Post Graduate Institute of Medical Education and Research Chandigarh v. M/S Kalsi Construction Company
Background
Kalsi Construction Company was awarded a contract to build the Advanced Pediatrics Centre for the Post Graduate Institute of Medical Education and Research, Chandigarh. A dispute over completion of the work went to arbitration, and in 1999 the arbitrator awarded the contractor about Rs. 1.17 crore (against a claim of over Rs. 10 crore) plus interest at 18% per annum. The Institute's challenges to this award under Sections 34 and 37 of the Arbitration and Conciliation Act both failed in the lower courts, and it appealed to the Supreme Court, by then pressing only the question of the interest rate.
Decision Breakdown
The Supreme Court noted that Section 31(7)(a) of the Arbitration and Conciliation Act allows an arbitral tribunal to fix a reasonable interest rate in the absence of a contrary agreement, and that the arbitrator had acted within that power in awarding 18%. However, given that the award was now 20 years old and the contractor's own senior counsel left the rate to the Court's discretion (while seeking only a "reasonable" rate), the Court used its special constitutional power under Article 142 to do complete justice and reduced the interest rate from 18% to 10% per annum simple interest. It directed payment of the award plus 10% interest within eight weeks, failing which the original 18% rate would revive on the whole amount.
Lesson Learnt
Even where an arbitrator's award is otherwise legally sound, the Supreme Court can use its Article 142 power to moderate harsh terms like a high interest rate in the interest of fairness, especially where a long time has passed since the original award.