Power of Arbitrators to Grant Interest

The Lahore High Court in this case adjudicated on regular first appeals under Section 39 of the Arbitration Act, 1940. The appellants, Saif Power Limited, challenged the orders of the Civil Judge, Lahore, which dismissed their objection petition, made an arbitration award rule of the court, and modified the interest commencement date.

Key Highlights:

Case Background: A gas supply agreement existed between Saif Power Limited and Sui Northern Gas Pipelines Limited. The agreement provided for arbitration under the rules of the London Court of International Arbitration (LCIA) for any disputes. Saif Power Limited filed for arbitration regarding non-supply of gas, claiming Rs. 23,96,84,090. The LCIA appointed Prof. Dr. M.S.A. Wahab as the sole arbitrator, who awarded compensation on March 9, 2016. The Civil Judge, Lahore, dismissed the appellants' objections and ruled that the 6% interest awarded by the arbitrator would be calculated from the date of the order/decree, not from 2014.

Legal Arguments: The appellants argued that the arbitrator was not competent to award interest from 2014 and that the lower court incorrectly modified the commencement date of interest. The respondents contended that the interest awarded was just and that the modification by the Civil Judge was within legal bounds.

Court's Analysis: The court held that under Section 29 of the Arbitration Act, only the court has the authority to award interest from the date of the decree, not from a prior date. Citing precedents, including (PLD 1965 SC 505), (PLD 1987 SC 393) and (2006 SCMR 1555), the court reiterated that arbitrators do not have the power to grant interest for periods before the decree. The court emphasized that modification by the trial court was appropriate and in line with legal standards.

Conclusion: The Lahore High Court dismissed all three appeals, upholding the trial court's decision to modify the interest commencement date and affirming that the arbitrator exceeded his authority by awarding interest from 2014.

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