Holding

The High Court correctly set aside the labour‑charges award as it violated the contract’s special terms, but it erred in interfering with the arbitrator’s award of interest, since s.31(7) empowers the tribunal to grant pre‑reference, pendente lite and post‑award interest unless the contract expressly prohibits it.

Summary

Pam Developments Private Ltd entered into a work contract with the State of West Bengal for road widening, which was completed after a five‑month delay. The contractor claimed several sums, including labour charges for uneconomical stoppage, interest on delayed payment of running‑account bills, and pre‑reference interest, which were awarded by an arbitrator. The State challenged the award; the District Judge set aside some claims, and the Calcutta High Court further set aside the labour‑charges claim and modified the interest awards. The Supreme Court examined whether the High Court correctly interfered with the arbitral award, focusing on the contractual prohibition of idle‑labour claims and the arbitrator’s statutory power to award interest under s.31(7) of the Arbitration and Conciliation Act, 1996. It held that the High Court was right to reject the labour‑charges claim but was wrong to disturb the interest awards, as the contract did not forbid pre‑reference interest. Consequently, the Court set aside the High Court’s judgment on the interest claims while upholding its decision on the labour‑charges claim, allowing the appeal in part.

Issues considered

The arbitral award for labour charges for uneconomical stoppage of work contravened the contract's special terms and conditions.
Whether the arbitrator had the authority under s.31(7) of the Arbitration and Conciliation Act, 1996 to award pre‑reference, pendente lite and post‑award interest absent an express contractual bar.
Whether the High Court was justified in setting aside the arbitral award for interest on delayed payment of running‑account bills.
Whether the High Court erred in modifying the award by removing pre‑reference interest.

Legislation cited

Arbitration Act, 1940
Arbitration and Conciliation Act, 1996s. 31(7), s. 34, s. 37
Interest Act, 1978

Subjects

Arbitral awardLabour charges for uneconomical stoppage of workInterest on delayed paymentInterestWork contractLoss of businessUneconomic utilization of plant and machineryEscalation billCostsContractual provisionsPre-reference interestSpecial Terms and Conditions of the ContractPublic policyPendente lite interestPost award interest

Judgment

[2024] 8 S.C.R. 615 : 2024 INSC 628

Pam Developments Private Limited
v.
The State of West Bengal & Anr.
(Civil Appeal Nos. 9781-9782 of 2024)
23 August 2024
[Pamidighantam Sri Narasimha* and Pankaj Mithal, JJ.]

Issue for Consideration
Matter pertains to the arbitral award in favour of the contractor
as regards labour charges for uneconomical stoppage of work,
interest on delayed payment, and interest, upheld by the District
Judge but set aside/modified by the High Court.

Headnotes†
Arbitration and Conciliation Act, 1996 – ss. 34 and 37 – Arbitral
awards – Work contract – Claims raised by the contractor under
different heads alleging delays on the part of the State, referred
to the arbitrator – Arbitral award in favour of the contractor
under heads-loss of business, uneconomic utilization of plant
and machinery, labour charges for uneconomical stoppage of
work, interest on delayed payment, escalation bill, interest and
costs – Award challenged by the State, whereby the District
Judge set aside few of the claims – High Court modified the
award – Interference with:
Held: Decision of the High Court setting aside the award with
respect to claim as regards labour charges for uneconomical
stoppage of workup held since the arbitrator did not even refer to
the contractual provisions which prohibited such claim – Judgment
of the High Court setting aside claim of interest on delayed payment
awarded by the Arbitrator, as upheld by the District Judge u/s. 34 is
set aside since nothing perverse in the reasoning of the Arbitrator
and nor such conclusion against public policy – Judgment of
the High Court in so far as it modified claim as regards interest,
to the extent of rejecting pre-reference interest awarded by the
arbitrator, as upheld by the District Judge u/s. 34 is set aside since
the High Court had no reason to interfere with the Arbitral Award
with respect to grant of pre-reference interest, since the contract

* Author
616 [2024] 8 S.C.R.

