Research › Search › Judgment

Orissa High Court · body

2014 DIGILAW 648 (ORI)

State of Odisha v. Pratima Kanungo

2014-09-26

S.C.PARIJA

body2014
JUDGMENT : S.C. Parija, J. 1. This appeal is directed against the order dated 06.04.2013, passed by the learned District Judge, Sundargarh, in ARBP No. 5 of 2010, rejecting the application of the appellants filed under Section 34 of the Arbitration and Conciliation Act, 1996, for setting aside the award dated 25.01.2010, passed by the learned Arbitrator. The brief facts of the case, which give rise to the present appeal is that the State of Orissa through its functionaries entered into a contract with the original Contractor (father of the present respondents) for execution of the work of "Construction of Spill Way (excluding gates)" vide agreement dated 21.11.1980, bearing No. 16-F2 of 1980-81. As per the agreement, the work was scheduled to be completed by 20.03.1982. The Contractor submitted work programme on 21.11.1980 to complete the work within 20.03.1982 but did not make sufficient arrangement and take effective steps to complete the work within the stipulated time. As the Contractor could not complete the work within the stipulated time, which was the essence of the contract, the contract was closed as per the relevant clause of the agreement, giving due notice to the Contractor to show cause on 25.07.1981. Subsequently, a modified order for closer of the contract was issued to the Contractor on 17.08.1985. 2. During course of the execution of the contract work, the Contractor had been paid 7 running bills. The final measurement of the work executed by the Contractor was recorded on 20.09.1981 and the 8th and final bill was paid to the Contractor on 20.05.1983, which he received without any objection. However, after a long lapse of about three years, the Contractor vide letter dated 10.03.1986, requested the appellants to take final measurement of the contract work executed by him. No action having been taken by the appellants, the Contractor challenged the illegal closure of the contract and not recording the final measurement of the work by filing Suit No. 52 of 1988 before the learned Subordinate Judge, Bhubaneswar, under Section 20 of the Arbitration Act, 1940, for referral of the dispute to arbitration. Accordingly, learned Court below referred the dispute to the Special Arbitration Tribunal comprising of Shri Justice B.K. Behera, former Judge of this Court. Accordingly, learned Court below referred the dispute to the Special Arbitration Tribunal comprising of Shri Justice B.K. Behera, former Judge of this Court. Subsequently, as the Special Arbitration Act was repealed and the Special Arbitration Tribunal was abolished, the matter was transferred to the Orissa Arbitration Tribunal, who passed an ex parte award under the Arbitration Act, 1940. 3. The Contractor filed an application before the learned Subordinate Judge, Bhubaneswar, which was registered as Misc. Case No. 421 of 1992 (arising out of O.S. No. 144 of 1992), praying for setting aside the ex parte award. The learned Subordinate Judge, Bhubaneswar, set aside the ex parte award passed by the Orissa Arbitration Tribunal and remitted the matter back to the Tribunal for passing the award afresh, after giving an opportunity of hearing to the parties. The Contractor had also filed O.S. No. 52 of 1988 before the learned Subordinate Judge, Bhubaneswar, in which Misc. Case No. 54 of 1990 was filed under Section 5 of the Arbitration Act, 1940, for appointment of a Special Arbitration Tribunal, instead of referring the matter to the Orissa Arbitration Tribunal. This prayer of the Contractor was rejected by the learned Civil Judge (Senior Division), Bhubaneswar, in the selfsame order dated 4.9.2000, by which the dispute was remitted back to the Orissa Arbitration Tribunal for fresh disposal. 4. Being aggrieved by the refusal of the prayer of the Contractor for referring the matter to the Special Arbitration Tribunal, the Contractor preferred Civil Revision No. 341 of 2000 before this Court. In the meanwhile, the Arbitration and Conciliation Act, 1996 ("the Act" for short) having come into force when the Civil Revision was being heard by this Court, a prayer was made by the Contractor in the said Civil Revision, to refer the matter to a named Arbitrator with the consent of the State, in terms of Section 85 of the Act. Accordingly, by order dated 16.11.2001, this Court disposed of the Civil Revision No. 341 of 2000, appointing Shri Justice P.C. Mishra, a former Judge of this Court, as the sole Arbitrator, with the consent of the parties. 5. Accordingly, by order dated 16.11.2001, this Court disposed of the Civil Revision No. 341 of 2000, appointing Shri Justice P.C. Mishra, a former Judge of this Court, as the sole Arbitrator, with the consent of the parties. 