Supreme Court of India
RELIANCE CELLULOSE PRODUCTS LTD.versusOIL AND NATURAL GAS CORPORATION LTD.
- Citation
- 2018 INSC 623
- Decided
- 20 July 2018
- Disposal
- Disposed off
- Bench
- R F NARIMAN
Holding
An arbitrator under the Arbitration Act, 1940 may award pre‑reference, pendente‑lite and future interest unless the contract contains a clear and express bar, and clause 16 does not constitute such a bar; therefore the award of 18% interest is upheld.
Summary
Reliance Cellulose Products Ltd. and ONGC entered into a contract for supply of CMC. A dispute arose over the price, which was referred to arbitration. The arbitrator fixed a higher price and awarded pre‑reference, pendente‑lite and future interest at 18% per annum. The Civil Judge reduced the interest to 10% and the Gujarat High Court upheld that reduction. On appeal, the Supreme Court held that under the Arbitration Act, 1940 an arbitrator may award interest for all three periods unless the contract contains an express bar. Clause 16 of the General Conditions of Contract only barred interest for delay in payment and did not expressly prohibit the arbitrator’s award, nor was there any actual delay. Consequently, the Court restored the arbitrator’s award of 18% interest and ordered ONGC to pay the differential amount, allowing Reliance’s appeal and dismissing ONGC’s appeal.
Issues considered
- The scope of an arbitrator’s power under the Arbitration Act, 1940 to award pre‑reference, pendente‑lite and future interest.
- Whether clause 16 of the General Conditions of Contract bars the arbitrator from granting such interest.
- The propriety of the Civil Judge’s reduction of the interest rate from 18% to 10%.
- The effect of the parties being a public‑sector undertaking on the award of interest.
Legislation cited
Subjects
ArbitrationPre‑reference interestPendente‑lite interestFuture interestContractual bar to interestArbitrator’s discretionArbitration Act 1940Interest Act 1978Public sector undertaking
Judgment
618 [2018]REPORTS
SUPREME COURT 6 S.C.R. 618 [2018] 6 S.C.R.
A RELIANCE CELLULOSE PRODUCTS LTD.
v.
OIL AND NATURAL GAS CORPORATION LTD.
(Civil Appeal No. 1110 of 2010)
B JULY 20, 2018
[R. F. NARIMAN AND INDU MALHOTRA, JJ.]
Arbitration Act, 1940 - Pre-reference, pendente lite interest
and future interest – Power of arbitrator to award – On facts,
disputes between parties referred to arbitration with regard to price
C
for supply of goods – Fixation of price by arbitrator and award of
pre-reference, pendente lite and future interest all at the rate of 18%
per annum – Reduction of the interest to 10% per annum by the
Civil Judge – High Court upheld the same – On appeal, held: Under
the Arbitration Act, an arbitrator has power to grant pre-reference
D interest under the Interest Act, as well as pendente lite and future
interest – However, he is constricted only by the fact that an
agreement between the parties may contain an express bar to the
award of pre-reference and/or pendente lite interest – In the instant
case, clause 16 of the General Conditions of Contract clearly bars
payment of interest for any delay – There is nothing in this clause
E
which refers even obliquely to the Arbitrator’s power to grant
interest – There was no delay on account of the higher price as it
became payable only on and from the date of the award – Even if
clause 16 were to have application, both pre-reference and pendente
lite interest are not barred – Only reason given for reducing interest
F from 18% to 10% being that ONGC is a Public Sector Undertaking,
would not suffice to set aside what was within the Arbitrator’s
discretion – Further, there is no finding that arbitrator exercised
the discretion perversely – Thus, the grant of interest at the rate of
18% as pre-reference, pendente lite and future interest upheld –
Interest Act, 1978.
G
Allowing Reliance’s appeal and dismissing ONGC’s appeal,
the Court
HELD: 1.1 Under the Arbitration Act, 1940, an arbitrator
has power to grant pre-reference interest under the Interest Act,
H
618
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 619
NATURAL GAS CORPORATION LTD.
