Arbitration and Interest on Claims: Analysis of Union of India vs. M/s. Susaka Pvt. Ltd. Judgment

The case of Union of India vs. M/s. Susaka Pvt. Ltd. revolves around the award of interest by an arbitral tribunal on various claims arising from a works contract dispute with the Indian Railways. The Supreme Court had to determine whether the interest awarded for different periods—pre-reference, pendente lite, and post-reference—was legally justified.

The Supreme Court upheld the decision of the High Court, affirming that the interest awarded by the Arbitral Tribunal was valid and within its powers under Section 31(7) of the Arbitration and Conciliation Act, 1996.

Background of the Case

The Union of India (Railways) awarded a works contract for repairing stators of traction motors of electric locomotives to M/s. Susaka Pvt. Ltd. in December 1994. Disputes arose over payments and other contractual issues, leading the respondent to invoke the arbitration clause in the contract.

The Bombay High Court, with the consent of both parties, referred the disputes to an Arbitral Tribunal consisting of three arbitrators, all railway officials. The tribunal ruled in favor of the claimant and awarded:

• Interest for the pre-reference period (04.03.1996 to 05.05.1999) at 15% per annum.
• Pendente lite interest (06.05.1999 to 09.09.2002) at 12% per annum.
• Post-reference interest (from 09.09.2002 till payment) at 18% per annum.

The Union of India challenged the award under Section 34 of the Arbitration and Conciliation Act in the Bombay High Court, which upheld most of the award but modified the interest calculations on two claims. The respondent appealed, and the Division Bench of the High Court set aside the modifications, fully reinstating the Arbitral Tribunal’s award.

The Union of India then moved the Supreme Court.

Legal Issues

The main legal questions before the Supreme Court were:

• Whether the Arbitral Tribunal had the authority to award interest on the claims.
• Whether Clause 13(3) of the General Conditions of Contract (GCC) precluded the award of interest.
• Whether the High Court erred in affirming the Arbitral Tribunal’s award.

Arguments by the Appellant (Union of India)

The Union of India contended:

• The Arbitral Tribunal misdirected itself by awarding interest when Clause 13(3) of the GCC prohibited it.
• The contract explicitly barred payment of interest on security deposits and amounts payable under the contract.
• The interest rates awarded by the tribunal were excessive and unjustified.
• The High Court should not have interfered with the Single Judge’s limited modification of the award.

Arguments by the Respondent (M/s. Susaka Pvt. Ltd.)

The respondent countered:

• The issue of interest was referred to arbitration with the consent of both parties, making it arbitrable.
• The Union of India had not raised the objection regarding Clause 13(3) before the Arbitral Tribunal or the Single Judge, and thus it could not be raised now.
• The Arbitral Tribunal had the power to award interest under Section 31(7) of the Arbitration and Conciliation Act.
• The tribunal’s award was reasonable, given the prolonged delay in payments.

Supreme Court’s Observations

The Supreme Court examined Clause 13(3) of the GCC and noted:

“The appellant did not raise this objection before the Arbitral Tribunal, and having consented to arbitration on this issue, cannot now seek to invalidate the award on this ground.”

The Court further emphasized the principles of waiver and concluded:

“If a plea is available, whether on facts or law, it must be raised at the appropriate stage. The appellant’s failure to raise it before the Tribunal constitutes a waiver.”

Regarding the tribunal’s power to award interest, the Court held:

“Section 31(7) of the Arbitration and Conciliation Act empowers the Arbitral Tribunal to award interest, unless expressly barred by the contract.”

Final Judgment

The Supreme Court ruled that:

• The High Court was correct in upholding the Arbitral Tribunal’s award.
• The appellant’s objection based on Clause 13(3) was waived due to failure to raise it earlier.
• The tribunal’s award of interest was within its statutory powers.
• The appeal was dismissed, and the respondent was entitled to the awarded sum with interest as determined by the Arbitral Tribunal.

Implications of the Judgment

This ruling has significant implications for arbitration law in India:

• Reaffirms that arbitration agreements must be honored in full, including consented issues.
• Clarifies that objections to arbitral awards must be raised at the earliest opportunity.
• Confirms that interest awards by arbitral tribunals are valid unless explicitly barred by contract.
• Strengthens procedural discipline in arbitration challenges.

Conclusion

The Supreme Court’s decision in this case upholds the authority of arbitral tribunals to award interest and reinforces procedural fairness in arbitration proceedings. It ensures that government agencies cannot evade financial obligations through technical defenses raised belatedly.

Judgment delivered by: Abhay Manohar Sapre, Navin Sinha

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