5. Subsequently, the State filed Misc.Case No. 441 of 2002 in Civil Revision No. 341 of 2000, for recalling the order dated 16.11.2001 appointing Shri Justice P.C. Mishra, as the Arbitrator, on the ground that the dispute has already been decided by the Orissa Arbitration Tribunal and therefore, the appointment of another Arbitrator is not necessary. The said application (Misc.Case No. 441 of 2002) was disposed of by order dated 25.07.2002, refusing to recall the order dated 16.11.2001, by which Shri Justice P.C. Mishra had been appointed as the Arbitrator, giving liberty to the State to raise such objection before the Arbitrator indicating inter alia, that the dispute has already been decided by the Orissa Arbitration Tribunal and in the event such objection is raised, learned Arbitrator will consider the same by passing an appropriate order. 6. Consequent to the order of this Court dated 25.07.2002, passed in Misc.Case No. 441 of 2002, arising out of Civil Revision No. 341 of 2000, the State filed a preliminary objection/counter statement before the learned Arbitrator raising the question of maintainability of the proceeding. Learned Arbitrator vide order dated 28.12.2002, rejected the objection raised by the State with regard to the maintainability of the proceeding before the Arbitrator. 7. Being aggrieved by the said order of the learned Arbitrator, dated 28.12.2002, the present appellants moved this Court in W.P.(C) No. 741 of 2003 and a Division Bench of this Court by order dated 09.01.2007, dismissed the writ petition, holding that the Arbitrator had been appointed by this Court with the consent of the parties as per Section85(2)(a) of the Act and therefore no interference is warranted. 8. Subsequently, the appellants appeared before the learned Arbitrator, filed their defence statement and participated in the proceeding. 9. On the pleadings of the parties, learned Arbitrator framed the following issues:-- "(1) Whether there exists any arbitral dispute? (2) Whether the reference to Arbitrator is valid in view of Clause 23(f) of the contract read with Clause-38(f) of the Detailed Tender Call Notice? 9. On the pleadings of the parties, learned Arbitrator framed the following issues:-- "(1) Whether there exists any arbitral dispute? (2) Whether the reference to Arbitrator is valid in view of Clause 23(f) of the contract read with Clause-38(f) of the Detailed Tender Call Notice? (3) Has any final bill ever been measured and prepared for payment to the Claimant for the works executed by him arising out of and relating to the Contract No. 16-F2 of 1980-81 after Government passed the order on 16.2.1985? (4) Is the order dated 15.07.1981 of the Executive Engineer, Respondent No. 3 closing the contract valid and legal? (5) Are the various deductions from the Claimant's bill valid and legally sustained? (6) Whether the Claimant is entitled to any of the claims made? (7) Whether the interest is payable as claimed?" 10. After considering the pleadings of the parties and the evidence on record, both oral and documentary, and upon hearing both sides, learned Arbitrator passed the award dated 25.01.2010 in favour of the Contractor. 11. Being aggrieved by the award passed by the learned Arbitrator, dated 25.01.2010, the appellants moved the learned District Judge, Sundargarh, in Arbitration Petition No. 05 of 2010, under Section 34 of the Act for setting aside the award. Learned District Judge, after considering the materials on record and examining the findings recorded by the learned Arbitrator, has come to hold that there is no infirmity or illegality in the impugned award so as to warrant any interference and has accordingly rejected the prayer of the appellants for setting aside the award under Section 34 of the Act, which is now under challenge in the present appeal. 12. Learned counsel for the appellants submits that after recording of the final measurement and payment of the 8th and final bill, which was received by the Contractor without any objection, the subsequent claim raised by the Contractor at a belated stage, on the basis of manufactured and fabricated documents could not have been accepted by the learned Arbitrator. In this regard, it is submitted that on payment of the 8th and final bill, as the agreement came to an end along with its arbitration clause, the dispute raised by the Contractor was not arbitrable and therefore the claims raised by the Contractor was not sustainable in law. In this regard, it is submitted that on payment of the 8th and final bill, as the agreement came to an end along with its arbitration clause, the dispute raised by the Contractor was not arbitrable and therefore the claims raised by the Contractor was not sustainable in law. A reference in this regard has been made to a decision of this Court in State of Orissa and another v. Sri Durga Charan Routaraya, 2004(1) OLR 298 . 