Digital Supreme Court Reports

between parties does not prohibit the same – Award as regards
labour charges for uneconomical stoppage of work set aside and
award as regards interest on delayed payment is upheld – As
regards the claim of interest, the appellant entitled to claim pre-
reference interest. [Para 10]
Arbitration and Conciliation Act, 1996 – Work contract –
Arbitration proceedings – Contractual clauses – Interpretation
of – Claim relating to loss caused due to idle labour, machinery –
High Court held that the said claim is impermissible under
the contractual provisions – Correctness:
Held: Contract clauses speak for themselves – High Court did
what the Arbitrator should have done and examined what the
contract provides – This is not even a matter of interpretation – It
is the duty of every arbitral tribunal and court alike and without
exception, for contract is the foundation of the legal relationship –
High Court came to the conclusion that awarding any amount
towards idle, machinery, etc. is prohibited under the ‘Special Terms
and Conditions’ of the Contract – Arbitrator did not even refer to
the contractual provisions and the District Court dismissed the
objections u/s. 34 with a standard phrase – High Court exercising
jurisdiction u/s 37 did its duty and the conclusions of the High
Court are correct and cannot be interfered with. [Paras 7, 7.3-7.5]
Arbitration and Conciliation Act, 1996 – ss. 34, 37 – Dispute
relating to work contract – Arbitral award – Arbitrator awarded
interest on delayed payment of running account bills – Upheld
by the District Court – However, the High Court set aside the
award – Challenge to:
Held: Conclusion of the High Court, that it appears that the bills
were paid soon after they were prepared or that, in that case
there could not have been any claim for interest cannot qualify
as grounds for interference u/s 37 – Equally, the approach of
the High Court in holding that the Arbitrator neither established
nor discussed the questions posed by it, not a ground to set
aside the Award – Reasoning of the Arbitrator is reflected in that
portion of the Award and nothing perverse is seen in it – Nor
such conclusion is against the public policy – Judgment of the
High Court in relation to the said claim set aside and the Award
is restored. [Paras 8.5, 8.6]
[2024] 8 S.C.R. 617

Pam Developments Private Limited v. The State of West Bengal & Anr.

Arbitration and Conciliation Act, 1996 – ss. 34, 37 – Dispute
relating to work contract – Arbitral award – As regards claim
relating to Interest, Arbitrator awarded interest @12% on
sum awarded from the date when appellant claimed breach
of contract, to the date of the Award, and further interest @
9.25% p.a. from date of Award till actual payment – District
Judge upheld the same – However, the High Court held that
pre-reference interest could not have been granted for this
period, and that as the Arbitrator could have granted interest
only for pendent lite and post award, the Award was modified
directing pendente lite interest along with post award interest –
Correctness:
Held: s. 31(7) determines the grant of interest – Power of the
Arbitrator to grant pre-reference interest, pendente lite interest,
and post-award interest u/s 31(7) of the Act is fairly well-settled –
High Court had no reason to interfere with the Arbitral Award with
respect to grant of pre-reference interest, since the contract between
parties does not prohibit the same. [Paras 9.4-9.6]
Arbitration and Conciliation Act, 1996 – s 37(1) – Power of the
Arbitrator to grant pre-reference interest, pendente lite interest,
and post-award interest under – Difference in the position of
law under the Arbitration Act, 1940 – Encapsulated. [Para 9.5]

Case Law Cited
Secretary, Irrigation Department, Government of Orissa v. G.C.
Roy [1991] Supp. 3 SCR 417 : (1992) 1 SCC 508; Executive
Engineer, Dhenkanal Minor Irrigation Division, Orissa v. N.C.
Budharaj [2001] 1 SCR 264 : (2001) 2 SCC 721; Union of
India v. Krafters Engg. and Leasing (P) Ltd. [2011] 8 SCR 196 :
(2011) 7 SCC 279; Board of Trustees for the Port of Calcutta
v. Engineers-de-Space-Age [1995] Supp. 6 SCR 327 : (1996)
1 SCC 516; Madnani Construction Corporation Private Limited
v. Union of India [2009] 16 SCR 216 : (2010) 1 SCC 549; Tehri
Hydro Development Corporation Ltd. v. Jai Prakash Associates
Ltd. [2012] 8 SCR 813 : (2012) 12 SCC 10; Union of India v.
Ambica Construction [2016] 2 SCR 810 : (2016) 6 SCC 36;
Ambica Construction v. Union of India (2017) 14 SCC 323;
Raveechee and Company v. Union of India [2018] 5 SCR 138 :
(2018) 7 SCC 664; Reliance Cellulose Products Ltd. v. ONGC Ltd.
[2018] 6 SCR 618 : (2018) 9 SCC 266; State of U.P. v. Harish
618 [2024] 8 S.C.R.

