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Assam State Electricity Board & Ors. v. Buildworth Pvt. Ltd.

Civil Appeal · 2017 INSC 587Decided 4 Jul 2017
Civil Appeal No. 484 of 2008
Chief Justice J.S. Khehar · Dr. Justice D.Y. Chandrachud · Justice Sanjay Kishan Kaul

Background

A 1998 arbitral award gave Buildworth Pvt. Ltd. about Rs. 30.7 lakh plus 18% interest for extra work done on a contract with the Assam State Electricity Board, after the Board kept the contractor on site for an extended period. A civil court made the award a rule of court in 2000, and on appeal the Gauhati High Court in 2006 upheld the award on merits but struck out the interest awarded for the period before the court reference. Both the Board and Buildworth appealed to the Supreme Court: the Board challenging the award on merits, and Buildworth challenging the removal of pre-reference interest.

Decision Breakdown

The Supreme Court held that an arbitrator under the 1940 Act can award interest for the pre-reference period unless the underlying contract itself expressly bars it, and found no such bar in this contract. Since Buildworth had issued a legal notice claiming interest on 20 April 1987, the Court held it was entitled to interest from that date onward, through the trial court's decree and until actual payment, but reduced the rate from 18% to 12% per annum for fairness. The Board's appeal challenging the award on merits was dismissed, and Buildworth's appeal on interest was allowed in these modified terms, with no order as to costs.

Lesson Learnt

Where a construction or works contract is silent on interest, an arbitrator retains the power to award interest for the pre-litigation period once a formal demand/notice has been issued, but courts can still moderate an excessive interest rate even while upholding the underlying right to interest.

Official source (sci.gov.in)View Judgment (PDF)

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