13. Learned counsel for the appellants further submits that as the award has been passed by the learned Arbitrator in gross violation of the terms of the contract, the award is opposed to "public policy" and is therefore liable to be set aside. In this regard, learned counsel for the appellants has relied upon a decision of the apex Court in Oil and Natural Gas Corporation Ltd. v. Saw Pipes Ltd., AIR 2003 SC 2629 , wherein the Hon'ble Court has held that if the award is contrary to the substantive provisions of law or the provisions of the Act or against the terms of the contract, it would be patently illegal, which could be interfered with under Section 34 of the Act. Award could also be set aside if it is so unfair and unreasonable that it shocks the conscience of the Court. Such an award is opposed to "public policy" and is required to be adjudged void. 14. Learned counsel for the appellants further submits that as the award passed by the learned Arbitrator is not based on any evidence and/or insufficient evidence, the same cannot be sustained. In this regard, learned counsel for the appellants relied upon a decision of the apex Court in State of Rajasthan and Another v. Ferro Concrete Construction Private Limited, (2009) 12 SCC 1 , wherein the Hon'ble Court has held that while the quantum of evidence required to accept a claim may be a matter within the exclusive jurisdiction of the Arbitrator to decide, if there was no evidence at all and if the Arbitrator makes an award of the amount claimed in the claim statement, merely on the basis of the claim statement without anything more, it has to be held that the award on that account would be invalid. 15. 15. Learned counsel for the appellants further submits that the award of interest by the learned Arbitrator @ 15% per annum for the pre-award and post-award periods is not proper and justified. In this regard, it is submitted that the award of interest @ 15% per annum is very high and not commensurate with the bank rate of interest prevalent at the time of passing of the award. In this regard, learned counsel for the appellants has relied upon a decision of the apex Court in Om Prakash Gita Devi & Co. and others v. Food Corporation of India, 2001 (45) Arbitration Law Reporter 4 (SC), in support of his plea for reduction in the rate of interest awarded. 16. In response, learned counsel for the respondents submits that as the award passed by the learned Arbitrator is based on evidence on record, both oral and documentary and detailed findings have been recorded in respect of each items of claim, the same cannot be interfered with by the Court, unless the challenge comes within the ambit of Section 34(2) of the Act. In this regard, it is submitted that as the contentions raised by the appellants are all issues of fact, which the learned Arbitrator has decided on the basis of the evidence on record, the Courts have no right or authority to interdict an award on factual issues. In this regard, learned counsel for the respondents has relied upon the decisions of the apex Court in Olympus Superstructures Pvt. Ltd. v. Meena Vijay Khetan and others, AIR 1999 S.C. 2102 and M/s. Arosan Enterprises Ltd. v. Union of India and another, AIR 1999 S.C. 3804 . 17. Learned counsel for the respondents further submits that as this Court does not sit in appeal over the award of the learned Arbitrator by reassessing or re-appreciating the evidence, no interference is warranted, especially when no grounds have been made out to show that the challenge to the award falls within the ambit of Section 34(2) of the Act. In this regard, learned counsel for the respondents has relied upon three decisions of the apex Court in Rajasthan State Road Transport Corporation v. Indag Rubber Ltd., (2006) 7 SCC 700 ; Kwality Manufacturing Corporation v. Central Warehousing Corporation, 2009 (5) SCC 142 and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, AIR 2012 SC 2829 . 18. In this regard, learned counsel for the respondents has relied upon three decisions of the apex Court in Rajasthan State Road Transport Corporation v. Indag Rubber Ltd., (2006) 7 SCC 700 ; Kwality Manufacturing Corporation v. Central Warehousing Corporation, 2009 (5) SCC 142 and Rashtriya Ispat Nigam Limited v. Dewan Chand Ram Saran, AIR 2012 SC 2829 . 