UNION OF INDIA versus M/S. KRAFTERS ENGINEERING & LEASING (P) LTD.

Citation: [2011] 8 S.C.R. 196 · Decided: 12-07-2011 · Supreme Court of India · Bench: P. SATHASIVAM · Disposal: Appeal(s) allowed

Cited by 3 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

A 
B 
[2011] 8 S.C.R. 196 
UNION OF INDIA 
v. 
M/S. KRAFTERS ENGINEERING & LEASING (P) LTD. 
(Civil Appeal No. 2005 of 2007) 
JULY 12, 2011 
[P. SATHASIVAM AND A.K. PATNAIK, JJ.] 
Arbitration Act, 1940 - Jurisdiction of arbitrator to award 
interest when contract prohibits it - Held: In such a case, 
C arbitrator cannot award interest for the amount payable to the 
contractor under the contract - However, where there is no 
prohibition as regards the grant of interest, arbitrator has the 
power to award interest pendente lite - On facts, the bar under 
clause 1.15 of the General Conditions of the Contract between 
o the parties prohibiting payment of interest on amount payable 
to contractor under the contract, is absolute and interest cannot · 
be awarded without rewriting the contract - Thus, the award of 
the arbitrator granting interest in respect of the amount 
payable to the contractor under the contract is set aside. 
E 
Respondent was awarded a works contract. Certain 
disputes arose between the parties. On an application by 
the respondent, an arbitrator was appointed but since the 
arbitrator could not deliberate the matter within the time 
limit, the respondent invoked the jurisdiction of Umpire. 
F The Umpire gave award for certain claims and rejected 
certain claims. The appellant challenged the award given 
by the Umpire as regards the grant of interest. The High 
Court dismissed the arbitration petition as also the 
appeal. 
G 
H 
The question which arose for consideration in the ·. 
instant appeal was whether the arbitrator has jurisdiction 
to grant interest despite the agreement prohibiting the 
same. 
196 
UNION OF INDIA v. KRAFTERS ENGINEERING & 
197 
LEASING (P) LTD. 
Allowing the appeal, the Court 
A 
HELD: 1.1 Where the parties had agreed that no 
interest shall be payable, the arbitrator cannot award 
interest for the amounts payable to the contractor under 
the contract. Where the agreement between the parties 
8 
does not prohibit grant of interest and where a party 
claims interest and the said dispute is referred to the 
arbitrator, he shall have the power to award interest 
pendente lite. In such a case, it must be presumed that 
. interest was an implied term of the agreement between 
C 
the parties. However, this does not mean that in every 
case, the arbitrator should necessarily award interest 
pendente lite. In the absence of any specific stipulation 
or prohibition in the contract" to claim or grant any such 
interest, the arbitrator is free to award interest. [Para 14) 
[210-G-H; 211-A-B] 
D 
1.2 In light of the above said principle and in view of 
Clause 1.15 of the General Conditions of the Contract 
between the parties whereby it prohibits payment of 
interest on the amount payable to the contractor under 
E 
the contract, the arbitrator ceases to have the power to 
grant interest. It is clarified that the Arbitration Act, 1940 
does not contain any specific provision relating to the 
power of arbitrator to award interest. However, in the 
Arbitration and Conciliation Act, 1996, there is a specific 
F 
provision with regard to award of interest bY the 
arbitrator. The bar under clause 1.15 is absolute and 
interest cannot be awarded without rewriting the contract. 
Thus, the award of the arbitrator granting interest in 
respect of the amount payable to the contractor under G 
the contract as well as the order of the Single Judge and 
the Division Bench of the High Court confirming the same 
are set aside. [Paras 15 and 16) [211-C-E) 
Secretary, Irrigation Department, Government of Orissa 
and Ors. vs. G.C. Roy (1992) 1 SCC 508: 1991 (3) Suppl. 
H 
198 
SUPREME COURT REPORTS 
[2011) 8 S.C.R. 
A 
SCR 417; Executive Engineer, Dhenkana/ Minor Irrigation 
Division, Orissa and, Ors. ·vs. N. C. Budharaj (deceased) by 
LRs. and Ors. (2001) 2 sec 721: 2001 (1) SCR 264; Sayeed 
Ahmed and Company vs. State of Uttar Pradesh and Ors. 
(2009) 12 SCC 26: 2009 (10) SCR 841; Sree Kamatchi 
B Amman Constructions vs. Divisional Railway Manager 
(Works),. Pa/ghat and Ors. (2010) 8 SCC 767: 2010 (10) 
SCR 487 - relied on. 
Board of Trustees for the Port of Calcutta vs. Engineers-
De-Space Age (1996) 1 SCC 516: 1995 (6) Suppl. SCR 327; 
C Madnani Construction Corporation Private Limited vs. Union 
of India and Ors. (2010) 1 sec 549: 2009 (16) SCR 216; 
Union of India vs. Saraswat Trading Agency and Ors. (2009) 
16 SCC 504: 2009 (10) SCR 1063 - referred to. 
D 
E 
F 
Case Law Reference: 
2009 (10) SCR

Excerpt shown. Read the full judgment & AI analysis in Lexace.