M/S RAVEECHEE AND COversusUNION OF INDIA

138                      [2018]REPORTS
               SUPREME COURT    5 S.C.R. 138                  [2018] 5 S.C.R.


A                         M/S RAVEECHEE AND CO.
                                         v.
                               UNION OF INDIA
                       (Civil Appeal Nos. 5964-65 of 2018)
B                                 JULY 03, 2018
              [S. A. BOBDE AND L. NAGESWARA RAO, JJ.]
             Arbitration Act, 1940 – Interest pendente lite – Award of –
      Power of the arbitrator – Award of mining contract to appellant –
      Dispute between parties – Award of interest pendente lite on damages
C
      excluding the security deposits, from the date of commencement of
      the arbitral proceedings to the date of award – High Court set aside
      the award in so far as the order of pendente lite interest – On appeal,
      held: Liability to pay interest pendente lite arises because the
      claimant has been found entitled to the damages and has been kept
D     out from those dues due to the pendency of the arbitration-pendente
      lite – Thus, the liability for interest pendente lite does not arise from
      any term of the contract, or during the terms of the contract, but in
      the course of determination by the Arbitrators of the losses or
      damages that are due to the claimant – When a dispute is referred
      to for adjudication to an arbitrator, a contract clause excluding
E
      interest upon the earnest money and security deposit, that is binding
      on the parties cannot be extended to bind an Arbitrator – Arbitrator
      has power to award interest pendente lite where justified – Thus,
      judgment of the High Court is set aside – Order of interest pendente
      lite restored.
F
            Allowing the appeals, the Court
            HELD: 1.1 The Arbitrators have awarded amounts to the
      claimant on account of the losses suffered by them for various
      reasons, mainly due to the ban on mining. These amounts are
      not awarded on account of any payment due under the contract
G     but are awarded on losses determined in the course of arbitration
      or the ‘lis’. A claimant becomes entitled to interest not as
      compensation for any damage done but for being kept out of the
      money due to him. Obviously, in a case of unascertained damages
      such as this, the question of interest would arise upon the
H
                                        138
       M/S RAVEECHEE AND CO. v. UNION OF INDIA                         139


ascertainment of the damages in the course of the lis. Such            A
damages could attract interest pendente lite for the period from
the commencement of the arbitration to the award. Thus, the
liability for interest pendente lite does not arise from any term of
the contract, or during the terms of the contract, but in the course
of determination by the Arbitrators of the losses or damages that
                                                                       B
are due to the claimant. Specifically, the liability to pay interest
pendente lite arises because the claimant has been found entitled
to the damages and has been kept out from those dues due to
the pendency of the arbitration i.e. pendente lite. [Para 11][143-
D-G]
       1.2 The Arbitrators rightly awarded interest pendente lite      C
for the period from 26.09.1988 to 23.03.2001 which is the date of
the award, on the amounts found due to the claimant. Undoubtedly,
such a power must be considered inherent in an Arbitrator who
also exercises the power to do equity, unless the agreement
expressly bars an Arbitrator from awarding interest pendente           D
lite. An agreement which bars interest is essentially an agreement
that the parties will not claim interest on specified amounts. It
does not bar an Arbitrator, who is never a party to the agreement
from awarding it. The instant case must be decided on the general
rule that an arbitrator has the power to award interest unless
specifically barred from awarding it; and the bar must be clear        E
and specific. [Para 12][143-H; 144-A-C]
      1.3 When a dispute is referred to for adjudication to an
arbitrator, a term of such a nature as contained in the Clause
16(3) of General Clauses Contract, that is binding on the parties
cannot be extended to bind an Arbitrator. The Arbitrator has           F
power to award interest pendente lite where justified. Therefore,
the judgment of the High Court is set aside and the award passed
by the Arbitral Tribunal is restored. [Para 18][146-B]
      Irrigation Deptt., State of Orissa v. G.C Roy [1991] 3
      Suppl. SCR 417: (1992) 1 SCC 508; Board of Trustee               G
      for the Port of Calcutta v. Engineers-De-Space Age
      [1995] 6 Suppl. SCR 327 : (1996) 1 SCC 516; Madnani
      Construction Corporation Pvt. Ltd. v. Union of India
      and Ors. [2009] 16 SCR 216 : (2010) 1 SCC 549 ;
      Sayeed Ahmed & Co v. State of Uttar Pradesh and Ors.             H
140            SUPREME COURT REPORTS                          [2018] 5 S.C.R.