Digital Supreme Court Reports

Chandra and Co. [1998] Supp. 2 SCR 660 : (1999) 1 SCC 63;
Sayeed Ahmed and Company v. State of Uttar Pradesh [2009]
10 SCR 841 : (2009) 12 SCC 26; Union of India v. Saraswat
Trading Agency [2009] 10 SCR 1063 : (2009) 16 SCC 504;
Sree Kamatchi Amman Constructions v. The Divisional Railway
Manager (Works), Palghat [2010] 10 SCR 487 : (2010) 8 SCC
767; Union of India v. Bright Power Projects (India) Pvt Ltd. [2015]
6 SCR 488 : (2015) 9 SCC 695; Jaiprakash Associates Limited
v. Tehri Hydro Development Corporation India Limited [2019] 2
SCR 41 : (2019) 17 SCC 786; Delhi Airport Metro Express Private
Limited v. Delhi Metro Rail Corporation [2022] 3 SCR 716 : (2022)
9 SCC 286; Oriental Structural Engineers Private Limited v. State
of Kerala [2021] 4 SCR 137 : (2021) 6 SCC 150; Central Bank of
India v. Ravindra [2001] Supp. 4 SCR 323 : (2002) 1 SCC 367;
Secy./GM, Chennai, Central Coop. Bank Ltd. v. S. Kamalaveni
Sundaram [2011] 1 SCR 66 : (2011) 1 SCC 790 – referred to.

List of Acts
Arbitration and Conciliation Act, 1996; Arbitration Act, 1940; Interest
Act, 1978.

List of Keywords
Arbitral award; Labour charges for uneconomical stoppage of
work; Interest on delayed payment; Interest; Work contract; Loss of
business; Uneconomic utilization of plant and machinery; Escalation
bill; Costs; Contractual provisions; Pre-reference interest; Special
Terms and Conditions of the Contract; Public policy; Pendente lite
interest; Post award interest.

Case Arising From
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos. 9781-9782 of
2024
From the Judgment and Order dated 03.06.2021 of the High Court at
Calcutta in FMAT No.376 of 2019 and COT No. 54 of 2019
Appearances for Parties
Saurav Agarwal, Priyankar Saha, Sarad Kumar Singhania, Ms.
Rashmi Singhania, Anshuman Choudhry, Advs. for the Appellant.
Ms. Madhumita Bhattacharjee, Ms. Srija Choudhury, Anant, Ms. Sajal
Bhrdwaj, Advs. for the Respondents.
[2024] 8 S.C.R. 619

Pam Developments Private Limited v. The State of West Bengal & Anr.

Judgment / Order of the Supreme Court

Judgment
Pamidighantam Sri Narasimha, J.
1. Leave granted.
2. State of West Bengal, respondent herein, issued a notice inviting
tenders on 08.09.2010, for the widening and strengthening of Egra
Bajkul road under the Tamluk Highway Division in Purbo Medinipur
District and accepted appellant’s offer, leading to grant of a Work
Order for the project to be completed within 18 months from
23.12.2010. The project got delayed by about five months, but the
work was completed by 09.11.2012.
3. The appellant raised a bill for Rs. 77,85,290 and that was in addition
to seven other claims under different heads, owing to alleged delays
on part of the Respondent. As the respondent denied any liability,
the dispute was referred to Arbitration for resolution.
4. The Arbitrator gave his award on 30.01.2018, holding the respondents
are liable to the tune of Rs.1,37,25,252, with interest. There
were seven claims. Claim no. 1 related to loss of business, with
respect to which Rs. 3,87,530 was awarded; claim no. 2 related
to uneconomic utilization of plant and machinery, with respect to
which Rs. 61,22,000 was awarded and claim no. 3 related to labour
charges for uneconomical stoppage of work, with respect to which
Rs.5,80,500 was awarded; claim no. 4 related to interest on delayed
payment of running account bills and escalation bill for which the
Arbitrator awarded Rs. 54,84,024; claim no. 5 related to escalation
with respect to which Rs.11,51,198 was granted; and claim 6 related
to interest on the sum awarded, with respect to which interest @12%
p.a. was awarded from 12.04.2016 to 30.01.2018 and @ 9.25%
p.a. post award interest till date of actual payment. Finally claim
no.7 pertained to costs and the Arbitrator awarded 4 lakhs to the
appellant, being the successful party.
4.1 The Respondents challenged the award under Section 34 of
the Arbitration and Conciliation Act, 19961 and it was allowed

