Power of an Arbitrator to award an interest while litigation awaits is restricted when the parties have agreed to contrary: Supreme Court of India
The law relating to the award of pendente lite interest by Arbitrator under the Arbitration and Conciliation Act, 1996 is no longer res Integra. The provisions of the   1996   Act give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre-­reference and pendente lite interest when the parties themselves have agreed to the contrary as held by the Hon’ble Supreme Court through Justice S. Abdul Nazeer in the case of Garg Builders Vs. Bharat Heavy Electricals Ltd. [CIVIL APPEAL NO.6216 OF 2021] (Arising out of S.L.P. (C.) No. 16320 of 2018). The brief facts of the case are that the respondent floated a tender for the construction of a boundary wall at its Combined Cycle Power Project at Bawana, Delhi. The appellant submitted its bid for the project which was accepted by the respondent.  Subsequently, on 24.10.2008 the parties entered into a contract which, inter alia, contained the interest barring clause. The disputes arose between the parties with respect to the aforesaid contract and subsequently, the appellant filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court wherein the Court-appointed Hon’ble Mr. Justice M.A. Khan (Retd.) as the sole Arbitrator to adjudicate the disputes. Learned Arbitrator after hearing the contentions of both and awarded pendente lite and future interest at the rate of 10% p.a. to the appellant on the award amount from the date of filing of the claim petition i.e. 02.12.2011 till the date of realization of the award amount. The respondent challenged the said award under Section 34 of the 1996 Act before the   Delhi   High   Court on the ground that the learned   Arbitrator being a creature of the arbitration agreement traveled beyond the terms of the contract. The learned Single Judge vide his final judgment and order dated 10.03.2017 set aside the impugned order and this judgment was upheld by the Division Bench of the High Court. Before the Hon’ble Supreme Court, Mr. Sanjay Bansal, learned counsel for the appellant, contended that the learned   Arbitrator had taken a plausible view, in terms of Clause 17 of the Contract and held that the said clause does not bar the payment of interest for pendente lite period. This argument relied on the judgments of this court in Ambica Construction v. Union of India and Raveechee and Company v. Union of India. On the other hand, Mr. Pallav Kumar, learned counsel for the respondent, submitted that Section 31(7)(a) of the 1996 Act gives paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre­reference and pendente lite interest when the parties themselves have agreed to the contrary. After hearing both the parties, the hon’ble court, while relying on the judgments in the case of Sayeed Ahmed and Company v. State of Uttar Pradesh &amp; Ors, Bharat Heavy Electricals Limited v. Globe Hi­Fabs Limited and  Sri   Chittaranjan   Maity   v.   Union of   India, stated that “If the contract prohibits   pre­reference   and pendente lite interest,   the arbitrator cannot award interest for the said period.   In the present case, clause barring interest is very clear and categorical.   It uses the expression “any moneys due to the contractor” by the employer which includes the amount awarded by the arbitrator”.
of the High Court of Delhi dated 19.09.2017 in FAO(OS COMM)No.120 2017 whereby it has upheld the judgment of the learned Single Judge in OMP No.28 of 2017 dated 10.03.2017 resulting in denial of pendente lite interest on the Delhi to the appellant dated 09.09.2008. Subsequently on 24.10.2008 the parties entered into a contract which inter alia contained the interest barring clause which is reproduced The disputes arose between the parties with respect to the short “the 1996 Act”) before the Delhi High Court wherein the The appellant in the claim petition apart from claiming various amounts under different heads inter alia claimed pre­reference dated 24.10.2008 and LOI dated 09.09.2010 about payment of interest for the pre­suit pendente lite and future period. Therefore the 1996 Act before the Delhi High Court in O.M.P. of the Act the power of the arbitral tribunal to award pre award “Learned counsel for the petitioner has placed reliance on an order of this Court in Ambica materials on record. Mr. Sanjay Bansal learned counsel for the appellant contended that the learned Arbitrator had taken a that the said clause does not bar the payment of interest for pendente lite period. This argument was advanced in view of judgment of this Court in Ambica Construction v. Union of India1 wherein the appellant was entitled for the payment of On the other hand Mr. Pallav Kumar learned counsel for the paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre­reference and pendente lite interest when the parties themselves have agreed to the contrary. He argued that if the pendente lite interest. It was further argued that Ambica 114 SCC 323 27 SCC 664 the proceedings for recovery of any debt or damages or in damages already paid. However Section 3(3) of the Interest Act damages and sanctifies contracts which bars the payment of Act 1872. In light of the arguments advanced the learned counsel no longer res integra. The provisions of the 1996 Act give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award pre­reference and pendente lite interest when the parties themselves have agreed to the contrary. Section 31(7)(a) of the “31(7)(a) Unless otherwise agreed by the parties where and insofar as an arbitral award is for the action arose and the date on which the award is It is clear from the above provision that if the contract prohibits pre­reference and pendente lite interest the arbitrator cannot award interest for the said period. In the present case clause barring interest is very clear and categorical. It uses the expression “any moneys due to the contractor” by the employer Section 31(7)(a) of the 1996 Act in relation to the power of the 312 SCC 26 arbitrator to award interest. As per this section if the contract bars In Sree Kamatchi Amman Constructions v. Divisional Railway Manager Palghat & Ors.4 it was held by this words “any amount due to the contractor by the employer”. In our opinion these words cannot be In Sri Chittaranjan Maity v. Union of India6 it was 48 SCC 767 55 SCC 718 69 SCC 611 16. Therefore if the contract contains a specific clause which expressly bars payment of interest then it is not open for the arbitrator to grant pendente lite interest. The judgment on which reliance was placed by the learned counsel for the appellant in Ambica Construction has no application to the instant case because Ambica Construction was decided under the Act. This has been clarified in Sri Chittaranjan Maity as “16. Relying on a decision of this Court in Ambica Construction v. Union of India 14 SCC 323 the learned Senior Counsel for the appellant submits that mere bar to award interest on the Therefore the arbitrator was justified in awarding the pendente lite interest. However it is not clear from Ambica Construction as to whether it was decided under the Arbitration Act 1940 1 SCC 508. This the arbitrator from awarding interest for the pre­ reference pendente lite or post­award period interest for the pre­award period the arbitrator cannot award interest for the said period. Therefore the decision in Ambica Constructioncannot 18. Having regard to the above we are of the view that the High the Contract is ultra vires in terms of Section 28 of the Indian Contract Act 1872. According to Section 28 a contract is void to which he may enforce his rights. Exception I to this section that any dispute which has arisen or which may arise between to arbitration is not illegal. The question therefore is whether the “Exception 1: Saving of contract to refer to more persons agree that any dispute which may arise between them in respect of any subject or that only the amount awarded in such move the Court for appropriate relief is restricted but where the parties have agreed to resolve their dispute through arbitration violate Section 28. No cause of action then accrues until the Arbitrator has made the award and the only amount awarded in claim to interest including pendente lite and the power of the Arbitrator to grant interest is subject to the agreement of the 22. Thus when there is an express statutory permission for the In the result the appeal fails and is accordingly dismissed 24. Pending application if any shall also stand disposed of