First Schedule of the Arbitration Act, 1940—regarding the rate of interest that could be awarded. Although he expressed doubt about an earlier Division Bench ruling of the High Court that capped pre-reference and pendente lite interest at 6% per annum, he nonetheless followed that ruling and limited the interest accordingly, expressly leaving the issue open for further examination by the court. The claimant filed the present application (I.A. No. 1) seeking modification of that portion of the award.
Legal Issues Presented
- Whether Para 7-A of the First Schedule to the Arbitration Act, 1940 (as amended in Uttar Pradesh) limits an arbitrator to awarding interest not exceeding 6% per annum only for the period from the date of the award to payment, or also limits pre-reference and pendente lite interest.
- Whether the costs awarded by the arbitrator warranted judicial modification.
Arguments of the Parties
The opinion does not contain a detailed account of the parties' legal arguments.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Unnamed Division Bench judgment of the High Court | Held that an arbitrator cannot award interest exceeding 6% per annum for the pre-reference and pendente lite periods under Para 7-A. | The present court disagreed with this interpretation, holding that the 6% cap applies only to post-award interest; consequently, it set aside the portion of the arbitrator’s award that had followed the Division Bench view. |
Court's Reasoning and Analysis
The court scrutinised the text of Para 7-A and observed that the phrase “with further interest not exceeding 6% per annum” logically refers to the interval between the date of the award and the date of payment. Therefore, the statutory cap does not extend to:
- Interest accruing before the reference to arbitration; or
- Interest pendente lite (during the arbitral proceedings).
Because the arbitrator had, albeit reluctantly, limited those earlier periods to 6% solely on the strength of the Division Bench ruling, the court found that portion of the award legally erroneous. Exercising powers under Section 16 of the Arbitration Act, 1940, it set aside the restricted interest clause and remitted the matter to the same arbitrator for reconsideration limited to that issue. Regarding costs, the court reaffirmed the principle that cost awards are discretionary; it found no instance of palpable error and therefore declined to interfere.
Holding and Implications
ORDER: The restriction of pre-reference and pendente lite interest to 6% per annum is set aside. The matter is remitted to the arbitrator for a fresh determination of interest within four months; the remainder of the award is left undisturbed, and I.A. No. 1 is disposed of.
Implications: The decision clarifies that, within Uttar Pradesh, the statutory 6% ceiling in Para 7-A applies only to post-award interest, allowing arbitrators discretion to award higher rates for earlier periods. The ruling affects only the parties to the present arbitration and does not purport to lay down a broader precedent beyond statutory interpretation.
Order
1. A reference was made by this Court in a dispute arising between the parties for final decision to the arbitrator, a retired Judge of this Court who made his award on 13-6-2001 and in the course of the award referred to Section 24 of the U.P Civil Laws (Reforms and Amendment) Act, 1976 by which Para 7-A of the First Schedule to the Arbitration Act, 1940 was amended and stated as follows:
“From the perusal of this paragraph it is clear that in the State of U.P the arbitrator is empowered to award interest from the date the cause of action accrued till the payment is made. But so far as rate of interest prior to the date of reference and pendente lite is concerned, the decision of the Division Bench that it cannot exceed 6% requires examination by the Apex Court while passing the decree. The expression, with further interest not exceeding 6% per annum appears to be confined to the period, from the date of award to the date of payment and not to interest pendente lite and prior to the commencement of arbitration proceedings. However, since the Division Bench has interpreted the provision it would be just and proper to accept and follow it in these proceedings.”
2. It is clear from the statement made in the course of this award that though the arbitrator adopted the view expressed by the Division Bench of the High Court doubting its correctness, he left the matter to be examined by this Court. It is on this aspect of the matter that the appellant/claimant seeks modification of the award.
3. We have perused the judgment upon which reliance has been placed by the arbitrator and in the course of the judgment after setting out Para 7-A it is stated as follows:
“In view of this amended provision the arbitrator had no jurisdiction to award interest exceeding 6% for the period prior to date of making reference or pendente lite.”
But the view stated by the arbitrator that this expression “with further interest not exceeding 6% per annum” appears to be confined to the period from the date of the award to the date of payment and not interest pendente lite and prior to the commencement of arbitration proceedings is correct and therefore the award needs modification.
4. Therefore, that part of the award by which the learned arbitrator confined interest as indicated in the course of the Division Bench ruling of the High Court is set aside and the matter is remitted to the arbitrator under Section 16 of the Arbitration Act, 1940 for consideration and disposal. In other respects, the award made by the arbitrator shall stand undisturbed. The arbitrator shall make an award within four months from receipt of the original record and a copy of this order.
5. A contention was raised as to modification of costs awarded. Award of costs being discretionary and nothing is shown as palpably incorrect to call for our interference. We have gone through the objections raised on behalf of the respondents and we find none of them falling within the scope of Section 31 of the Arbitration Act, 1940 and therefore, we reject all those contentions.
6. IA No. 1 is disposed of in the aforesaid terms.
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