1 Hereinafter referred to as the ‘Act’.
620 [2024] 8 S.C.R.

Digital Supreme Court Reports

in part by the District Judge setting aside claim no. 1 for loss
of business, since the same had never been claimed by the
appellant and was thus beyond the Arbitrator’s jurisdiction. Claim
no. 2 for uneconomic utilization of plant and machinery was also
set aside because the Arbitrator didn’t account for the loss of
135 days at the behest of the appellant while determining the
alleged 200 days of ‘wasted machine’.
4.2 Aggrieved by the decision of the District Judge, the appellant
filed an appeal under Section 37 of the Act against the order
setting aside the award on claims 1 and 2. On the other hand,
the Respondent filed a cross appeal seeking setting aside of
the rest of the claims as well. By the order impugned before
us, the Calcutta High Court exercising jurisdiction under
Section 37 of the Act set aside claim no.1 as well as claim
nos. 3 and 4, but restored the Award with respect to claim
no.2. However, while retaining claim no. 5 as it is, the High
Court slightly modified claim no. 6 relating to pre-reference
interest.
5. A comprehensive table of the claims and the decision in the Award,
Section 34 and Section 37 jurisdiction is as follows –

Claim no. Arbitral Award Section 34 Section 37
1. Loss of Awarded Award Set aside, Affirmed
business Rs.3,87,530. because it was the decision
never claimed by of District
the appellant and judge.
was the basis for
granting of-site
expenses.
2. Awarded Rs. Award set aside, as Awarded
Uneconomic 61,22,000 for Arbitrator did not claim no.
utilization of deploying plant account for wastage 2, thereby
plant and and machinery of 135 days by the reversing
machinery on all 200 wasted appellant itself. decision by
days as required the District
under the Judge.
Contract.
[2024] 8 S.C.R. 621

Pam Developments Private Limited v. The State of West Bengal & Anr.

3. Labour Arbitrator granted Award upheld by the Set aside,
Charges for 3% of the District Court. because it is
uneconomical contract amount contrary to
stoppage of Rs.5,80,500/- as the Special
work per the Hudson’s Terms and
formula. Conditions
of the
Contract.
4. Interest Awarded Rs. Award upheld by the Set aside
on delayed 54,84,024/- on District Court. because
payment the ground monthly bills
of Running of interest on raised by
Account Bills blocked capital appellants
and Escalation (when amount were paid
Bills exceeded Rs.1 without
crore) @12% pa. delay. As per
clauses 7-9,
no claim
for interest
arises.
5. Escalation Awarded Award upheld by the Affirmed the
Bill Rs.11,51,198/- as District Court. Award and
respondent has decision of
already paid part the District
of such amount. Judge.
The claimant is
entitled to the
balance.
6. Interest Arbitrator Award upheld by Modified.
awarded interest the District Judge. Only interest
@12% on pendent
amount of claims lite and
w.e.f 12.04.2016 post award
to the date of payable.
Award and further No interest
interest @9.25% for pre-
p.a. from date of reference
award till actual period.
payment.
622 [2024] 8 S.C.R.

Digital Supreme Court Reports

7. Cost Awarded Rs.4
Lakhs towards
legal and
administrative
expenses.

6. Mr. Saurav Agarwal, counsel for the appellant, confined his
submissions to claim no. 3, 4 and 6 awarded by the Arbitrator and
upheld by the District Judge but set aside/modified by the High Court.
We will deal with each of these claims.
7. Re claim no. 3: This claim relating to loss caused due to idle labour,
machinery, etc.
7.1 On this count, the Arbitrator accepted the claim of loss on the
ground of on-site establishment ‘as permissible’ to the extent
of 3% of the contract amount by the Hudson’s formula for
expenses of engineers, supervisors, etc. It was his considered
view that the appellant maintained such an establishment to
execute the work and the same has not been disputed by the
Respondent. Therefore, he awarded claim no. 3 in favour of
the appellant for Rs.5,80,500.
7.2 The challenge to the Award made by the Respondent was
dismissed by the District Judge under Section 34, holding that
the findings of the Arbitrator cannot be held to be irrational,
insensible or unrealistic and also that they are not in conflict
with public policy. We may state at this very stage that this
common reasoning of the District Court while upholding the
Award for claim nos. 3, 4, 5 and 6. The standard reasoning of
the District Court for these claims is as follows:
“I have gone through the observation of the learned
Arbitrator in respect of claim Nos. 3, 4, 5 and 6.
On meticulous scrutiny of the award with reference
to the documents produced by the parties to the
ease, I find that the reasons and findings given
by the learned Arbitrator cannot be said to be
irrational, insensible or unrealistic. In fact, award
in respect of claim Nos. 3, 4, 5 & 6 cannot be said
[2024] 8 S.C.R. 623

Pam Developments Private Limited v. The State of West Bengal & Anr.