A           [2009] 10 SCR 841: (2009) 12 SCC 26; Superintending
            Engineer and Ors. v. B. Subba Reddy [1999] 2 SCR
            880 : (1999) 4 SCC 423; Union of India v. Ambica
            Construction [2016] 2 SCR 810 : (2016) 6 SCC 36;
            Ambica Constructions v. Union of India (2017) 14 SCC
            323 - referred to.
B
                               Case Law Reference
            [1991] 3 Suppl. SCR 417             referred to      Para 13
            [1995] 6 Suppl.SCR 327              referred to      Para 14

C           [2009] 16 SCR 216                   referred to      Para 14
            [2009] 10 SCR 841                   referred to      Para 15
            [1999] 2 SCR 880                    referred to      Para 16
            (2017) 14 SCC 323                   referred to      Para 17
D           CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
      5964-5965 of 2018.
             From the Judgment and Order dated 23.07.2015 and 05.11.2015
      of the High Court of Gujarat at Ahmedabad in FA No. 189 of 2005 and
      Misc. Civil Application No. 3178 of 2015 respectively
E           K. V. Viswanathan, Sr. Adv., Mohit Paul, Ayush Agrawal, Anugram
      Niraj Ekka, Vikarant Singh Baloria, Advs. for the Appellant.
            Vikramjit Banerjee, ASG, A. K. Panda, Sr. Adv., A. K. Srivastav,
      Ms. Sushma Verma, Ayush Anand, Shubhandu Anand, Raj Bahadur,
      Bharat Sood, Shreekant N. Terdal, Advs. for the Respondent.
F
            The Judgment of the Court was delivered by
            S. A. BOBDE, J. 1. Leave granted.
             2. These Civil Appeals arise out of the final judgment and order of
      Gujarat High Court dated 23.07.2015 in F.A No 189 of 2005 and the
G     final judgment and order dated 5.11.2015 in MCA No 3178 of 2015 in
      F.A No 189 of 2005. The High Court partly allowed the appeal of the
      Respondent- Union of India and quashed Order of the Arbitrators and
      set aside the amount awarded by them in respect of Claim No 12. The
      Arbitrators, under Claim No. 12 awarded interest pendente lite at 12%
      on the award of Rs. 30 lacs excluding security deposits amounting to
H
        M/S RAVEECHEE AND CO. v. UNION OF INDIA                               141
                    [S. A. BOBDE, J.]

Rs. 44,92,800/- per annum from 26.09.1988 to 22.03.2001. Further, the         A
High Court dismissed the review application filed by the appellant.
        3. The appellant – M/s Raveechee and Co. and the respondent-
Union of India entered into a contract dated 02.06.1981 for quarrying,
stacking and loading stone ballast, broken stone aggregate, rubble etc.
from the Western Railway quarry at Udvada at an estimated cost of Rs.         B
55,81,000/-. Thereafter, disputes arose between the parties due to which
the appellant called upon the General Manager, Western Railway to
appoint Arbitrators in order to settle the dispute. The Arbitration
proceedings commenced on 26.09.1988 and the award was passed on
22.03.2001.
        4. The Arbitral Tribunal comprising of Shri N.K. Gupta, Chief         C
Engineer (C&S) and Shri R.K. Sinha, Director, Finance, KRCL, awarded
a total of Rs. 76,43,800/- as against the claim of Rs. 1,34,87,044/- raised
by the appellant. An award for the Claim Nos. 1-12 raised by the appellant
was made. The present dispute relates to the amount awarded under
Claim No. 12 i.e. Interest. The Arbitrators awarded the appellant interest    D
pendente lite at 12% on the award for damages excluding security deposits
amounting to Rs. 44,92,800/- from 26.09.1988 to 22.03.2001.
        5. The appellant thereafter filed a Civil Miscellaneous Application
No.22 of 2001 along with the award dated 22.03.2001 in the Civil Court.
The award was made a rule of the Court by an order dated 29.07.2004           E
under Section 17 of the Arbitration Act of 1940 (hereinafter referred to
as ‘the Act’) by the Civil Court. The respondent challenged the order of
the Civil Court dated 29.07.2004 in appeal. The High Court partly allowed
the appeal and set aside the order of Arbitrators qua Claim No.12 under
which the Arbitrators had awarded Rs. 44,92,800/- as interest pendente
lite. The Arbitrators awarded amounts in favour of the appellant as           F
follows: Claim No.1 – Rs. 12 lacs, Claim No.3 – Rs. 8 lacs and Claim
No. 5 – Rs. 10 lacs and interest on the total amount of damages (i.e. Rs.
12 lacs + Rs. 8 lacs + Rs. 10 lacs = Rs. 30 lacs) excluding the amount of
security deposits. Thus, interest on Rs. 30 lacs from 26.09.1988 to
23.03.2001 at 12 % amounting to Rs. 44,92,800/-.
                                                                              G
        6. The appellant, aggrieved by the High Court’s judgment and
order dated 23.07.2015 filed a review application before the High Court.
The High Court dismissed the review application vide judgment and order
dated 05.11.2015. The present SLPs are filed against the High Court
judgments and orders dated 23.07.2015 & 05.11.2015 passed by the
High Court.                                                                   H
142            SUPREME COURT REPORTS                          [2018] 5 S.C.R.


