followed decision in Engineers-De-Space-Age (supra). Same is also
required to be diluted to the extent that express stipulation under contract
may debar the Arbitrator from awarding interest pendente lite. Grant of
pendente lite interest may depend upon several factors such as
phraseology used in the agreement, clauses conferring power relating to
arbitration, nature of claim and dispute referred to Arbitrator and on what
items power to award interest has been taken away and for which period.
24. Thus, our answer to the reference is that if contract expressly bars
award of interest pendente lite, the same cannot be awarded by the
Arbitrator. We also make it clear that the bar to award interest on delayed
payment by itself will not be readily inferred as express bar to award
interest pendente lite by the Arbitral Tribunal, as ouster of power of
Arbitrator has to be considered on various relevant aspects referred to in
the decisions of this Court, it would be for the Division Bench to consider
the case on merits.
Reportable
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
SPECIAL LEAVE PETITION [C] No.11114/2009
Union of India … Petitioner
Vs.
M/s. Ambica Construction … Respondent
(With SLP [C] No.17219/2009]
Dated;March 16, 2016
1. The issue involved in the reference is in regard to the power of the
Arbitrator to award pendente lite interest when contract contains bar for
grant of interest in a case covered by the Arbitration Act, 1940
(hereinafter referred to as “the Act”). A Division Bench of this Court
had doubted the correctness of the decisions in Board of Trustees for the
Port of Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516; and
Madnani Construction Corporation (P) Ltd. v. Union of India and Others
(2010) 1 SCC 549. In view of the decision of the Constitution Bench
judgment in Secretary, Irrigation Department, Government of Orissa &
Ors. v. G.C. Roy (1992) 1 SCC 508 and Executive Engineer, Dhenkanal
Minor Irrigation Division, Orissa & Ors. v. N.C. Budharaj (D) by L.Rs.
& Ors. (2001) 2 SCC 721 which held that the Arbitrator had the
jurisdiction and authority to award interest for pre-reference period,
pendente lite and future period if there was no express bar in the contract
regarding award of interest. A doubt was expressed about the correctness
of the decision in Engineers-De-Space Age (supra) in Sayeed Ahmed &
Co. v. State of U.P. & Ors. (2009) 12 SCC 26 and Sree Kamatchi Amman
Constructions v. Divisional Railway Manager (Works), Palghat & Ors.
(2010) 8 SCC 767. Hence the matter had been referred to a larger Bench
for decision.
2. The case has a chequered history. The tender of M/s. Ambica
Construction for fabrication of tie bars from M.S. Flats in CST-9 sleepers
was accepted on 8.9.1989. Final agreement was executed on 30.11.1989.
The work was completed on 21.11.1990. With respect to payments,
certain differences and disputes arose between the parties. Thus M/s.
Ambica Construction prayed for appointment of an Arbitrator. On
5.3.1991 as the petitioner M/s. Ambica Construction was in serious
financial difficulties, it accepted the amount in full and final settlement.
Later on, the Union of India informed the petitioner on 11.3.1991 that the
matter was under consideration. However the Arbitrator was not
appointed. An application under section 20 of the Act was filed before the
High Court of Calcutta for referring the case to arbitration. On 2.6.1992
the High Court directed to file the arbitration agreement in the court and
appointed two Arbitrators in terms of the arbitration clause. Said
Arbitrators failed to publish the award and as such an application wasPage 3
3
filed for revocation of the authority of joint Arbitrators and another sole
Arbitrator was appointed. The sole Arbitrator ultimately published the
award on 30.12.1997. On an application filed by the Union of India, the
High Court vide order dated 9.4.1998 remitted the award to the Arbitrator
to give an item-wise break-up. On 12.5.1998 the sole Arbitrator published
the item-wise award. Again the Union of India questioned the same
before the High Court. The award was set aside on the ground that the
Arbitrator had not given an intelligible award in terms of clause 64(3)(a)
(iii) of the agreement and had not taken into effect the supplementary
agreement dated 5.3.1991. The appeal preferred by the petitioner was
dismissed by the Division Bench of the High Court on 15.10.2004
against which an SLP was filed in which leave was granted and
ultimately C.A. No.6621/2005 was allowed and case was remitted vide
order dated 7.11.2005 passed by this Court to the Arbitrator for assigning
reasons and to pass fresh award. Thereafter, Arbitrator passed a fresh
award on 11.2.2006. Again an application was filed by the Union of India
under sections 30 and 33 of the Act. The Single Judge dismissed the
application vide order dated 26.6.2007. Union of India filed an
application for recall. The order dated 26.6.2007 was recalled. Vide order
dated 22.8.2007 learned Single Judge set aside the award with regard to
interest for pre-reference period and directed that interest would be
allowed on the principal sum of Rs.9,82,660/- at the rate of 10% perPage 4
4
annum from 1.9.1992 the date from which the original Arbitrator entered
upon the reference. An appeal was preferred before the Division Bench
and the same had been partly allowed with regard to claim Nos.6 and 7.
Aggrieved thereby, M/s. Ambica Construction had preferred S.L.P. [C]
No.17219/2009 in this Court and Union of India has also assailed the
judgment and order of the High Court in S.L.P. [C] No.11114/2009.
3. The only question for consideration is whether an Arbitrator has
the power to award pendente lite interest in case contract bars the same in
a case covered by Act and decisions of this Court in Engineers De-Space
Age (supra) and Madnani Construction Corporation (P) Ltd. (supra) have
been correctly decided.
4. It was submitted on behalf of the Union of India that the Arbitrator
is bound by the terms of the contract and cannot award interest in case
the contract bars the same. On the other hand, learned counsel appearing
on behalf of M/s. Ambica Construction has contended that in view of the
decision in Engineers-De-Space Age (supra) followed in Madnani
Construction Corporation (P) Ltd. (supra) notwithstanding the terms in
the contract agreement barring the award of interest would cover the prereference
period and not pendente lite interest.