to be.in conflict with the public policy of India even
by stretch of Imagination. On the other hand, it is
apparent that cogent and acceptable reasons have
been furnished by the learned Arbitrator in respect
of these four heads of claims (claim Nos. 3 to 6).
The award in respect of such four claims does not
call for any interference.”
7.3 While exercising jurisdiction under Section 37, the High Court
examined the relevant clauses of the contract and held the
claim is impermissible under the contractual provisions. They
are extracted herein below for ready reference.
‘’SPECIAL TERMS AND CONDITIONS
CONDITION IN EXTENDED PERIOD
As Clause 4 of W.B.F. 2908 or Clause 5 of W.B.F.
No.2911 (ii) as the case may be when an extension
of time for completion of work is authorised by the
Engineer-In-Charge, it will be taken for granted that
the validity of the contract is extended automatically
upon the extended period with all terms and conditions
rates, etc. remaining unaltered, i.e. the tender is
revalidated upon the extended period.
EXTENSION OF TIME
For cogent reasons over which the contractor will
have no control and which will retard the· progress,
extension of time for the period lost will be granted
on receipt of application from the contractor before
the expiry date of contract. No claim whatsoever for
idle labour, additional establishment, cost of materials
and labour and hire charges of tools & Plants etc.
would be entertained under any circumstances. The
contractor should consider the above factor while
quoting this rate. Applications for such extension of
time should be submitted by the contractor in the
manner indicated in Clause 5 of the printed form of
W.B.F. No. 2911 (ii).
IDLE LABOUR Whatever the reasons may be no claim
or idle labour, enhancement of labour rate additional
624 [2024] 8 S.C.R.

Digital Supreme Court Reports

establishment cost, cost of TOLL and hire and labour
charges of tools and plants Railway freight etc. would
be entertained under any circumstances.”
7.4 Mr. Saurav Agarwal submitted that the High Court under Section
37 ignored the plausible view of the Arbitrator, as upheld under
Section 34, and substituted it with its own reasoning.
7.5 This submission is persuasive, but the contract clauses speak
for themselves. In fact, High Court did what the Arbitrator
should have done. Examine what the contract provides. This
is not even a matter of interpretation. It is the duty of every
Arbitral Tribunal and Court alike and without exception, for
contract is the foundation of the legal relationship. Having
considered the above referred clauses in the Contract the
High Court came to the conclusion that awarding any amount
towards idle, machinery, etc. is prohibited under the ‘Special
Terms and Conditions’ of the Contract. The Arbitrator did not
even refer to the contractual provisions and the District Court
dismissed the objections under Section 34 with a standard
phrase as extracted hereinabove. High Court exercising
jurisdiction under Section 37 did its duty and we are of the
opinion that the conclusions of the High Court are correct and
cannot be interfered with.
8. Re claim no. 4: This claim relates to interest on delayed payment
of running account bills.
8.1 The Arbitrator held that the Claimant is entitled to receive
compensation for any loss and/or damage of capital which
arose naturally from breach or which parties knew to be likely
to arise from breach. Payments on running account bills is
guided by clause 7 of the Contract and there is no prohibition
in the contract regarding payment of interest on the ‘blocked
capital’. Therefore, holding that the injured party ought to be
placed in the same financial position he would have been but
for the other party’s fault, the Arbitrator awarded interest on
delayed payments at the rate of 12% p.a., which was quantified
to Rs. 54,84,024. As indicated above, the District Court upheld
the Award.
[2024] 8 S.C.R. 625

Pam Developments Private Limited v. The State of West Bengal & Anr.

8.2 The relevant portion of the Award is as follows:-
“23.1… As the claimant is entitled to payment of R/A
bills when the amount is Rs. 1 crore and above, I accept
the statements/calculation made by the claimant vide
Statement submitted before the arbitral tribunal for Rs.
82,26,036/-. In compliance of direction issued by MOM no.
21 dated 24.7.2017, based on work value of Rs. one crore.
Such statement giving all details covering the criteria of bill
value of Rs. 1 crore was served to respondent and there
was no comment on such statement whatsoever. Payment
of R/A bills is guided only by the provision under clause
7 with amendment thereon. Claimant claimed interest @
18% p.a. which is not allowed. I restrict rate of interest @
12% p.a. only and thereby the admissible amount of the
claim stands at Rs. 54,84,024/- [Rs. 82,26,036 ÷ 18 X 12]
23.2 The claimant notified loss of interest during the
execution period under Interest Act (vide annexure-K,
page 109, Annexure-m page-112, annexure-O, page 115,
annex.-R1, page-119 & 122 with claimant’s document).
Moreover, such payment is out of the written contract for
executed quantities. There is no prohibition in the contract
for payment of interest on blocked capital. The claimant is
otherwise entitled to receive payment on account of interest
on blocked capital. Such principle of law is laid down in
the case of Secretary, Irrigation Department Government
of Orissa Vs. G.C. Ray reported in (1992) 1 SCC 508. The
claimant is entitled to receive compensation for any loss or
damage and/or blockage of capital which arose naturally
from the breach or which the parties knew to be likely to
arrive from such breach. The injured party is to be placed
in the same financial position, as he would have been in,
if the other party had duly carried out the contract, i.e., to
place the injured party in the same position if the contract
has been performed. I award Rs. 54,84,024/- only.”
8.3 Mr. Saurav Agarwal submitted that the payments became due
when the gross amount of work done exceeded Rs.1 crore,
therefore the delay was to be accounted for from this date.
626 [2024] 8 S.C.R.