1978 as well as pendente lite and future interest. However, he is A
constricted only by the fact that an agreement between the parties
may contain an express bar to the award of pre-reference and/or
pendente lite interest. Since interest is compensatory in nature
and is parasitic upon a principal sum not having been paid in time,
this Court has frowned upon clauses that bar the payment of
B
interest. It has therefore evolved the test of strict construction
of such clauses, and has gone on to state that unless there is a
clear and express bar to the payment of interest that can be
awarded by an arbitrator, clauses which do not refer to claims
before the Arbitrators or disputes between parties and clearly
bar payment of interest, cannot stand in the way of an arbitrator C
awarding pre-reference or pendente lite interest. Thus, when one
contrasts a clause such as the clause in the *Second Ambica
Construction Case with the clause in **Tehri Hydro
Development Corporation Ltd., it becomes clear that unless a
contractor agrees that no claim for interest will either be
D
entertained or payable by the other party owing to dispute,
difference, or misunderstandings between the parties or in
respect of delay on the part of the engineer or in any other respect
whatsoever, leading the Court to find an express bar against
payment of interest, a clause which merely states that no interest
will be payable upon amounts payable to the contractor under E
the contract would not be sufficient to bar an arbitrator from
awarding pendente lite interest under the 1940 Act. As has been
held in the ***First Ambica Construction Case the grant of
pendente lite interest depends upon the phraseology used in the
agreement, clauses conferring power relating to arbitration, the
F
nature of claim and dispute referred to the Arbitrator, and on
what items the power to award interest has been taken away and
for which period. The position as explained in some of the
judgments under Section 31(7) of the 1996 Act, is wholly different,
inasmuch as Section 31(7) of the 1996 Act sanctifies agreements
between the parties and states that the moment the agreement G
says otherwise, no interest becomes payable right from the date
of the cause of action until the award is delivered. [Para 22]
[645-D-H; 646-A-C]
1.2 In the instant case, clause 16 of the General Conditions
of Contract only speaks of any delay in payment not making ONGC H
620 SUPREME COURT REPORTS [2018] 6 S.C.R.
A liable for interest. There is nothing in this clause which refers
even obliquely to the Arbitrator’s power to grant interest. This
Court finds that the said clause is narrower than the clause
considered by the three-Judge Bench in the *Second Ambica
Construction Case which states that no interest will be payable
on amounts payable to the contractor under the contract. Clause
B
16 in the present case confines itself only to delay in payment
and not to any other amounts payable to the contractor under the
contract. Also, unlike the clause in **Tehri Hydro Development
Corporation Ltd., clause 16 does not contain language which is
so wide in nature that it would interdict an arbitrator from granting
C pendente lite interest. It will be remembered that the clause in
**Tehri Hydro Development Corporation Ltd. spoke of no claim
for interest being entertained or payable in respect of any money
which may be lying with the Government owing to disputes,
difference or misunderstanding between the parties and not
merely in respect of delay or omission; Further, the clause in
D
**Tehri Hydro Development Corporation Ltd. goes much further
and makes it clear that no claim for interest is payable “in any
other respect whatsoever.” It is, thus, clear that clause 16 cannot
possibly interdict the payment of pendente lite interest on the
facts of the present case. [Para 23] [646-D-G]
E 1.3 The submission that, in any case, on the facts of the
present case, clause 16 is not at all attracted inasmuch as factually
there was no delay in payment as a sum of Rs.14,999/- per MT
had, in fact, been paid for both 1200 MT and 600 MT, but that
the balance only became payable on and from the date of the
F award, is right, as it is nobody’s case that there was delay in
payment on the facts of this case. It is only after Reliance went in
a Writ Petition before the High Court that it became clear that a
higher price would be payable, which was left to the Arbitrator to
determine vide the High Court’s judgment referring the issue of
price to an arbitrator, which was accepted by ONGC. In this view
G of the matter, it is clear that no delay on account of the higher
price ever took place as it became payable only on and from the
date of the award, Rs.14,999/- per MT having been paid on time
earlier. This being the case, it is clear that even if clause 16 were
to have application, both pre-reference and pendente lite interest
H are not barred. [Para 24] [646-H; 647-A-C]
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 621
NATURAL GAS CORPORATION LTD.
1.4 The only reason given for reducing interest from 18% A
to 10% being that ONGC is a Public Sector Undertaking, would
not suffice to set aside what was within the Arbitrator’s discretion.