5. There are certain provisions which are statutorily implied in
arbitration agreement unless excluded in the agreement. Section 3 of the
Act of 1940 deals with the provisions which are implied in the arbitrationPage 5
5
agreement. Section 3 is extracted below :
“3. Provisions implied in arbitration agreement.—
An arbitration agreement, unless a different intention is
expressed therein, shall be deemed to include the provisions
set out in the First Schedule in so far as they are applicable
to the reference.”
The provisions of section 3 make it clear that unless a different
intention is expressed in the arbitration agreement, the agreement would
include the provisions contained in the First Schedule so far as they are
applicable to the reference. Provisions in the First Schedule contain 8
paragraphs. It provides for reference to a sole Arbitrator and in case there
are even numbers of Arbitrators, appointment of umpire is also provided.
An Arbitrator is required to pass award within 4 months from the date of
entering on the reference. In case Arbitrator fails to pass an award within
the specified time the umpire shall make the award within 2 months. Para
6 of First Schedule provides that the Arbitrator or umpire shall examine
the matters in difference and the award shall be final and binding.
Arbitrator or umpire has the power for examining the witnesses and
production of relevant documents. Para 8 of Schedule I provides for costs
of reference and awards shall be in the discretion of the Arbitrator.
6. “Court” has been defined in section 2(c) of the Act to mean a
civil court having jurisdiction to decide the questions forming the
subject-matter of the reference. Section 41 of the Act is extracted
hereunder:Page 6
6
“41. Procedure and powers of Court. – Subject to the
provisions of this Act and of rules made thereunder :
(a) The provisions of the Code of Civil Procedure, 1908 (5
of 1908), shall apply to all proceedings before the Court,
and to all appeals, under this Act, and
(b)The Court shall have, for the purpose of, and in relation
to arbitration proceedings, the same power of making
orders in respect of any of the matters set out in the
Second Schedule as it has for the purpose of, and in
relation to any proceedings before the Court:
Provided that nothing in CI. (b) shall be taken to prejudice
any power which may be vested in an Arbitrator or umpire
for making orders with respect to any of such matters.”
The court can exercise the power specified in Second Schedule of
the Act. However, Arbitrator is not a court. Arbitrator is the outcome of
agreement. He decides the disputes as per the agreement entered into
between the parties. Arbitration is an alternative forum for resolution of
disputes but an Arbitrator ipso facto does not enjoy or possess all the
powers conferred on the courts of law.
7. Section 29 of the Act confers on the court power to award interest
from the date of decree. Section 34 of the C.P.C. confers on the court
power to award interest prior to the institution of the suit and during
pendency of the suit and post decree.
8. A Constitution Bench of this Court in G.C. Roy (supra) has
considered the question of power of the Arbitrator to award pendente lite
interest and it has been laid down that if the arbitration agreement or the
contract itself provides for interest, Arbitrator would have the jurisdiction
to award the interest. Similarly, where the agreement expressly providesPage 7
7
that no interest pendente lite shall be payable on the amount due, the
Arbitrator has no power to award pendente lite interest. In G.C. Roy
(supra) this Court has held thus :
“xxx If the arbitration agreement or the contract itself
provides for award of interest on the amount found due from
one party to the other, no question regarding the absence of
Arbitrator’s jurisdiction to award the interest could arise as
in that case the Arbitrator has power to award interest
pendent lite as well. Similarly, where the agreement
expressly provides that no interest pendente lite shall be
payable on the amount due, the Arbitrator has no power to
award pendente lite interest. But where the agreement does
not provide either for grant or denial of interest on the
amount found due, the question arises whether in such an
event the Arbitrator has power and authority to grant
pendente lite interest.”
The question involved in G.C. Roy (supra) was with respect to the
award of interest for the period commencing from the date of Arbitrator
entering upon the reference till the date of making the award. In G.C.
Roy (supra), this Court has considered decisions in Raipur Development
Authority & Ors. v. M/s. Chokhamal Contractors & Ors., (1989) 2 SCC
721; Executive Engineer (Irrigation) Balimela & Ors. v. Abhaduta Jena
& Ors., (1988) 1 SCC 418; Nachiappa Chettiar & Ors, v. Subramaniam
Chettiar, AIR 1960 SC 307; Satinder Singh v. Amrao Singh & Anr., AIR
1961 SC 908; Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills
Ltd., Indore, AIR 1967 SC 1030; Union of India v. Bungo Steel Furniture
Pvt. Ltd., AIR 1967 SC 1032; Ashok Construction Company v. Union of
India, (1971) 3 SCC 66; State of M.P. v. M/s. Saith and Skelton Pvt. Ltd.,
(1972) 1 SCC 702, various foreign courts decisions and decisions of thePage 8
8
High Court. This Court has also referred to Halsbury’s Laws of England
in Paras 36 & 37 thus:-
“36. “534. Express and implied clauses.— In general, the
parties to an arbitration agreement may include in it such
clauses as they think fit. By statute, however, certain terms
are implied in an arbitration agreement unless a contrary
intention is expressed or implied therein. Moreover, it is
normally an implied term of an arbitration agreement that
the Arbitrator must decide the dispute in accordance with the
ordinary law. This includes the basic rules as to procedure,
although parties can expressly or impliedly consent to depart
from those rules. The normal principles on which terms are
implied in an agreement have to be considered in the context
that the agreement relates to an arbitration.”
37. At page 303, para 580 (4th edn., Vol. 2) dealing with
the award of interest, it reads:
“580. Interest.— A Arbitrator or umpire has power to
award interest on the amount of any debt or damages for the
whole or any part of the period between the date when the
cause of action arose and the date of the award.”
Ultimately, in G.C. Roy (supra), this Court has answered the
question whether Arbitrator has the power to award interest pendent lite.
Their Lordships have reiterated that they have dealt with the situation
where the agreement does not provide for grant of such interest nor does
it prohibit such grant when the agreement is silent as to award of interest.