Digital Supreme Court Reports

The error, he submits is because the High Court relied on
chart submitted by the respondents, unlike the Arbitrator and
the District judge who relied on appellant’s chart.
8.4 High Court exercising jurisdiction under Section 37 merely
recounted the dates on which the bills were raised, and the
payments made. Thereafter High Court formulated certain
questions, which it felt that the Arbitrator and the District Judge
should have answered, but failed to hold any discussion on such
questions. In this view of the matter, the High Court proceeded
to set aside Award of claim no. 4. The relevant portion of the
High Court Judgment is as follows:-
“The learned Arbitrator proceeded on the basis of the
statement submitted by the appellant that there was
delay in the payment of these bills. The unpaid running
account bills were described as “blocked capital”. He
viewed the delay in receiving “this blocked capital” as
“loss and damage” to the appellant and granted Rs.
54,84,024/- on that reasoning, as “interest”.
The learned Judge upheld this award. It is challenged
by the respondent. The respondent relies on Clauses
7, 8 and 9 of the contract by which monthly bills had
to be raised by the appellant on the measurement
made. These payments against the monthly running
account bills were to be treated as advance under
Clause 7. Payment could have been made only when
the gross amount exceeded Rs. 1 crore. According
to the respondent no bill was raised by the appellant.
According to the statement of claim of the appellant,
the first bill for Rs. 1,32,91,180/- was prepared on 29th
August, 2011 and paid on or about 30th August 2011.
Similarly, the second was prepared on 7th February,
2012 and paid on 9th February, 2012. The third and
fourth bills for Rs. 1,28,23,488/- and Rs. 1,30,90,000/-
respectively were prepared on 5th March, 2012 and
paid between 30th March, 2012 and 20th June, 2012.
The fifth bill for Rs. 3,14,82,214/- was prepared on 6th
July, 2012 and paid between 24th July, 2012 and 1st
[2024] 8 S.C.R. 627

Pam Developments Private Limited v. The State of West Bengal & Anr.

October, 2012. The sixth bill was raised on 5th July,
2012 and paid between 6th July, 2012 and 1st October,
2012. The work was completed on 9th November, 2012.
What the learned Arbitrator did not determine were
the following:
a) Who was responsible for non-preparation of the RA
bill within time?
b) Which of the RA bill claims of the appellant were to
be treated as advance under the above clause of
the contract?
c) Was any notice under the Interest Act, 1978 issued
by the appellant and to what effect?
d) For what amount and for which period the claim for
interest was being entertained and granted by him?
From the above narration of facts it appears that
the bills were paid soon after they were prepared.
In that case there could not have been any claim
for interest. If a claim for interest has been made
for running account bill below one crore, under the
said terms it is to be treated as a claim for interest
for unpaid advance. No right to claim interest arose.
Now, unless these facts were established by the
appellant and discussed by the learned Arbitrator to
show that there was delay in the preparation of the
bills by the respondent, that those bills were over
one crore and not be treated as advance and that
the right to obtain payment thereof arose on their
due submission and service of a notice under the
Interest Act, 1978, the award of interest could not be
justified. Total absence of discussion of these facts
signifies that the learned Arbitrator completely failed
to exercise its jurisdiction….”
8.5 The conclusion of the High Court, “that it appears that the bills
were paid soon after they were prepared” or that, “in that case
there could not have been any claim for interest” cannot qualify
as grounds for interference under Section 37. Equally, the
approach of the High Court in holding that the Arbitrator neither
628 [2024] 8 S.C.R.

