Awarding interest is on the discretion of the arbitrator: Delhi High Court [Read Order]

NEW DELHI: The Delhi High Court has held that in arbitration matters, award of interest, if any, and the interest rate thereon is on the discretion of the arbitrator.

Interest on award cannot be claimed by any party as a matter of right. 

The matter was decided by a bench of Justice Neena Bansal Krishna. The bench held in this regard, "So far as the interest component is concerned, it is the discretion of the Arbitrator and the same cannot be claimed by the petitioner as a matter of right."

In the present case, the Court also took into consideration the fact that the petitioner (one M/s Space 4 Business Solution Pvt Ltd) agreed that the entire amount due to the company sans interest was already received.

The petitioner was only aggrieved on account of non-payment of interest.  

The bench observed that this claim too may not be correct "as a sum of about Rs. 2 lakhs has been paid over and above the claimed principle amount."

The brief facts leading to the case are that the petitioner company was awarded a tender by the Government of National Capital Territory of Delhi (GNCTD) and the work was duly executed.

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The company claimed that of the work completed worth nearly Rs. 2.3 crores, about Rs. 1.80 cr only was released to them. The company claimed payment of about Rs. 50 lakhs as still due to them.

However, on further examination, the Delhi government pointed out that it had already paid the amount of Rs. 50 lakhs to the company, in terms of an award of a Sole Arbitrator, which was passed on the basis of a proposal for a settlement between the parties. However, the settlement itself was not arrived at.

Thus, the petitioner company challenged the award before the District & Sessions Judge under Section 34 of the Arbitration Act, who then set aside the award.

Thereafter, the Petitioner applied to the DIAC in December 2019 for the appointment of an Arbitrator to decide the dispute afresh. The application remained pending, after which the company directly approached the High Court for appointment of the arbitrator.

The Government on the other hand argued that the entire amount of approximately Rs. 52 lakhs as arrived at in the proposal, was already paid to the company.

Deciding the matter in favour of the government, the High Court ruled at the outset that the petitioner companys petition was barred by limitation as per Section 43 of the Arbitration Act.

The High Court further noted that the company had initially claimed approximately Rs. 50 lakhs plus 18% interest per annum, which totaled around Rs. 86 lakhs.

After their settlement amount was not finalized, the Arbitrator upon his discretion had awarded around Rs. 52 lakhs - a sum slightly above the principal amount, based on the governments admission of outstanding liability.

The High Court thus held that the decision to grant or refuse interest on the principal amount lies within the Arbitrator's discretion, and rejected the petition.

The petitioner was represented by Adv. Durgesh Gupta. The Respondents were represented by Advocates Tushar  Sannu, Sahaj Karan Singh, and Shobhan Sachdeva.

Cause Title: M/S Space 4 Business Solution Pvt Ltd Vs The Divisional Commissioner Principal Secretary And Anr.

[Read Order]