This Court has laid down various principles in para 43 of the report thus:
“43. The question still remains whether Arbitrator has the
power to award interest pendente lite, and if so on what
principle. We must reiterate that we are dealing with the
situation where the agreement does not provide for grant of
such interest nor does it prohibit such grant. In other words,
we are dealing with a case where the agreement is silent as
to award of interest. On a conspectus of aforementionedPage 9
9
decisions, the following principles emerge:
(i) A person deprived of the use of money to which he is
legitimately entitled has a right to be compensated for the
deprivation, call it by any name. It may be called interest,
compensation or damages. This basic consideration is as
valid for the period the dispute is pending before the
Arbitrator as it is for the period prior to the Arbitrator
entering upon the reference. This is the principle of Section
34, Civil Procedure Code and there is no reason or principle
to hold otherwise in the case of Arbitrator.
(ii) An Arbitrator is an alternative form (sic forum) for
resolution of disputes arising between the parties. If so, he
must have the power to decide all the disputes or differences
arising between the parties. If the Arbitrator has no power to
award interest pendente lite, the party claiming it would have
to approach the court for that purpose, even though he may
have obtained satisfaction in respect of other claims from the
Arbitrator. This would lead to multiplicity of proceedings.
(iii) An Arbitrator is the creature of an agreement. It is open to
the parties to confer upon him such powers and prescribe such
procedure for him to follow, as they think fit, so long as they
are not opposed to law. (The proviso to Section 41 and
Section 3 of Arbitration Act illustrate this point). All the same,
the agreement must be in conformity with law. The Arbitrator
must also act and make his award in accordance with the
general law of the land and the agreement.
(iv) Over the years, the English and Indian courts have acted
on the assumption that where the agreement does not prohibit
and a party to the reference makes a claim for interest, the
Arbitrator must have the power to award interest pendente
lite. Seth Thawardas Pherumal v. Union of India, AIR 1955
SC 468 has not been followed in the later decisions of this
Court. It has been explained and distinguished on the basis
that in that case there was no claim for interest but only a
claim for unliquidated damages. It has been said repeatedly
that observations in the said judgment were not intended to
lay down any such absolute or universal rule as they appear
to, on first impression. Until Executive Engineer (Irrigation)
Balimela & Ors. v. Abhaduta Jena & Ors., (1988) 1 SCC 418Page 10
10
almost all the courts in the country had upheld the power of
the Arbitrator to award interest pendente lite. Continuity and
certainty is a highly desirable feature of law.
(v) Interest pendente lite is not a matter of substantive law, like
interest for the period anterior to reference (pre-reference
period). For doing complete justice between the parties, such
power has always been inferred.”
“44. Having regard to the above consideration, we think that the
following is the correct principle which should be followed in
this behalf:
Where the agreement between the parties does not prohibit
grant of interest and where a party claims interest and that
dispute (along with the claim for principal amount or
independently) is referred to the Arbitrator, he shall have the
power to award interest pendente lite. This is for the reason that
in such a case it must be presumed that interest was an implied
term of the agreement between the parties and therefore when
the parties refer all their disputes — or refer the dispute as to
interest as such — to the Arbitrator, he shall have the power to
award interest. This does not mean that in every case the
Arbitrator should necessarily award interest pendente lite. It is a
matter within his discretion to be exercised in the light of all the
facts and circumstances of the case, keeping the ends of justice
in view.”
The Constitution Bench of this Court has laid down that where the
agreement between the parties does not prohibit grant of interest and
where the party claims interest and that dispute is referred to the
Arbitrator, he shall have the power to award interest pendent lite. The
law declared has been held applicable prospectively.
9. Another Constitution Bench of this Court in N.C. Budharaj (supra),
considered the question of award of interest by the Arbitrator for the prereference
period. In that connection, discussion has been made and it hasPage 11
11
been observed as long as there is nothing in the arbitration agreement to
exclude the jurisdiction of the Arbitrator entertaining claim for interest on
the amount due under the contract or any provision to claim interest on
the amount due, the jurisdiction of the Arbitrator to award interest for
pre-reference period under section 29 of the Arbitration Act, 1940 has to
be upheld. In majority opinion, this Court has held thus:
“25. If that be the position, courts which of late encourage
litigants to opt for and avail of the alternative method of
resolution of disputes, would be penalising or placing those
who avail of the same in a serious disadvantage. Both logic
and reason should counsel courts to lean more in favour of
the Arbitrator holding to possess all the powers as are
necessary to do complete and full justice between the parties
in the same manner in which the civil court seized of the
same dispute could have done. By agreeing to settle all the
disputes and claims arising out of or relating to the contract
between the parties through arbitration instead of having
recourse to civil court to vindicate their rights the party
concerned cannot be considered to have frittered away and
given up any claim which otherwise it could have
successfully asserted before courts and obtained relief. By
agreeing to have settlement of disputes through arbitration,
the party concerned must be understood to have only opted
for a different forum of adjudication with less cumbersome
procedure, delay and expense and not to abandon all or any
of its substantive rights under the various laws in force,
according to which only even the Arbitrator is obliged to
adjudicate the claims referred to him. As long as there is
nothing in the arbitration agreement to exclude the
jurisdiction of the Arbitrator to entertain a claim for interest
on the amounts due under the contract, or any prohibition to
claim interest on the amounts due and become payable under
the contract, the jurisdiction of the Arbitrator to consider and
award interest in respect of all periods subject only to
Section 29 of the Arbitration Act, 1940 and that too the
powers of the court thereunder, has to be upheld. The
submission that the Arbitrator cannot have jurisdiction to
award interest for the period prior to the date of hisPage 12
12
appointment or entering into reference which alone confers
upon him power, is too stale and technical to be
countenanced in our hands, for the simple reason that in
every case the appointment of an Arbitrator or even resort to
court to vindicate rights could be only after disputes have
cropped up between the parties and continue to subsist
unresolved, and that if the Arbitrator has the power to deal
with and decide disputes which cropped up at a point of time
and for the period prior to the appointment of an Arbitrator,
it is beyond comprehension as to why and for what reason
and with what justification the Arbitrator should be denied
only the power to award interest for the pre-reference period
when such interest becomes payable and has to be awarded
as an accessory or incidental to the sum awarded as due and
payable, taking into account the deprivation of the use of
such sum to the person lawfully entitled to the same.