18. Coming to the plea of the appellants regarding award of interest by the learned Arbitrator @ 15% per annum for the pre-award and post-award periods, learned counsel for the respondents has relied upon a decision of the apex Court in Sayeed Ahmed and Company v. State of Uttar Pradesh and others, (2009) 12 SCC 26 , wherein the Hon'ble Court has held that unless the award of interest by the Arbitrator is contrary to Section 31(7)(a) and (b) of the Act, or the same is found to be unwarranted for the reasons to be recorded, the Court should not alter the rate of interest awarded by the Arbitrator. In this regard, learned counsel for the respondents has also relied upon the decision of the apex Court in Himachal Pradesh Housing and Urban Development Authority and Anr. v. Ranjit Singh Rana, 2012 (4) SCC 505 , wherein the Hon'ble Court has reiterated that the rate of interest awarded by the Arbitrator cannot be interfered with by the Court unless the same is in contravention of Section 31(7)(a) and (b) of the Act. 19. It is accordingly submitted that as the award of the learned Arbitrator is based on elaborate reasonings in respect of each issues, supported by evidence on record, the same is not liable to be interfered with, as this Court does not sit in appeal over the findings of the learned Arbitrator. Further, as no grounds have been made out by the appellants for setting aside the award, as provided under Section 34(2) of the Act, no interference is warranted in the present appeal. 20. On a perusal of the award, it is seen that the learned Arbitrator has framed 7 issues, as already detailed above. With regard to the plea of the appellants that the Contractor had been paid the 8th running account bill as the final bill, learned Arbitrator under issue Nos. 20. On a perusal of the award, it is seen that the learned Arbitrator has framed 7 issues, as already detailed above. With regard to the plea of the appellants that the Contractor had been paid the 8th running account bill as the final bill, learned Arbitrator under issue Nos. 3 and 4 has taken into consideration various documents produced by the parties and the oral evidence adduced by them and has come to hold as under:-- "xxxx xxxx My conclusion therefore is that the final measurement had never been taken, nor the final bill was ever prepared for the works executed by the claimant pursuant to contract No. 16-F/2 of 1980-81. It is also clear from the discussions made above that the alleged order dated 25.7.1981, Ext. R-5 was preplanned and was accomplished in haste. At the cost of repetition I feel necessary to mention that news-paper publication (Ext. C-4) is dated 16.7.81; whereas in Ext. C-11, the Chief Engineer wrote to the F.A.-cum-Deputy Secretary to the Government that the Tender call notice was sent for news-paper publication on 18.8.81. If the closure of the contact of the Claimant was necessary for completion of the uncompleted work urgently, why and under what circumstance the Tender of Bhesoj Patel was approved by the Government on 8.6.82, that is a year after. One more aspect in connection with the approval of the Tender in favour of Bhesoj Patel need to be mentioned as was contended emphatically by the learned counsel for the Claimant that the department was bent upon to favour Bhesoj Patel for obvious reasons. From the facts stated above it abundantly clear that the order dated 25.7.81 of the Executive Engineer for closing the contract was not valid and therefore illegal." 21. Learned Arbitrator has dealt with all the issues in detail and has recorded elaborate findings in respect of each issues and every item of claim, based on the pleadings of the parties and evidence available on record. 22. The law is well settled that an award can be set aside only if the same comes within the ambit of Section 34(2) of the Act. 22. The law is well settled that an award can be set aside only if the same comes within the ambit of Section 34(2) of the Act. In Oil & Natural Gas Corporation Ltd. (supra), the Hon'ble Court has observed that the award could be set aside if it is against the public policy of India, that is to say, if it is contrary to: "(a) fundamental policy of Indian law; or (b) the interest of India; or (c) justice or morality; or (d) if it is patently illegal." 23. In Steel Authority of India Limited v. Gupta Brother Steel Tubes Limited, (2009) 10 SCC 63 , Hon'ble Court has referred to its earlier decisions where it has been held that where an Arbitrator travels beyond a contract, the award would be without jurisdiction and the same would amount to misconduct and such award would become amenable for being set aside by a Court. However, an error by the Arbitrator relatable to interpretation of the contract is not amenable to correction by Courts. 