THE STATE OF ORISSA vs SHRI SUDHAKARA DAS (DEAD) BY LRS.

The Supreme Court held that in the absence of an escalation clause in the arbitration agreement, the Arbitrator lacks jurisdiction to award escalation charges, rendering that part of the award unsustainable. However, the Court affirmed the award of pendente lite interest in favor of the contractor, referencing Secretary, Irrigation Department, Government of Orissa & Others v. G.C. Roy, [1992] 1 SCC 508, which settled the issue in favor of the claimant. The Court also directed that pre-reference interest can be executed only upon the respondent furnishing a bank guarantee, ensuring protection for the State pending a decision from a Constitution Bench on related issues.