Brief Facts and Procedural History:
On 20.3.1991, respondent invited tender for the execution of certain work in connection with new goods terminal yard of South-Eastern Railway in Howrah District. The appellant submitted his application which was successfully accepted by the issuance of a letter of acceptance. In this connection, an agreement was entered into between both the parties. This agreement entered into contained ‘General Conditions of the Contract’ clause in it. The GCC, governing the contract between both the parties contained a clause which prohibited the payment of interest. (Para 4, 5 and 16)
Certain disputes arose between both the parties and the respondent demanded the termination of the contract. Subsequently, the appellant demanded that the dispute should be referred to the arbitral tribunal. An application was filed under section 11(6) of the 1996 Act to appoint an arbitrator. The General Manager of South-eastern Railway was appointed as an arbitrator and on 20.09.2006 he passed an appropriate award. This award was challenged by the respondent under section 34 of the Arbitration and Conciliation act, 1996, before the learned single judge of the High Court. The Learned single judge dismissed the application. Further, an appeal was preferred before the Division bench wherein the respondent contended that the appellant had issued “No claims certificate” and therefore forfeited his right for any claim against him. The Division bench thus set aside the order of the learned single bench. The present appeal is before the Supreme Court of India. (Para 1, 6 & 7)
Issues before the Court:
- Whether the Division Bench was justified in considering the arbitrability of the dispute for the first time in the appeal?
- Whether the Arbitral Tribunal was justified in awarding interest on the delayed payments in favour of the appellant?
Arguments of the appellant:
- The issue relating to “No Claims Certificate” was earlier never raised before the arbitral tribunal or before the learned single judge. It was for the first time raised before the division bench of the high court which is not acceptable since such issues are to be raised during the prior proceedings only.
- The award passed by the tribunal is worth appreciating. The tribunal had correctly granted pre-award and pendent lite interest till the realization of the award amount.
Arguments of the respondent:
- Since there exist “No Claims Certificate” the appellant as not right to make any claim except for the security deposit.
- There was no arbitral dispute between the parties and thus the claim is not maintainable.
- The appellant was not entitled to any interest.
Ratio of the author of the judgement:
With regards to the first issue the court held that the courts can review the arbitral award only in cases of fraud or bias by the arbitrators or in violation of natural justice, etc. and not otherwise. In the present case, since no such occurrence was depicted, the division bench was not justified in considering the arbitrability of the dispute particularly when no such claim was raised in the earlier proceedings. (Para 10 to 14)
With regards to the second question, a reference has been made to section 31(7)(a) of the 1996 act which provides for payment of interest. According to this section, if the agreement prohibits an award of interest then the arbitrator cannot award interest for the said period. Since in the present case, such agreement was present such an award was held not maintainable. (Para 15 to 22)
The appeal was partly allowed and disposed of in the aforesaid terms.