Digital Supreme Court Reports

established nor discussed the questions posed by it is not a
ground to set aside the Award. The reasoning of the Arbitrator is
reflected in that portion of the Award extracted hereinabove and
we see nothing perverse in it. Nor such conclusion is against
our public policy. The scope of Section 37 is enunciated in
many decisions of this Court, and we apply the principles laid
down therein to the facts of the present case.
8.6 For these reasons, we set aside the judgment of the High Court
in relation to claim no. 4 and restore the Award and thereby the
judgment of the District Court upholding the Award.
9. Re claim no. 6: This claim relates to Interest
9.1 Arbitrator awarded interest @12% on sum awarded from
12.04.2016, which is the date when appellant claimed breach
of contract, to 30.01.2018, which is the date of the Award, and
further interest @ 9.25% p.a. from date of Award till actual
payment. This was confirmed by the District Judge under
Section 34.
9.2 High Court held that the contract between the parties prohibits
grant of pre-reference interest and therefore interest could not
have been granted for this period. As per the High Court, as
the Arbitrator could have granted interest only for pendent lite
and post award, the Award was modified directing - pendente
lite interest @12% p.a. from 03.08.2016 till date of award i.e.
30.01.2018, along with post award interest @ 9.25% p.a.
9.3 The learned counsel for the appellants has submitted that the
award for interest is within the domain of the Arbitrator under
Section 31(7) and ought not to be substituted by courts under
Section 34 or 37.
9.4 Section 31(7) of the Act determines the grant of interest. The
relevant provision is extracted hereunder for ready reference.
“31. Form and contents of arbitral award.—
(7) (a) Unless otherwise agreed by the parties, where
and in so far as an arbitral award is for the payment
of money, the arbitral tribunal may include in the sum
for which the award is made interest, at such rate
[2024] 8 S.C.R. 629

Pam Developments Private Limited v. The State of West Bengal & Anr.

as it deems reasonable, on the whole or any part of
the money, for the whole or any part of the period
between the date on which the cause of action arose
and the date on which the award is made.
(b) A sum directed to be paid by an arbitral award shall,
unless the award otherwise directs, carry interest at
the rate of two per cent higher than the current rate
of interest prevalent on the date of award, from the
date of award to the date of payment.
Explanation.—The expression “current rate of
interest” shall have the same meaning as assigned
to it under clause (b) of section 2 of the Interest Act,
1978 (14 of 1978).”
9.5 The power of the Arbitrator to grant pre-reference interest,
pendente lite interest, and post-award interest under Section
31(7) of the Act is fairly well-settled. The judicial determinations
also highlight the difference in the position of law under
the Arbitration Act, 1940. The following propositions can be
summarised from a survey of these cases:
I. Under the Arbitration Act, 1940, there was no specific
provision that empowered an Arbitrator to grant interest.
However, through judicial pronouncements, this Court
has affirmed the power of the Arbitrator to grant pre-
reference, pendente lite, and post-award interest on the
rationale that a person who has been deprived of the use
of money to which he is legitimately entitled has a right
to be compensated for the same.2 When the agreement
does not prohibit the grant of interest and a party claims
interest, it is presumed that interest is an implied term of
the agreement, and therefore, the Arbitrator has the power
to decide the same.3
II. Under the 1940 Act, this Court has adopted a strict

2 Secretary, Irrigation Department, Government of Orissa v. G.C. Roy (1992) 1 SCC 508, para 43(i). Also
see Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa v. N.C. Budharaj, (2001) 2 SCC
721; Union of India v. Krafters Engg. and Leasing (P) Ltd. (2011) 7 SCC 279
3 G.C. Roy (supra), paras 43(iv) and 44.
630 [2024] 8 S.C.R.

Digital Supreme Court Reports

construction of contractual clauses that prohibit the grant
of interest and has held that the Arbitrator has the power
to award interest unless there is an express, specific
provision that excludes the jurisdiction of the Arbitrator4
from awarding interest for the dispute in question.5
III. Under the 1996 Act, the power of the Arbitrator to grant
interest is governed by the statutory provision in Section
31(7). This provision has two parts. Under sub-section (a),
the Arbitrator can award interest for the period between the
date of cause of action to the date of the award, unless
otherwise agreed by the parties. Sub-section (b) provides
that unless the award directs otherwise, the sum directed
to be paid by an arbitral award shall carry interest at the
rate of 2% higher than the current rate of interest, from
the date of the award to the date of payment.
IV. The wording of Section 31(7)(a) marks a departure from
Arbitration Act, 1940 in two ways: first, it does not make an
explicit distinction between pre-reference and pendente lite
interest as both of them are provided for under this sub-
section; second, it sanctifies party autonomy and restricts
the power to grant pre-reference and pendente lite interest
the moment the agreement bars payment of interest, even
if it is not a specific bar against the Arbitrator.6
V. The power of the Arbitrator to award pre-reference and
pendente lite interest is not restricted when the agreement