26. For all the reasons stated above, we answer the reference
by holding that the Arbitrator appointed with or without the
intervention of the court, has jurisdiction to award interest,
on the sums found due and payable, for the pre-reference
period, in the absence of any specific stipulation or
prohibition in the contract to claim or grant any such
interest. The decision in Jena case taking a contraview does
not lay down the correct position and stands overruled,
prospectively, which means that this decision shall not
entitle any party nor shall it empower any court to reopen
proceedings which have already become final, and apply
only to any pending proceedings. No costs.”
It has also been observed that G.C. Roy’s case (supra) cannot be said
to have overruled Executive Engineer (Irrigation) Balimela’s case (supra)
insofar as it dealt with the power of Arbitrator to award interest for the
pre-reference period.
10. A 3 Judges Bench of this Court in Hindustan Construction Co.
Ltd. v. State of Jammu & Kashmir (1992) 4 SCC 217 has laid down that
the Arbitrator has the power to award pendente lite interest on the basis ofPage 13
13
principle of Section 34 of the Code of Civil Procedure though same is not
applicable. However, the observation has to be considered in case there
is no express bar in the agreement for awarding pendente lite interest as it
has simply followed what has been laid down in G.C. Roy (supra). This
Court has laid down thus:
“5. The question of interest can be easily disposed of as it is
covered by recent decisions of this Court. It is sufficient to
refer to the latest decision of a five Judge bench of this
Court in Secretary, Irrigation Department, Govt. of Orissa
& Ors. v. G.C. Roy. Though the said decision deals with the
power of the Arbitrator to award interest pendente lite, the
principle of the decision makes it clear that the Arbitrator is
competent to award interest for the period commencing with
the date of award to the date of decree or date of realisation,
whichever is earlier. This is also quite logical for, while
award of interest for the period prior to an Arbitrator
entering upon the reference is a matter of substantive law,
the grant of interest for the post-award period is a matter of
procedure. Section 34 of Code of Civil Procedure provides
both for awarding of interest pendente lite as well as for the
post-decree period and the principle of Section 34 has been
held applicable to proceedings before the Arbitrator, though
the section as such may not apply. In this connection, the
decision in Union of India v. Bungo Steel Furniture (P) Ltd.
AIR 1967 SC 1032 may be seen as also the decision in
Gujarat Water Supply & Sewerage Board v. Unique
Erectors (Gujarat) P. Ltd. 1989 1 532 SCC which upholds
the said power though on a somewhat different reasoning.
We, therefore, think that the award on Item No. 8 should
have been upheld.”
11. In Sayeed Ahmed (supra) various decisions of this Court have been
referred. In State of Orissa v. B.N. Agarwalla, (1997) 2 SCC 469, this
Court has laid down thus:
“18. In view of the aforesaid decisions there can now be no
doubt with regard to the jurisdiction of the Arbitrator toPage 14
14
grant interest. The principles which can now be said to be
well-settled are that the Arbitrator has the jurisdiction to
award pre-reference interest in cases which arose after the
Interest Act, 1978 had become applicable. With regard to
those cases pertaining to the period prior to the applicability
of the Interest Act, 1978, in the absence of any substantive
law, contract or usage, the Arbitrator has no jurisdiction to
award interest. For the period during which the arbitration
proceedings were pending in view of the decision in G.C.
Roy case and Hindustan Construction Ltd. case, the
Arbitrator has the power to award interest. The power of the
Arbitrator to award interest for the post-award period also
exists and this aspect has been considered in the discussion
relating to Civil Appeal No. 9234 of 1994 in the later part of
this judgment.”
12. The decision in B.N. Agarwalla (supra) has been considered and
distinguished by this Court in Sayeed Ahmed (supra) thus :
“20. The appellant next relied upon the judgment of this
Court in State of Orissa v. B.N. Agarwalla (1997) 2 SCC
469. In that case, this Court held that the Arbitrator has
jurisdiction to award: (i) interest for pre-reference period,
(ii) interest for pendente lite, and (iii) future interest. This
Court also held that the following part of Clause (4) of the
contract dealing with “Rates, materials and workmanship”
did not bar award of interest by the Arbitrator on the claims
of the contractor: (SCC p. 478, para 22)
No interest is payable on amount withheld under the
item of the agreement.
Interpreting the said clause (which provided that interest was
not payable on the amount which was withheld), this Court
held that it referred only to the amount withheld by the
employer State towards retention money for the defect
liability period. This Court in fact clarified the position that
if the terms of contract expressly stipulated that no interest
would be payable, then the Arbitrator would not get the
jurisdiction to award interest. As Clause G1.09 in the present
case contains an express bar and is different from the clause
considered in B.N. Agarwalla (supra) the said decision is
also of no assistance.”Page 15
15
In B.N. Agarwalla (supra) this Court has observed that Clause 4 of
the contract dealing with “Rates, materials and workmanship” did not bar
award of interest by the Arbitrator on the claims of the contractor. The
stipulation was no interest was payable on amount withheld under the
agreement.
13. In Sayeed Ahmed (supra), this Court has referred the decision in
State of U.P. v. Harish Chandra & Co. (1999) 1 SCC 63, in which this
Court has interpreted the stipulation contained in clause 1.9 of the
agreement which came up for consideration before a 3 Judges Bench of
this Court. Clause 1.9 is extracted hereunder:
“1.9 No claim for delayed payment due to dispute etc.—No
claim for interest or damages will be entertained by the
Government with respect to any moneys or balances which
may be lying with the Government owing to any dispute,
difference; or misunderstanding between the Engineer-inCharge
in marking periodical or final payments or in any
other respect whatsoever.”