24. Hon'ble Court while taking note of its decisions with regard to scope of interference in an award of the Arbitrator, has held as under: "18. It is not necessary to multiply the references. Suffice it to say that the legal position that emerges from the decisions of this Court can be summerised thus: (i) In a case where an arbitrator travels beyond the contract, the award would be without jurisdiction and would amount to legal misconduct and because of which the award would become amenable for being set aside by a court. (ii) An error relatable to interpretation of the contract by an arbitrator is an error within his jurisdiction and such error is not amenable to correction by courts as such error is not an error on the face of the award. (iii) If a specific question of law is submitted to the arbitrator and he answers it, the fact that the answer involves an erroneous decision in point of law does not make the award bad on its face. (iv) An award contrary to substantive provisions of law or against the terms of contract would be patently illegal. (v) Where the parties have deliberately specified the amount of compensation in express terms, the party who has suffered by such breach can only claim the sum specified in the contract and not in excess thereof. (iv) An award contrary to substantive provisions of law or against the terms of contract would be patently illegal. (v) Where the parties have deliberately specified the amount of compensation in express terms, the party who has suffered by such breach can only claim the sum specified in the contract and not in excess thereof. In other words, no award of compensation in case of breach of contract, if named or specified in the contract, could be awarded in excess thereof. (vi) If the conclusion of the arbitrator is based on a possible view of the matter, the court should not interfere with the award. (vii) It is not permissible to a court to examine the correctness of the findings of the arbitrator, as if it were sitting in appeal over his findings." 25. Hon'ble Court has proceeded to observe that the legal position is no more res integra that the Arbitrator having been made the final arbiter of resolution of disputes between the parties, the award is not open to challenge on the ground that Arbitrator has reached at a wrong conclusion. The Courts do not interfere with the conclusion of the Arbitrator even with regard to construction of a contract, if it is a possible view of the matter. 26. The aforesaid position of law with regard to scope of interference with an award of the Arbitrator has been affirmed and reiterated by the apex Court in Rashtriya Ispat Nigam Limited (supra). 27. It is now well settled that the Court while considering the question whether an award passed by the Arbitrator should be set aside or not, does not examine the question as an appellate Court. While exercising the said power, the Court cannot re-appreciate the materials on the record for the purpose of recording a finding whether in the facts and circumstances of a particular case, the award in question could have been made. (See-Hindustan Construction Co. Ltd. v. Governor of Orissa, AIR 1995 SC 2189 .) 28. While exercising the said power, the Court cannot re-appreciate the materials on the record for the purpose of recording a finding whether in the facts and circumstances of a particular case, the award in question could have been made. (See-Hindustan Construction Co. Ltd. v. Governor of Orissa, AIR 1995 SC 2189 .) 28. A similar view has been expressed by the apex Court in B.V. Radha Krishna v. Sponge Iron India Ltd., AIR 1997 SC 1324 , wherein it was observed: "Bearing in mind the principles laid down by this Court in the above said cases, if we look into disposal of the matter by the High Court, it would be evident that the High Court has substituted its own view in place of the arbitrator's view as if it was dealing with an appeal. That is exactly what is forbidden by the decisions of this Court. Therefore, we have no hesitation to set aside the judgment of the High Court on this issue." 29. An error of law on the face of the award means that you can find in the award some legal proposition which is the basis of the award and which you can then say is erroneous. The Court has no jurisdiction to investigate into the merits of the case and to examine the documentary and oral evidence on the record for the purpose of finding out, whether or not the Arbitrator has committed an error of law. The Court as a matter of fact, cannot substitute its evaluation and come to the conclusion that the Arbitrator had acted contrary to the bargain between the parties. If the view of the Arbitrator is a possible view, the award or the reasoning contained therein cannot be examined. 