There is no finding that this discretion has been exercised
perversely, given the interest rates at the time of the award. The
grant of interest at the rate of 18% as pre-reference and pendente
B
lite interest is upheld. Considering the fact that ONGC has
deposited the difference in the principal sums payable, and pre-
reference, pendent lite and future interest, all at the rate of 10%
being a sum of Rs.1,09,34,323/- till 21.01.1999, and a sum of
Rs.46,86,138/- on 30.04.2003, it is made clear that recovery of
interest till the two aforementioned dates will be at the rate of C
18%. Thus, for pre-reference, pendent lite and future interest,
ONGC is to pay the differential amount of interest of 8% till
21.01.1999 and 30.04.2003 within a period of eight weeks from
today. In the interest of justice, it is clarified that on and from
21.01.1999, till payment, future interest is to be paid at 6% per
D
annum on the balance differential sum of interest, being the
difference between 10% and 18%, and similarly, on the balance
differential sum of interest between 10% and 18% on and from
30.04.2003 till payment. [Para 25] [647-D-G]
Irrigation Department, State of Orissa v. G.C. Roy (1992)
1 SCC 508 : [1991] 3 Suppl. SCR 417 ; Executive E
Engineer (Irrigation), Balimela v. Abhaduta Jena
(1988) 1 SCC 418 : [1988] 1 SCR 253 ; Executive
Engineer, Dhenkanal Minor Irrigation Division, Orissa
and Ors. v. N.C. Budharaj (2001) 2 SCC 721 :
[2001] 1 SCR 264 ; Board of Trustees for the Port of F
Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC
516 : [1995] 6 Suppl. SCR 327 ; Bhagwati Oxygen
Ltd. v. Hindustan Copper Ltd., (2005) 6 SCC 462 :
[2005] 3 SCR 232 ; M.B. Patel and Co. v. ONGC (2008)
8 SCC 251 : [2008] 8 SCR 35 ; State of Rajasthan and
Anr. v. M/s. Ferro Concrete Construction (P) Ltd. (2009) G
12 SCC 1: [2009] 10 SCR 31 ; Union of India v.
Saraswat Trading Agency (2009) 16 SCC 504 : [2009]
10 SCR 1063; Madnani Construction Corporation (P)
Ltd. v. Union of India and Ors. (2010) 1 SCC 549 :
H
622 SUPREME COURT REPORTS [2018] 6 S.C.R.
A [2009] 16 SCR 216 ; State of U.P. v. Harish Chandra
and Co. (1999) 1 SCC 63 : [1998] 2 Suppl. SCR 660 ;
Sree Kamatchi Amman Constructions v. The Divisional
Railway Manager (Works), Palghat and Ors., (2010) 8
SCC 767 : [2010] 10 SCR 487; Union of India v.
Krafters Engineering and Leasing (P) Ltd. (2011) 7 SCC
B
279 : [2011] 8 SCR 196 ; **Tehri Hydro Development
Corporation Ltd. v. Jai Prakash Associates Ltd. (2012)
12 SCC 10 : [2012] 8 SCR 813 ; Union of India v.
Bright Power Projects (India) (P) Ltd. (2015) 9 SCC
695 : [2015] 6 SCR 488 ; ***Union of India v. Ambica
C Construction (“First Ambica Construction Case”),
(2016) 6 SCC 36 : [2016] 2 SCR 810; *Ambica
Construction v. Union of India (“Second Ambica
Construction Case”) (2017) 14 SCC 323 ;
M/s Raveechee v. Union of India 2018 (8) SCALE 415
– referred to.
D
Case Law Reference
[1991] 3 Suppl. SCR 417 referred to Para 7
[1988] 1 SCR 253 referred to Para 7
[2001] 1 SCR 264 referred to Para 7
E [1995] 6 Suppl. SCR 327 referred to Para 8
[2005] 3 SCR 232 referred to Para 9
[2008] 8 SCR 35 referred to Para 10
[2009] 10 SCR 31 referred to Para 11
[2009] 10 SCR 1063 referred to Para 12
F
[2009] 16 SCR 216 referred to Para 13
[1998] 2 Suppl. SCR 660 referred to Para 13
[2010] 10 SCR 487 referred to Para 14
[2011] 8 SCR 196 referred to Para 15
G [2012] 8 SCR 813 referred to Para 17
[2015] 6 SCR 488 referred to Para 18
[2016] 2 SCR 810 referred to Para 19
(2017) 14 SCC 323 referred to Para 20
2018 (8 ) SCALE 415 referred to Para 21
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 623
NATURAL GAS CORPORATION LTD.
CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1110 A
of 2010.
From the Judgment and Order dated 23.08.2006 of the High Court
of Gujarat at Ahmedabad in First Appeal No. 5767 of 1998
WITH B
Civil Appeal No. 1111 of 2010.
Sandeep Sethi, ASG, K. V. Viswanathan, Sr. Adv., Shabyashachi
Patra, Sanjeev Kumar (for M/s Khaitan & Co.), P. B. Suresh, Vipin
Nair, Abhay Pratap Singh, Advs.for the appearing parties.
C
The Judgment of the Court was delivered by
R. F. NARIMAN, J. 1. The present appeals relate to questions
which arise qua the pre-reference and pendente lite interest under the
Arbitration Act, 1940. The ONGC floated a notice inviting tender for the
supply of 1200 Metric Tons (hereinafter referred to as “MT”) of Sodium D
Carboxyl Methyl Cellulose (hereinafter referred to as “CMC”). Reliance
Cellulose Products Ltd. (hereinafter referred to as “Reliance”) submitted
its tender quoting a price of Rs.14,999/- per MT for quantities above 900
MT. It is not disputed that the offer of Reliance was accepted for the
supply of 1200 MT of CMC, and accordingly, a supply order dated E
01.12.1988 was placed on Reliance. Since Reliance agreed to supply
1200 MT only if the price is higher than Rs.14,999/- per MT, the parties
ultimately went to arbitration in order to decide what should be the contract
price for supply of 1200 MT of CMC. A separate order, referred to as
the repeat order, was also placed for supply of 600 MT of CMC. It is
undisputed that the supply was made on time and payments were received F
for both contracts at the rate of Rs.14,999/- per MT.
2. In October 1990, the petitioner filed a Special Civil Application
before the Gujarat High Court in the course of which, by an order dated
11.10.1990, the disputes between the parties were referred to arbitration,
G
which were with regard to the price for the supply of 1200 MT and 600
MT of CMC respectively. The original Arbitral Tribunal consisted of
Justice V.S. Deshpande and Mr. S. Tibrewal. Shri Deshpande having
died, Justice B.J. Divan was appointed in his place.
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624 SUPREME COURT REPORTS [2018] 6 S.C.R.
A 3. By an award dated 29.12.1993, the Arbitrators fixed the price
of 1200 MT at Rs.18,500/- per MT, and Rs.20,500/- per MT insofar as
600 MT of CMC was concerned. The Arbitrators awarded pre-reference,
pendente lite and future interest all at the rate of 18% per annum.
Objections were filed to the award by the ONGC. The learned Civil
Judge, by his judgment dated 30.07.1998, rejected these objections, but
B
ultimately reduced the interest for all three periods to 10% per annum.
Needless to state, this interest was payable on the difference between
Rs.14,999/- and Rs.18,500/- and Rs.20,500/- respectively. The appeals
that were filed to the High Court yielded the same result vide the
impugned judgment dated 23.08.2006. Both parties are in appeal before
C us.
4. Shri K.V. Viswanathan, who argued Civil Appeal No.1110/2010,
has argued before us that no good reason is given for reducing interest
from 18% to 10%. Indeed, the only reason that is forthcoming from the
impugned judgment is that interest has been reduced because ONGC is
D a Public Sector Undertaking. According to him, therefore, pre-reference,
pendente lite and future interest at 18% all become payable from the
date of the cause of action till 21.01.1999, when the ONGC had deposited
an amount of Rs.1,09,34,323/-, and an amount of Rs.46,86,138/- on
30.04.2003, on account of principal and interest at the rate of 10% per
annum, and differential interest till date.
E
5. In the ONGC appeal, the learned Additional Solicitor General,
Shri Sandeep Sethi, has argued that though the plea that no pre-reference
or pendente lite interest was payable, there is an express bar to the grant
of such interest between the parties, which was noted by both the learned
Civil Judge and the High Court, but no finding has been given thereon.
F According to the learned ASG, clause 16 of the General Conditions of
Contract clearly bars payment of interest for any delay and is set out
hereinbelow:
“16. Our standard terms of payment are within 30 days of receipt
of stores and inspection at site. But any delay in payment will not
G make the Commission liable for any interest.”