4 Board of Trustees for the Port of Calcutta v. Engineers-de-Space-Age (1996) 1 SCC 516, paras 4 and
5; Madnani Construction Corporation Private Limited v. Union of India (2010) 1 SCC 549; Tehri Hydro
Development Corporation Ltd. v. Jai Prakash Associates Ltd. (2012) 12 SCC 10, paras 18-20; Union of
India v. Ambica Construction (2016) 6 SCC 36 (First Ambica Construction Case); Ambica Construction
v. Union of India (2017) 14 SCC 323 (Second Ambica Construction Case); Raveechee and Company v.
Union of India (2018) 7 SCC 664; Reliance Cellulose Products Ltd. v. ONGC Ltd. (2018) 9 SCC 266
5 State of U.P. v. Harish Chandra and Co. (1999) 1 SCC 63
6 Sayeed Ahmed and Company v. State of Uttar Pradesh (2009) 12 SCC 26, paras 14, 23, 24; Union of
India v. Saraswat Trading Agency (2009) 16 SCC 504; Sree Kamatchi Amman Constructions v. The
Divisional Railway Manager (Works), Palghat (2010) 8 SCC 767, para 19; Union of India v. Bright Power
Projects (India) Pvt Ltd. (2015) 9 SCC 695, para 13; Reliance Cellulose Products Ltd (supra), para 24;
Jaiprakash Associates Limited v. Tehri Hydro Development Corporation India Limited (2019) 17 SCC
786, paras 13-15; Delhi Airport Metro Express Private Limited v. Delhi Metro Rail Corporation (2022) 9
SCC 286, paras 16-20, 24
[2024] 8 S.C.R. 631

Pam Developments Private Limited v. The State of West Bengal & Anr.

is silent on whether interest can be awarded7 or does not
contain a specific term that prohibits the same.8
VI. While pendente lite interest is a matter of procedural law,
pre-reference interest is governed by substantive law.9
Therefore, the grant of pre-reference interest cannot be
sourced solely in Section 31(7)(a) (which is a procedural
law), but must be based on an agreement between the
parties (express or implied), statutory provision (such as
Section 3 of the Interest Act, 1978), or proof of mercantile
usage.10
9.6 In view of the above, the High Court had no reason to interfere
with the Arbitral Award with respect to grant of pre-reference
interest, since the Contract between parties does not prohibit
the same.
10. Having analysed the reasoning in the Award and the judgment of
the District Judge under Section 34 of the Act and of the High Court
under Section 37 with respect to claim nos. 3, 4 and 6, we;
(a) Uphold the decision of the High Court in setting aside the
Award with respect to claim no. 3 and dismiss the Civil Appeal
to this extent.
(b) Allow the appeal and set aside the judgment of the High Court
in so far as it rejected and set aside claim no. 4 awarded by
the Arbitrator, as upheld by the District Judge under Section 34.
(c) Allow the appeal and set aside the judgment of the High Court
in so far as it modified claim no. 6, to the extent of rejecting
pre-reference interest awarded by the Arbitrator, as upheld by
the District Judge under Section 34.
(d) In conclusion, Award of claim no. 3 is set aside and Award of
claim no. 4 is upheld. Under claim no.6, the appellant will also
be entitled to claim pre-reference interest.

7 Jaiprakash Associates Limited v. Tehri Hydro Development Corporation India Limited (2019) 17 SCC
786, para 13.2
8 Oriental Structural Engineers Private Limited v. State of Kerala (2021) 6 SCC 150, paras 15-18
9 Central Bank of India v. Ravindra (2002) 1 SCC 367, para 39 following G.C. Roy (supra), para 43(v)
10 Central Bank of India (supra), para 39; Secy./GM, Chennai, Central Coop. Bank Ltd. v. S. Kamalaveni
Sundaram (2011) 1 SCC 790, para 13
632 [2024] 8 S.C.R.

Digital Supreme Court Reports

11. The Civil Appeal arising out of SLP (C) No. 8128 of 2021 is allowed
in part as indicated hereinabove and Civil Appeal arising out of SLP
(C) No. 8129/2021 stands disposed of accordingly. Parties shall bear
their own costs.

Result of the case: Civil Appeal arising out of SLP (C) No. 8128 of
2021 partly allowed.
Civil Appeal arising out of SLP (C) No. 8129 of
2021 disposed of.

†
Headnotes prepared by: Nidhi Jain