A            7. The question that arises for determination before this Court is:
      Whether Clause 16(3) (reproduced hereafter) of the General Contract
      Clauses (hereinafter referred to as “GCC”) restricted the power of the
      arbitrator to award interest pendente lite?
            8. In the present case, the Arbitral Tribunal giving effect to the
B     purport of Clause 16(3) did not award any interest on security deposits.
      The clause in terms states that no interest will be payable on earnest
      money, security deposits or on any amounts payable to the contractor
      under the contract.
               The Arbitrators in their award have relied on Clause 16(3) of
C     the contract to deny interest on the security deposit. The Arbitrators
      held that what was intended under Clause 16(3) barred the grant of
      interest on earnest money, security deposit and amounts payable to the
      appellant, it does not in any way bar grant of interest pendente lite.
            9. Clause 16(1) and 16(3), which are relevant, read as follows:
D
            “16(1):- The earnest money deposited by the contractor with
            his tender will be retained by the Railways as part of security
            for the due and faithful fulfillment of the contract by the
            contractor. The balance to make up the security deposit, the
            rates for which are given below, may be deposited by the
E           contractor in cash or in the form of Government Securities
            or may be recovered by percentage deduction from the
            contractor’s ‘on account’ bills.
            Provide also that in case of defaulting contractor the Railway
            may retain any amount due for payment to the contractor on
F           the pending ‘on account bills’ so that the amounts so retained
            may not exceed 10% of the total value of the contract.
            “16(3):- No interest will be payable upon the earnest money
            and the security deposit or amounts payable to the Contractor
            under the Contract, but Government Securities deposited in
G           terms of sub clause (1) of this clause will be payable with
            interest accrued thereon.”
            10. On behalf of the Union of India, it is contended that the
      Arbitrators by reason of Clause 16(3) could not have awarded interest

H
        M/S RAVEECHEE AND CO. v. UNION OF INDIA                                 143
                    [S. A. BOBDE, J.]

pendente lite. This contention is incorrect. Ex facie the clause does not       A
deal with interest pendente lite. In terms, the clause only bars interest
upon earnest money and security deposits or amounts payable to the
contractor under the contract. The above mentioned amounts are amounts
which in a sense belong to the contractor. They are amounts voluntarily
deposited with the other contracting party in order to be refunded or
                                                                                B
forfeited depending on performance of the contract. As such they are
not amounts of which the contractor is deprived the use of against his
wishes, so as to attract interest.
       It is not the case of the Government before us that interest has
been awarded to the contractor under any of the three heads. Neither
                                                                                C
does any question of interest payable on Government security arise in
the present case. The contention put forth by the Government is that the
above clause in the agreement bars the Arbitrators from awarding interest
pendete lite. On a plain reading we find that there is no such bar.
      11. In fact, the Arbitrators have awarded amounts to the claimant
on account of the losses suffered by them for various reasons, mainly           D
due to the ban on mining. These amounts are not awarded on account
of any payment due under the contract but are awarded on losses
determined in the course of arbitration or the ‘lis’.
       A claimant becomes entitled to interest not as compensation for
any damage done but for being kept out of the money due to him. Obviously,      E
in a case of unascertained damages such as this, the question of interest
would arise upon the ascertainment of the damages in the course of the
lis. Such damages could attract interest pendente lite for the period from
the commencement of the arbitration to the award.
        Thus, the liability for interest pendente lite does not arise from      F
any term of the contract, or during the terms of the contract, but in the
course of determination by the Arbitrators of the losses or damages that
are due to the claimant. Specifically, the liability to pay interest pendente
lite arises because the claimant has been found entitled to the damages
and has been kept out from those dues due to the pendency of the                G
arbitration i.e. pendente lite.
       12. We are, therefore, of the view that the Arbitrators rightly
awarded interest pendente lite for the period from 26.09.1988 to
23.03.2001 which is the date of the award, on the amounts found due to
the claimant. Undoubtedly, such a power must be considered inherent in
                                                                                H
144            SUPREME COURT REPORTS                          [2018] 5 S.C.R.


