Arbitrator can award separate interest on claims: Orissa High Court

Arbitrator can award separate interest on claims: Orissa High Court

The Orissa High Court in its recent judgement has held that the arbitrator can award separate interest on claims which are in nature of interest for delayed payment.

The bar under Section 3 of the Interest Act, 1978 does not apply interest under the Arbitration and Conciliation Act (A&C Act), as held by the bench. It was additionally noted that under Section 31(7)(a) of the A&C Act there is no bar on the grant of interest on interest.

The Court further held that a party cannot challenge the arbitral award on the ground that the arbitration clause from the original agreement was scored out unless such an issue was raised before the arbitrator.

The present issue arose when the parties entered into an agreement for the purpose of executing the project work. However, due to a two year delay in making payment against the final bill, the respondent invoked the arbitration clause.

The arbitrator rejected the application filed by the appellant under Section 16 of the Act. The arbitrator passed the final award and allowed the claims of the respondent. Aggrieved by the award, the appellant challenged it under Section 34 of the Act, however, the lower court dismissed the application and upheld the award.

As a result, the appellant filed an appeal under Section 37 of the Act.

The appellant submitted that the arbitrator had erred in allowing interest on claims that were purely claims of interest due to alleged delay in payment, therefore, the arbitrator has erred in allowing interest on interest which is prohibited under the Interest Act, 1978.

On the perusal of the facts and submissions, the Court rejected the contention of the appellant that the arbitrator could not award interest on interest, and held that Claim No. 1 & 5 were claim of damages in the form of interest due to delay in release of payment. Moreover, there is nothing in the A&C Act that prevents grant of interest on interest.

The Court held that the arbitrator can award separate interest on claims which are in nature of interest for delayed payment. It held that bar under Section 3 of the Interest Act, 1978 does not apply interest under the A&C Act. Further, it held that under Section 31(7)(a) of the A&C Act there is no bar on the grant of interest on interest.

The appeal was thus dismissed.