This Court has interpreted the clause 1.9 and held that there is no
provision which could be culled out against the respondent-contractor
that he could not raise claim of interest by way of damages before the
Arbitrator on the relevant items placed for adjudication.
This Court in Sayeed Ahmed (supra) has also distinguished the
decision in Harish Chandra (supra) in which clause 1.09 came up for
consideration thus :
“17. x x x x x This Court held that the said clause did not
bar award of interest on any claim for damages or for claimPage 16
16
for payment for work done. We extract below the reasoning
for such decision: (SCC p. 67, para 10)
“10. A mere look at the clause shows that the claim
for interest by way of damages was not to be
entertained against the Government with respect to
only a specified type of amount, namely, any moneys
or balances which may be lying with the Government
owing to any dispute, difference between the
Engineer-in-Charge and the contractor; or
misunderstanding between the Engineer-in-Charge
and the contractor in making periodical or final
payments or in any other respect whatsoever. The
words ‘or in any other respect whatsoever’ also
referred to the dispute pertaining to the moneys or
balances which may be lying with the Government
pursuant to the agreement meaning thereby security
deposit or retention money or any other amount which
might have been with the Government and refund of
which might have been withheld by the Government.
The claim for damages or claim for payment for the
work done and which was not paid for would not
obviously cover any money which may be said to be
lying with the Government. Consequently, on the
express language of this clause, there is no prohibition
which could be culled out against the respondent
contractor that he could not raise the claim for interest
by way of damages before the Arbitrator on the
relevant items placed for adjudication.”
(emphasis supplied)
18. In Harish Chandra (1999) 1 SCC 63 a different version
of Clause 1.09 was considered. Having regard to the
restrictive wording of that clause, this Court held that it did
not bar award of interest on a claim for damages or a claim
for payments for work done and which was not paid. This
Court held that the said clause barred award of interest only
on amounts which may be lying with the Government by
way of security deposit/retention money or any other
amount, refund of which was withheld by the Government.
19. But in the present case, Clause G1.09 is significantly
different. It specifically provides that no interest shall be
payable in respect of any money that may become due
owing to any dispute, difference or misunderstandingPage 17
17
between the Engineer-in-Charge and contractor or with
respect to any delay on the part of the Engineer-in-Charge in
making periodical or final payment or in respect of any other
respect whatsoever. The bar under Clause G1.09 in this case
being absolute, the decision in Harish Chandra (supra) will
not assist the appellant in any manner.”
In Harish Chandra (supra), this Court has laid down that clause
1.09 did not bar award of interest for claim of damages for payment for
work done and which was not paid for would not obviously cover any
money which may be said to be lying with the Government.
14. In our opinion, it would depend upon the nature of the ouster
clause in each case. In case there is express stipulation which debars
pendente lite interest, obviously, it cannot be granted by Arbitrator. The
award of pendente lite interest inter alia must depend upon the overall
intention of the agreement and what is expressly excluded.
15. In Sayeed Ahmed (supra), this Court has referred the decision in
Superintending Engineer v. B. Subba Reddy (1999) 4 SCC 423 and
observed thus :
“11. Two more decisions dealing with cases arising under
the Arbitration Act, 1940 require to be noticed. In
Superintending Engineer v. B. Subba Reddy (1999) 4 SCC
423 this Court held that interest for pre-reference period can
be awarded only if there was an agreement to that effect or if
it was allowable under the Interest Act, 1978. Therefore,
claim for interest for pre-reference period, which is barred as
per the agreement or under the Interest Act, 1978 could not
be allowed. This Court however held that the Arbitrator can
award interest pendente lite and future interest.”
In Sayeed Ahmed (supra) this Court has also referred the decisionPage 18
18
in State of Rajasthan & Anr. v. Ferro Concrete Construction (P) Ltd.
(2009) 12 SCC 1 thus :
“12. The principles relating to interest were summarised by
this Court in State of Rajasthan v. Ferro Concrete
Construction (P) Ltd. (2009) 12 SCC 1 thus:
(a) Where a provision for interest is made on any debt or
damages, in any agreement, interest shall be paid in
accordance with such agreement.
(b) Where payment of interest on any debt or damages is
barred by express provision in the contract, no interest shall
be awarded.
(c) Where there is no express bar in the contract and where
there is also no provision for payment of interest then the
principles of Section 3 of the Interest Act will apply and
consequently interest will be payable:
(i) where the proceedings relate to a debt (ascertained sum)
payable by virtue of a written instrument at a certain time,
then from the date when the debt is payable to the date of
institution of the proceedings;
(ii) where the proceedings is for recovery of damages or
for recovery of a debt which is not payable at a certain time,
then from the date mentioned in a written notice given by
the person making a claim to the person liable for the claim
that interest will be claimed.
(d) Payment of interest pendente lite and future interest shall
not be governed by the provisions of the Interest Act, 1978,
but by the provisions of Section 34 of the Code of Civil
Procedure, 1908 or the provisions of law governing
arbitration as the case may be.”
In Sayeed Ahmed (supra), the provisions of Arbitration &
Conciliation Act, 1996 were applicable.
16. A 3-Judge Bench of this Court in Union of India v. Bright Power
Projects (India) Pvt. Ltd. (2015) 9 SCC 695 has considered thePage 19
19
provisions contained in section 31(7)(a) of the Arbitration and
Conciliation Act, 1996 and considered the words “unless otherwise
agreed by parties” in the said section and held that the Arbitrator is bound
by the terms of the contract so far as award of interest from the date of
execution to the date of award is concerned. This Court considered clause
13(3) of the contract and came to the conclusion that once agreed that
contractor would not claim any interest on the amount to be paid under
the contract, he could not have claimed the interest. The Arbitrator while
awarding interest failed to consider the provisions of section 31(7)(a) and
binding nature of clause 13(3) of the terms of agreement. With respect to
section 31(7)(a) of the Arbitration & Conciliation Act, 1996 this Court in
Union of India v. Bright Power Projects (supra) has observed thus :
“18. Section 31(7)(a) of the Act ought to have been read and
interpreted by the Arbitral Tribunal before taking any
decision with regard to awarding interest. The said section,
which has been reproduced hereinabove, gives more respect
to the agreement entered into between the parties. If the
parties to the agreement agree not to pay interest to each
other, the Arbitral Tribunal has no right to award interest
pendente lite.”
