Rate of Interest Depends on Circumstances of a Case: High Court of Jammu & Kashmir and Ladakh at Srinagar

In the case of arbitration, rate of interest cannot be imposed at a uniform rate without looking into the circumstances of a given case, as observed by the High Court of Jammu & Kashmir and Ladakh at Srinagar, before the HON’BLE JUSTICE MR. ALI MOHAMMAD MAGREY, in the matter of MD and Ors. (J&K Power Development Corporation) vs. M/s Trust House Construction Engineers and Builders [AA no. 2/2021], on 04.12.21.

The facts of the case were that in the year 1988, a work of construction, RCC Cut and Cover Conduit for a certain length of the Sumbal Link Channel in Upper Sindh Hydel Project was allotted to the respondent contractor. The allotted work to the respondent, for execution, got delayed due to eruption of militancy in the State of Jammu & Kashmir, and the respondent was granted extension in time despite which work was not executed. The appellants allowed revised rates in favour of the respondent for the 10% of work which was incomplete, as stated, from April 1993 and the claim for 90% of the allotted work which had been completed before 1.4.1993 was not admitted.

The denial of the claim for revision of rates from 1.1.1990 for the work already completed formed a ground for the respondent to approach this Court seeking reference of dispute to arbitration and the High Court in terms of order dated 17.7.2012, appointed Mr. Ghulam Mohi-ud-din Dar, as arbitrator to enter upon the reference and pass its award. After evaluation of the evidence on the issues framed, the arbitrator passed an Award dated 21.7.2014 in favour of respondent to the tune of Rs. 45,38,416/- along with interest @10% per annum from the date of filing of the petition till the date of passing of award. The learned Arbitrator also held respondent herein, was entitled to interest @ 18% per annum from the date of award till its final realization.

Aggrieved by the Award of the learned Arbitrator, the appellants filed an application under Section 34 of the Arbitration and Conciliation Act, 1996, before the court of Principal District Judge, Srinagar, seeking setting aside of the Award. The application was dismissed in terms of order dated 05.12.2020, holding that none of the grounds projected in the application have been substantiated within the parameters envisaged under Section 34.

The Learned Counsel for the appellants, Mr M. A. Chashoo, argued that the impugned order is challenged inter alia on the grounds that, firstly, the order is patently illegal, erroneous and against the settled position of the law on the subject having been passed against the terms and conditions of the agreement; there is total non-application of mind; the arguments advanced before it by the appellants were not considered at all, the court below did not appreciate that the claim petition was an afterthought; the learned Arbitrator has awarded interest in violation of the statutory provisions which go to the roots of the Award as well as the impugned order; the award of the learned Arbitrator being not only in violation of the terms and conditions of the agreement but in conflict with the fundamental policy also.

The Learned Counsel for the respondents, Mr R. A. Jan¸ while opposing the appellants’ counsel’s contentions, argued that the appellants’ qua time barred claim is factually incorrect and legally unsustainable as the learned Arbitrator as also the Court below has, by exhaustive examination and discussion, based on evidence, turned down the contention so made by the appellant. It was further submitted that the Arbitral award can only be interfered with when it is patently illegal provided such patent illegality goes to the root of the matter which, however, is not the case in hand.

The Honourable High Court of Jammu & Kashmir and Ladakh at Jammu, after considering all the evidence and arguments put forth, acknowledged that as far as the scope of interference with an impugned order made under Section 34, in terms of Section 37 of the Arbitration and Conciliation Act, 1996, is concerned, the only thing that needs to be seen is that the power exercised by the court below under Section 34 of the Arbitration and Conciliation Act, 1996 is well within the contours of the provision under which the same has been exercised; and the evidence on record is not to be re-appreciated. It held that the court below has rightly held that the application filed in terms of Section 34 does not fall within any of the factors envisaged in the Act that may warrant interference and upsetting the award. The High Court observed that it is thus no more res integra that the arbitrator is competent to award interest pendent lite. However, the rate of interest is to be fixed in the circumstances of each case and, therefore, it may vary from case to case; and cannot be imposed at a uniform rate without looking into the circumstances of a given case.

Having regard to the facts and circumstances of the case, the High Court found it just, proper and equitable to allow 6% interest instead of 10% awarded by the Arbitrator. Thus, the Court allowed the appeal and modified the award to the aforementioned extent.

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