30. In this context, reference may be made to a decision of the apex Court in State of Rajasthan v. Puri Construction Co. Ltd. and another, (1994) 6 SCC 485 , where the Hon'ble Court has observed as under: "A Court of competent jurisdiction has both right and duty to decide the lis presented before it for adjudication according to the best understanding of law and facts involved in the lis by the judge presiding over the Court. Such decision even if erroneous either in factual determination or application of law correctly, is a valid one and binding inter parties. Such decision even if erroneous either in factual determination or application of law correctly, is a valid one and binding inter parties. It does not, therefore, stand to reason that the arbitrator's award will be per se invalid and inoperative for the simple reason that the arbitrator has failed to appreciate the facts and has committed error in appreciating correct legal principle in basing the award. An erroneous decision of a Court of law is open to judicial review by way of appeal or revision in accordance with the provisions of law. Similarly, an award rendered by an arbitrator is open to challenge within the parameters of several provisions of the Arbitration Act. Since the arbitrator is a judge by choice of the parties and more often than not a person with little or no legal background, the adjudication of disputes by an arbitration by way of an award can be challenged only within the limited scope of several provisions of the Arbitration Act and the legislature in its wisdom has limited the scope and ambit of challenge to an award in the Arbitration Act. Over the decades, judicial decisions have indicated the parameters of such challenge consistent with the provisions of the Arbitration Act. By and large the Courts have disfavoured interference with arbitration award on account of error of law and fact on the score of misappreciation and misreading of the materials on record and have shown definite inclination to preserve the award as far as possible. As reference to arbitration of disputes in commercial and other transactions involving substantial amount has increased in recent times, the Courts were impelled to have fresh look on the ambit of challenge to an award by the arbitrator so that the award does not get undesirable immunity. In recent times, error in law and fact in basing an award has not been given the wide immunity as enjoyed earlier, by expanding the import and implication of "legal misconduct" of an arbitrator so that award by the arbitrator does not perpetrate gross miscarriage of justice and the same is not reduced to mockery of a fair decision of the lis between the parties to arbitration. Precisely for the aforesaid reasons, the erroneous application of law constituting the very basis of the award and improper and incorrect findings of fact, which without closer and intrinsic scrutiny, are demonstrable on the face of the materials on record, have been held, very rightly, as legal misconduct rendering the award as invalid. It is necessary, however, to put a note of caution that in the anxiety to render justice to the party to arbitration, the Court should not reappraise the evidences intrinsically with a close scrutiny for finding out that the conclusion drawn from some facts, by the arbitrator is, according to the understanding of the Court, erroneous. Such exercise of power which can be exercised by an appellate Court with power to reverse the finding of fact, is alien to the scope and ambit of challenge of an award under the Arbitration Act. Where the error of finding of facts having a bearing on the award is patent and is easily demonstrable without the necessity of carefully weighing the various possible viewpoints, the interference with award based on erroneous finding of fact is permissible. Similarly, if an award is based by applying a principle of law which is patently erroneous, and but for such erroneous application of legal principle, the award could not have been made, such award is liable to be set aside by holding that there has been a legal misconduct on the part of the arbitrator. In ultimate analysis it is a question of delicate balancing between the permissible limit of error of law and fact and patently erroneous finding easily demonstrable from the materials on record and application of principle of law forming the basis of the award which is patently erroneous. It may be indicated here that however objectively the problem may be viewed, the subjective element inherent in the judge deciding the problem, is bound to creep in and influence the decision. By long training in the art of dispassionate analysis, such subjective element is however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject." 31. By long training in the art of dispassionate analysis, such subjective element is however, reduced to minimum. Keeping the aforesaid principle in mind, the challenge to the validity of the impugned award is to be considered with reference to judicial decisions on the subject." 