Section 31(7)(a) of the 1996 Act confers power on Arbitrator to award
interest pendente lite, “unless otherwise agreed by parties”. Thus, it is
clear from the provisions contained in section 31(7)(a) that the contract
between the parties has been given importance and is binding on the
Arbitrator. Arbitration clause is also required to be looked into while
deciding the power of the Arbitrator and in case there is any barPage 20
20
contained in the contract on award of interest, it operates on which items
and in the arbitration clause what are the powers conferred on Arbitrator
and whether bar on award of interest has been confined to certain period
or it relates to pendency of proceedings before Arbitrator.
17. In Sree Kamatchi Amman Constructions (supra), it was observed
that the words “unless otherwise agreed by the parties” in section 31 of
new Act of 1996 clarify that Arbitrator is bound by the terms of contract
for award of interest pendente lite. It was also held thus :
“19. Section 31(7) of the new Act by using the words
“unless otherwise agreed by the parties” categorically
clarifies that the Arbitrator is bound by the terms of the
contract insofar as the award of interest from the date of
cause of action to the date of award. Therefore, where the
parties had agreed that no interest shall be payable, the
Arbitral Tribunal cannot award interest between the date
when the cause of action arose to the date of award.
20. We are of the view that the decisions in Engineers-DeSpace-Age
(supra) and Madnani (supra) are inapplicable for
yet another reason. In Engineers-De-Space-Age (supra) and
Madnani (supra) the Arbitrator had awarded interest for the
pendente lite period. This Court upheld the award of such
interest under the old Act on the ground that the Arbitrator
had the discretion to decide whether interest should be
awarded or not during the pendente lite period and he was
not bound by the contractual terms insofar as the interest for
the pendente lite period. But in the instant case the Arbitral
Tribunal has refused to award interest for the pendente lite
period. Where the Arbitral Tribunal has exercised its
discretion and refused award of interest for the period
pendente lite, even if the principles in those two cases were
applicable, the award of the Arbitrator could not be
interfered with. On this ground also the decisions in
Engineers-De-Space-Age (supra) and Madnani (supra) are
inapplicable. Be that as it may.”Page 21
21
18. This Court in Union of India v. Krafters Engineering & Leasing
Pvt. Ltd. (2011) 7 SCC 279 has held that by a provision in the agreement,
the jurisdiction of the Arbitrator to award interest can be excluded. This
Court considered the nature of the claim vis-à-vis the provision contained
in the relevant clause.
19. It is apparent from various decisions referred to above that in G.C.
Roy (supra) Constitution Bench of this Court has laid down where
agreement expressly provides that no interest pendente lite shall be
payable on amount due. The arbitrator has no power to award interest. In
N.C. Budharaj (supra) a Constitution Bench has observed that in case
there is nothing in the arbitration agreement to exclude jurisdiction of
arbitrator to entertaining claim for interest, the jurisdiction of arbitrator to
consider and award interest in respect to all periods is subject to section
29 of the Act. In Hindustan Construction Co. Ltd. (supra) this Court has
followed decision in G.C. Roy (supra) and laid down that on the basis of
principles of section 34 arbitrator would have the power to award
pendente lite interest also. In B.N. Agarwalla (supra), this Court has again
followed G.C. Roy (supra) and Hindustan Construction Co. Ltd. (supra)
with respect to power of arbitrator to award pendente lite interest and it
was held that arbitrator has power to award interest. In Harish Chandra
(supra) this Court interpreted the clause 1.9 which provided that no claim
for interest or damages will be entertained by the Government in respectPage 22
22
to any moneys or balances which may be lying with the Government. It
was held that there was no provision which could be culled out against
the contractor not to claim interest by way of damages before the
arbitrator on the relevant items placed for adjudication. In Ferro
Concrete Construction (P) Ltd. (supra) this Court considered clause 4
containing a stipulation that no interest was payable on amount withheld
under the agreement. It was held that clause 4 dealt with rates, material
and workmanship did not bar award of interest by the arbitrator on claims
of the contractor made in the said case. In Sayeed Ahmed (supra) this
Court has emphasized that award of interest would depend upon nature of
the clause in the agreement. In Bright Power Projects (India) Pvt. Ltd.
(supra) this Court has considered the expression “unless otherwise agreed
by parties” employed in section 31(7)(a) of the Act of 1996 and laid
down that in case contract bars claim of interest contractor could not have
claimed interest. The provision of section 31(7)(a) of the Act of 1996 is
binding upon the arbitrator. In Sree Kamatchi Amman Constructions
(supra) similar view has been taken.
20. Now we come to the question of correctness of decision of this
Court rendered by a Bench of two Judges in Engineers-De-Space-Age
(supra) which has been referred for our consideration in which this Court
after consideration of G.C. Roy’s case has observed thus :
“3….. It will appear from what the Constitution Bench
stated to be the legal position, that ordinarily a person who isPage 23
23
deprived of his money to which he is legitimately entitled as
of right is entitled to be compensated in deprivation thereof,
call it by whatever name. This would be in terms of the
principle laid down in Section 34 of the Code of Civil
Procedure. Their Lordships pointed out that there was no
reason or principle to hold otherwise in the case of an
Arbitrator. Pointing out that Arbitrator is an alternative
forum for resolution of disputes arising between the parties,
it said that he must have the power to decide all disputes and
differences arising between the parties and if he were to be
denied the power to award interest pendente lite, the party
entitled thereto would be required to go to a court which
would result in multiplicity of proceedings, a situation which
the court should endeavour to avoid. Reliance was, however,
placed on the observation in sub-para (iii) wherein it is
pointed out that an Arbitrator is a creature of an agreement
and if the agreement between the parties prohibits the
payment of interest pendente lite the Arbitrator must act in
accordance therewith. In other words, according to their
Lordships the Arbitrator is expected to act and make his
award in accordance with the general law of the land but
subject to an agreement, provided, the agreement is valid
and legal. Lastly, it was pointed out that interest pendente
lite is not a matter of substantive law, like interest for the
period anterior to reference. Their Lordships concluded that
where the agreement between the parties does not prohibit
grant of interest and where a party claims interest and that
dispute is referred to the Arbitrator, he shall have the power
to award interest pendente lite for the simple reason that in
such a case it is presumed that interest was an implied term
of the agreement between the parties; it is then a matter of
exercise of discretion by the Arbitrator. The position in law
has, therefore, been clearly stated in the aforesaid decision
of the Constitution Bench”.