A     an Arbitrator who also exercises the power to do equity, unless the
      agreement expressly bars an Arbitrator from awarding interest pendente
      lite. An agreement which bars interest is essentially an agreement that
      the parties will not claim interest on specified amounts. It does not bar
      an Arbitrator, who is never a party to the agreement from awarding it.
B             We are not called upon, in this case, to decide whether parties
      can agree that they will not claim interest pendente lite even in respect
      of unascertained damages determined in the course of arbitration. The
      present case must be decided on the general rule that an arbitrator has
      the power to award interest unless specifically barred from awarding it;
      and the bar must be clear and specific.
C
             13. In Irrigation Deptt., State of Orissa v. G.C Roy1 this Court
      thoroughly considered the question of power of the arbitrator to award
      interest pendente lite and held that when the agreement between the
      parties does not prohibit grant of interest and where the party claims
      interest and that dispute has been referred to an arbitrator, then the
D     arbitrator does have the power to award interest pendente lite.
             14. Subsequently, this Court in the cases of Board of Trustee for
      the Port of Calcutta v. Engineers-De-Space Age 2 and Madnani
      Construction Corporation Pvt. Ltd. v. Union of India and Ors.3 held
      that according to the view taken in the case of Irrigation Deptt., State
E     of Orissa (supra), the arbitrator does have the power to award interest
      pendente lite. The Court observed that it essentially depends upon the
      ouster in each clause, which means that unless there is an express bar
      that provides that the arbitrator cannot award interest pendente lite, the
      grant of interest pendente lite will predominantly be based on the
F     arbitrator’s discretion to award the same.
            15. In Sayeed Ahmed & Co v. State of Uttar Pradesh and Ors.4,
      this Court referred to the decision in Superintending Engineer and
      Ors. v. B. Subba Reddy5 and observed thus:
            “11. Two more decisions dealing with cases arising under the
G           Arbitration Act, 1940 require to be noticed. In Superintending
            Engineer v. B. Subba Reddy (1999) 4 SCC 423 this Court
      1
        (1992) 1 SCC 508
      2
        (1996) 1 SCC 516
      3
        (2010) 1 SCC 549
      4
        (2009) 12 SCC 26
H     5
        (1999) 4 SCC 423
          M/S RAVEECHEE AND CO. v. UNION OF INDIA                               145
                      [S. A. BOBDE, J.]

        held that interest for pre-reference period can be awarded              A
        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
                                                                                B
        award interest pendente lite and future interest.”
       16. A three Judge Bench of this Court in the case of Union of
India v. Ambica Construction6 held that the power of an arbitrator to
grant pendente lite interest will 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         C
what items power to award interest has been taken away and for which
period. The Court observed:
         “34. 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. And that the bar to award interest        D
        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 the 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         E
        consider the case on merits.”
       17. Further, this Court considered an identical clause in the contract
in the case of Ambica Constructions v. Union of India7, wherein it
observed that the Clause of the GCC did not bar the arbitrator from
awarding interest pendente lite and affirmed the award passed by the            F
arbitrator. The three Judge Bench of this Court held that the contention
raised by the Union of India based on the Clause of the GCC that the
arbitrator could not award interest pendente lite was not a valid contention
and the arbitrator was completely justified in granting interest pendente
lite.
                                                                                G
      Relying on the three Judge Bench judgment in Union of India v.
Ambica Construction (supra) and in Irrigation Deptt., State of Orissa
(supra), this Court held that the bar to award interest on the amounts
6
    (2016) 6 SCC 36
7
    (2017) 14 SCC 323
                                                                                H
146                SUPREME COURT REPORTS                      [2018] 5 S.C.R.


A     payable under the contract would not be sufficient to deny the payment
      of interest pendente lite.
            18. Thus when a dispute is referred to for adjudication to an
      Arbitrator, a term of such a nature as contained in the Clause 16(3) of
      GCC, that is binding on the parties cannot be extended to bind an
B     Arbitrator. The Arbitrator has the power to award interest pendente lite
      where justified. We, therefore, set aside the judgment of the High Court
      and restore the award passed by the Arbitral Tribunal in respect of Claim
      No. 12.
              19. Appeals are allowed accordingly.
C

      Nidhi Jain                                                Appeals allowed.




D




E




F




G




H