31. The apex Court in P.R. Shah Shares & Stock Broker (P) Ltd. v. M/s. B.H.H. Securities (P) Ltd. and Ors, AIR 2012 SC 1866 , has reiterated the legal position that a Court does not sit in appeal over the award of an Arbitrator by re-assessing or re-appreciating the evidence. An award can be challenged only on the grounds mentioned in Section 34(2) of the Act and in absence of any such ground, it is not possible to re-examine the facts to find out whether a different decision can be arrived at. 32. Keeping in view the position of law with regard to the scope of interference with an award of the Arbitrator, it is seen that in the present case, no material has been produced before this Court and no ground has been made out to show as to how the award is opposed to public policy or is patently illegal, so as to come within the ambit of Section 34(2) of the Act. The award reveals that the learned Arbitrator has recorded elaborate reasons in support of each of its findings, which are based on materials available on record. Moreover, it is not a case where the award is based on no evidence and therefore, the sufficiency of the evidence to accept a claim being within the exclusive jurisdiction of the Arbitrator to decide, no interference is warranted with regard to the merits of the award. 33. Coming to the question of reducing the rate of interest of 15% per annum, awarded by the learned Arbitrator for the pre-award and post-award periods, the apex Court in Sayeed Ahmed and Company (supra), while referring to the power of the Arbitrator to award interest under Section 31(7)(a) and (b) of the Act, has observed that unless the award of interest is found to be unwarranted for reasons to be recorded, the Court should not alter the rate of interest awarded by the Arbitrator. 34. The apex Court in State of Haryana and Ors. 34. The apex Court in State of Haryana and Ors. v. S.L. Arora and Company, AIR 2010 SC 1511 , while dealing with the power of the Arbitrator to award interest under Section 31(7)(a) and (b) of the Act, has observed as under: "(i) Clause (a) relates to pre-award period and clause (b) relates to post-award period. The contract binds and prevails in regard to interest during the pre-award period. The contract has no application in regard to interest during the post-award period. (ii) Clause (a) gives discretion to the arbitral tribunal in regard to the rate, the period, the quantum (principal which is to be subjected to interest) when awarding interest. But such discretion is always subject to the contract between the parties. Clause (b) also gives discretion to the arbitral tribunal to award interest for the post-award period but that discretion is not subject to any contract; and if that discretion is not exercised by the arbitral tribunal, then the statute steps in and mandates payment of interest, at the specified rate of 18% per annum for the post-award period." In short, with regard to pre-award period, interest has to be awarded as specified in the contract and in the absence of contract as per discretion of the Arbitrator. On the other hand, in regard to the post-award period, interest is payable as per the discretion of the Arbitrator and in the absence of exercise of such discretion, at a mandatory statutory rate of 18% per annum. 35. In the light of the discussions made above, the award of rate of interest of 15% per annum by the learned Arbitrator for the pre-award and post-award periods cannot be said to be unwarranted and/or unjustified, so as to warrant any interference. 36. Though there is no challenge by the appellants to the award of compound interest for the post-award period, either in their application under Section 34 of the Act before the learned District Judge or before this Court in the present appeal, from the award it is seen that the learned Arbitrator has awarded principal amount of Rs. 48,82,058/- towards different items of claim. 48,82,058/- towards different items of claim. Further, the learned Arbitrator has awarded interest @ 15% per annum on the principal sum, from the date of closure of the contract, i.e. 17.08.1985, till the date of award and has proceeded to club the interest with the principal amount and thereby making the principal amount to be Rs. 2,27,80,903/-, on which the learned Arbitrator has awarded future interest @ 15% per annum from the date of award till the date of payment. This approach of the learned Arbitrator in awarding interest on interest from the date of award is erroneous and misconceived. 