4. We are not dealing with a case in regard to award of
interest for the period prior to the reference. We are dealing
with a case in regard to award of interest by the Arbitrator
post reference. The short question, therefore, is whether in
view of sub-clause (g) of clause 13 of the contract extracted
earlier the Arbitrator was prohibited from granting interest
under the contract. Now the term in sub-clause (g) merely
prohibits the Commissioner from entertaining any claim for
interest and does not prohibit the Arbitrator from awardingPage 24
24
interest. The opening words “no claim for interest will be
entertained by the Commissioner” clearly establishes that
the intention was to prohibit the Commissioner from
granting interest on account of delayed payment to the
contractor. Clause has to be strictly construed for the simple
reason that as pointed out by the Constitution Bench,
ordinarily, a person who has a legitimate claim is entitled to
payment within a reasonable time and if the payment has
been delayed beyond reasonable time he can legitimately
claim to be compensated for that delay whatever
nomenclature one may give to his claim in that behalf.”
21. In Sayeed Ahmed (supra) the decision in Engineers-De-Space-Age
(supra) has been considered and it was observed that it cannot be used to
support an outlandish argument that bar on the Government or
department paying interest is not a bar on the Arbitrator awarding
interest. This Court expressed doubt as to the correctness of certain
observations made in Engineers-De-Space-Age (supra) to the extent that
the Arbitrator could award interest pendente lite ignoring the express bar
in the contract. But this Court did not consider the question further as the
case in Sayeed Ahmed (supra) arose under the Arbitration and
Conciliation Act of 1996, and there was a specific provision under new
Act regarding award of interest by the Arbitrator. From the discussion
made in Sayeed Ahmed (supra) it is apparent that this Court has
emphasized that it would depend upon the nature of clause and claim etc.
and it is required to be found on consideration of stipulation whether
interest is barred, if yes, on what amounts interest is barred under the
contract. Page 25
25
22. A three-Judge Bench of this Court in Tehri Hydro Development
Corporation Limited and Another v. Jai Prakash Associates Limited,
(2012) 12 SCC 10, has considered the question which has been referred
in the instant case and it has been laid down in the context of clauses
1.2.14 and 1.2.15 imposed a clear bar on either entertainment or payment
of interest in any situation of non-payment or delayed payment of either
the amounts due for work done or lying in security deposit. Thus, the
arbitrator had no power to grant pendente lite interest. This Court has
also doubted the correctness of the decisions in Engineers-De-Space Age
(supra) and Madnani Construction Corporation (P) Ltd. (supra). This
court has considered the aforesaid clauses and various decisions in Tehri
Hydro Development Corporation (supra) in which one of us Ranjan
Gogoi, J. spoke for the Court. This Court has laid down thus :–
“14. This will lead the court to a consideration of what is
the principal bone of contention between the parties in the
present case, namely, the issue with regard to payment of
interest. Clauses 1.2.14 and 1.2.15 on which much
arguments have been advanced by Learned Counsel for both
sides may now be extracted below:
PART - II
CONDITIONS OF CONTRACT
1.2.14. No claim for delayed payment due to dispute,
etc. - The contractor agrees that no claim for interest of
damages will be entertained or payable by the Government
in respect of any money or balances which may be lying
with the Government owing to any disputes, differences or
misunderstandings between the parties or in respect of any
delay or omission on the part of the engineer-in-charge in
making immediate or final payments or in any other respect
whatsoever.
1.2.15. Interest on money due to the contractor. - NoPage 26
26
omission on the part of the engineer-in-charge to pay the
amount due upon measurement or otherwise shall vitiate or
make void the contract, nor shall the contractor be entitled to
interest upon any guarantee or payments in arrears nor upon
any balance which may on the final settlement of his
accounts be due to him.
A reading of the aforesaid two clauses of the contract
agreement between the parties clearly reveal that despite
some overlapping of the circumstances contemplated by the
two clauses, no interest is payable to the contractor for delay
in payment, either, interim or final, for the works done or on
any amount lying in deposit by way of guarantee. The
aforesaid contemplated consequence would be applicable
both to a situation where withholding of payment is on
account of some dispute or difference between the parties or
even otherwise.
15. Of the several decisions of this Court referred to by
the learned counsel for the appellant the judgments of the
Constitution Bench of this Court in Irrigation Deptt., Govt.
of Orissa v. G.C. Roy, (1992) 1 SCC 508 and Dhenkanal
Minor Irrigation Division v. N.C. Budharaj, (2001) 2 SCC
721 will require specific notice. The true ratio laid down in
the aforesaid two judgments have been elaborately
considered in a more recent pronouncement of this Court in
the case of Union of India v. Krafters Engg. and Leasing (P)
Ltd., (2011) 7 SCC 279. In Krafters Engineers's case (supra)
the ratio of the decision in G.C. Roy's case (supra) was
identified to mean that if the agreement between the parties
does not prohibit grant of interest and the claim of a party to
interest is referred to the arbitrator, the arbitrator would have
the power to award the interest. This is on the basis that in
such a case of silence (where the agreement is silent) it must
be presumed that interest was an implied term of the
agreement and, therefore, whether such a claim is tenable
can be examined by the arbitrator in the reference made to
him. The aforesaid view, specifically, is with regard to
pendente lite interest. In the subsequent decision of the
Constitution Bench in N.C. Budharaj's case (supra) a similar
view has been taken with regard to interest for the prereference
period.