37. In S.L. Arora (supra), similar questions arose for consideration: (a) whether Section31(7) of the Act authorizes and enables the arbitral tribunal to award interest on interest from the date of award and (b) whether the arbitral tribunal granted future interest from the date of the award, only on the principal amount found due or on the aggregate of the principal and interest up to the date of award. The Supreme Court, considering the provisions of Section 31 of the Act, held as follows:-- "14. Section 31(7) makes no reference to payment of compound interest or payment of interest upon interest. Nor does it require the interest which accrues till the date of the award, to be treated as part of the principal from the date of award for calculating the post-award interest. The use of the words "where and insofar as an arbitral award is for the payment of money and use of the words "the arbitral tribunal may include in the sum for which the award is made, interest.....On the whole or any part of the money in clause (a) and use of the words " a sum directed to be paid by an arbitral award shall.... Carry interest', in clause (b) of sub-section (7) of Section 31 clearly indicates that the section contemplates award of only simple interest and not compound interest or interest upon interest. 'A sum directed to be paid by an arbitral award refers to the award of sums on the substantive claims and does not refer to interest awarded on the 'sum directed to be paid by the award'. 'A sum directed to be paid by an arbitral award refers to the award of sums on the substantive claims and does not refer to interest awarded on the 'sum directed to be paid by the award'. In the absence of any provision for interest upon interest in the contract, the arbitral tribunals do not have the power to award interest upon interest, or compound interest, either for the pre-award period or for the post-award period. 15. There is a tendency among contractors to elevate the claims for interest and costs to the level of substantive disputes by describing them as separate and independent heads of claim. The long pendency of arbitration matters either due to prolonged arbitration proceedings or due to litigations (both intervening and post-arbitral), has the unfortunate effect of swelling the interest payable on the amount awarded and costs to very substantial amounts. In many arbitral awards for money, the interest awarded often exceeds the amount awarded, by several times. Leisurely arbitrations, avoidable judicial interventions and indecisiveness on the part of decision makers in government and statutory bodies in accepting and settling genuine claims either at the stage when the claim is made or at least at the stage when the award is made have resulted in undue emphasis and importance being bestowed upon interest and costs. However, substantial their quantum may be in a given case, interest, in particular interest from the date of the award, and costs are ancillary issues and are not substantive disputes. xxxx xxxx xxxx The provision for interest in the Act is contained in Section 31dealing with the form and contents of arbitral ward. It employs two significant expressions "where the arbitral award is for payment of money" and "the arbitral tribunal may include in the sum for which the award is made, interest..... On the whole or any part of the money". The legislature has thus made it clear that award of interest under sub-section (7) of Section 31 (any award of costs under Sub-section (8) of Section 31 of the Act) are ancillary matters to be provided for by the award, when the arbitral tribunal decides the substantive disputes between the parties. On the whole or any part of the money". The legislature has thus made it clear that award of interest under sub-section (7) of Section 31 (any award of costs under Sub-section (8) of Section 31 of the Act) are ancillary matters to be provided for by the award, when the arbitral tribunal decides the substantive disputes between the parties. The words 'sum for which the award is made' and 'a sum directed to be paid by an arbitral award' contextually refer to award on the substantive claims and not ancillary or consequential directions relating to interest and costs." 38. Applying the principles of law as detailed above to the facts of the present case, the conclusion is irresistible that the award of future interest by the learned Arbitrator on the aggregate of the principal sum and interest up to the date of award cannot be sustained and the same is accordingly set aside. Accordingly, the respondents are entitled to simple interest @ 15% per annum only on the principal awarded amount of Rs. 48,82,058/- both for the pre-award and post-award periods, till the date of payment. The award is modified to the said extent only. The appeal is accordingly disposed of. No costs.