16. In Krafters Engineers' case (supra), the somewhat
discordant note struck by the decisions of this Court in Port
of Calcutta v. Engineers-De-Space-Age (supra) and
Madnani Construction Corporation Private Limited v.Page 27
27
Union of India and Ors. (supra), were also taken note of.
Thereafter, it was also noticed that the decision in
Engineers-De-Space-Age's case (supra) was considered in
Sayeed Ahmed & Co. v. State of U.P. (supra) and the decision
in Madnani Construction case (supra) was considered in
Sree Kamatchi Amman Constructions v. Railways (2010) 8
SCC 767. In Sayeed Ahmed's case (supra) (SCC para 24) it
was held that in the light of the decision of the Constitution
Bench in G.C. Roy's case (1992) 1 SCC 508 and N.C.
Budharaj case (2001) 2 SCC 721 it is doubtful whether the
observations in Engineers-de-Space-Age's case (supra) to
the effect that the Arbitrator could award interest pendente
lite, ignoring the express bar in the contract, is good law. In
Sree Kamatchi Amman Construction's case (Supra) while
considering Madnani's case (supra) this Court noted that the
decision in Madnani case (supra) follows the decision in
Engineers-de-Space-Age's case (supra).
17. From the above discussions, it is crystal clear that
insofar as pendente lite interest is concerned, the
observations contained in Para 43 and 44 of the judgment in
G.C. Roy case (supra) will hold the field. Though the gist of
the said principle has been noticed earlier it would still be
appropriate to set out para 44 of the judgment in G.C. Roy's
case (supra) which is in the following terms:
44. Having regard to the above consideration, we think that
the following is the correct principle which should be
followed in this behalf.
Where the agreement between the parties does not prohibit
grant of interest and where a party claims interest and that
dispute (along with the claim for principal amount or
independently) is referred to the arbitrator, he shall have the
power to award interest pendente lite. This is for the reason
that in such a case it must be presumed that interest was an
implied term of the agreement between the parties and
therefore when the parties refer all their disputes - or refer
the dispute as to interest as such - to the arbitrator, he shall
have the power to award interest. This does not mean that in
every case the arbitrator should necessarily award interest
pendente lite. It is a matter within his discretion to be
exercised in the light of all the facts and circumstances of
the case, keeping the ends of justice in view.
18. The provisions of the U.P. Civil Laws (Reforms and
Amendment) Act amending the First Schedule to the
Arbitration Act, 1940 does not assist the respondentPage 28
28
contractor in any manner to sustain the claim of award of
interest pendente lite, inasmuch, as Para 7-A of the First
Schedule, as amended, is only an enabling provision which
will have no application to a situation where there is an
express bar to the entertainment or payment of interest on
the delayed payment either of an amount due for the work
done or of an amount lying in deposit as security. The
decision in B.N. Agarwalla case (supra) on which reliance
has been placed by the learned counsel for the respondent,
once again, does not assist the claim of the respondent to
interest pendente lite inasmuch as in B.N. Agarwalla case
(supra) the views of the Constitution Bench in G.C. Roy
case (supra) with regard to interest pendente lite could not
have been and, in fact, were not even remotely doubted. The
observation of the Bench in B.N. Agarwalla case that in
G.C. Roy case (supra) the decision in Deptt. of Irrigation v.
Abhaduta Jena (1988) 1 SCC 418 was not overruled was
only in the context of the issue of award of interest for the
pre- reference period. The decision in Asian Techs Limited
case (supra) also relied on by the respondent takes note of
the decision in Engineers-De-Space-Age case (supra) to
come to the conclusion the prohibition on payment of
interest contained in Clause 11 of the agreement between the
parties was qua the department and did not bar the arbitrator
from entertaining the claim. It has already been noticed that
the correctness of the propositions laid down in EngineersDe-Space-Age
case (supra) have been doubted in the
subsequent decisions of this Court, reference to which has
already been made.
19. Clauses 1.2.14 and 1.2.15, already extracted and
analysed, imposed a clear bar on either entertainment or
payment of interest in any situation of non-payment or
delayed payment of either the amounts due for work done or
lying in security deposit. On the basis of the discussions that
have preceded we, therefore, take the view that the grant of
pendente lite interest on the claim of Rs. 10,17,461/- is not
justified. The award as well as the orders of the courts below
are accordingly modified to the aforesaid extent.”
In para 4 in Engineers-De-Space-Age (supra) this Court has
observed that bar under the contract will not be applicable to Arbitrator
cannot be said to be observation of general application. In our opinion, itPage 29
29
would depend upon the stipulation in the contract in each case whether
power of Arbitrator to grant pendente lite interest is expressly taken
away. If answer is ‘yes’ then Arbitrator would have no power to award
pendente lite interest.
23. The decision in Madnani Construction Corporation (supra) has
followed decision in Engineers-De-Space-Age (supra). Same is also
required to be diluted to the extent that express stipulation under contract
may debar the Arbitrator from awarding interest pendente lite. Grant of
pendente lite interest may depend upon several factors such as
phraseology used in the agreement, clauses conferring power relating to
arbitration, nature of claim and dispute referred to Arbitrator and on what
items power to award interest has been taken away and for which period.
24. Thus, our answer to the reference is that if contract expressly bars
award of interest pendente lite, the same cannot be awarded by the
Arbitrator. We also make it clear that the bar to award interest on delayed
payment by itself will not be readily inferred as express bar to award
interest pendente lite by the Arbitral Tribunal, as ouster of power of
Arbitrator has to be considered on various relevant aspects referred to in
the decisions of this Court, it would be for the Division Bench to consider
the case on merits.
………………………J.
(Ranjan Gogoi)
………………………J.Page 30
30
(Arun Mishra)
New Delhi; ……………………….J.
March 16, 2016. (Prafulla C. Pant)
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