6. He has cited a number of judgments to buttress his submission
that clause 16 would amount to a contractual bar to the payment of any
interest on the facts of this case. On the other hand, Shri Viswanathan
has also referred to various judgments. His argument is that clause 16
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RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 625
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
does not apply at all on the facts of this case as there was no delay in A
payment, but only the difference between the sum of Rs.14,999/- per
MT and the higher figures mentioned above were payable on account of
the disputes between the parties being resolved through arbitration. In
any case, he submitted that a holistic reading of the various decisions
cited by both the learned ASG as well as by him would show that so far
B
as the 1940 Act is concerned, interest would be payable only if there is
no express bar in the agreement, and agreements between the parties
have to be construed strictly as interest is the grant of compensation for
value of money lost, as has been held in some of the judgments. This
being so, though there may be a bar inter-se the parties, yet the Arbitrator
is not barred from awarding either pre-reference or pendente lite interest. C
It may be added that there is no dispute that future interest is to be
granted, except as to the rate of interest awarded.
7. Two important five-Judge Bench judgments have laid down
that, under the 1940 Act, in the absence of an express bar under the
agreement, the Arbitrator has jurisdiction to award interest for all three D
periods, i.e., pre-reference, pendente lite as well as future interest. The
judgment of this Court in Irrigation Department, State of Orissa v.
G.C. Roy, (1992) 1 SCC 508, overruled Jena’s case [Executive
Engineer (Irrigation), Balimela v. Abhaduta Jena, (1988) 1 SCC 418]
and held that arbitrators under the 1940 Act would be clothed with the
jurisdiction to award pendente lite interest. Insofar as pre-reference E
interest is concerned, another five-Judge Bench in Executive Engineer,
Dhenkanal Minor Irrigation Division, Orissa and Ors. v. N.C.
Budharaj, (2001) 2 SCC 721, held that arbitrators under the 1940 Act
were clothed with the power to award pre-reference interest even before
the 1978 Interest Act came into force. We are concerned in the present F
case only with the 1940 Act. The 1996 Act has made a major departure
from the position under the 1940 Act qua pre-reference and pendente
lite interest which will emerge from the conspectus of case law laid
down by this Court.
8. In Board of Trustees for the Port of Calcutta v. Engineers- G
De-Space-Age, (1996) 1 SCC 516, a two-Judge Bench of this Court
had to consider whether clause 13(g) of the contract barred the award
of interest pendente lite. Clause 13(g) of the contract in that case is set
out hereunder:-
H
626 SUPREME COURT REPORTS [2018] 6 S.C.R.
A “No claim for interest will be entertained by the Commissioners
with respect to any money or balance which may be in their hands
owing to any dispute between themselves and the Contractor or
with respect to any delay on the part of the Commissioners in
making interim or final payment or otherwise.”
B [at paragraph 2]
After setting out the judgment in G.C. Roy (supra), this Court
held:-
“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
C 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
D entertaining any claim for interest and does not prohibit the
arbitrator from awarding 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
E 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.
F If that be so, we would be justified in placing a strict construction
on the term of the contract on which reliance has been placed.
Strictly construed the term of the contract merely prohibits the
Commissioner from paying interest to the contractor for delayed
payment but once the matter goes to arbitration the discretion of
the arbitrator is not, in any manner, stifled by this term of the
G contract and the arbitrator would be entitled to consider the question
of grant of interest pendente lite and award interest if he finds the
claim to be justified. We are, therefore, of the opinion that under
the clause of the contract the arbitrator was in no manner prohibited
from awarding interest pendente lite.”
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 627
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
9. In Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd., (2005) A
6 SCC 462, a judgment of two learned judges arising out of the 1940
Act, this Court was concerned with all the three periods relating to interest,
and held that it was open for the Arbitrator acting under the 1940 Act to
award interest for each of these periods provided there is no contractual
bar.
B
10. In M.B. Patel and Co. v. ONGC, (2008) 8 SCC 251, the
clause which was said to interdict interest was clause 18 of the
Agreement which provided as follows:
“18. Interest on amounts.—No interest will be payable on the
security deposit or any other amount payable to the contractor C
under the contract.”
[at paragraph 4]
The Court held that interest had been awarded in violation of
clause 14 of the Agreement as the Arbitrator did not take into account
this clause at all. On this and other grounds, the Award as a whole was D
set aside, and remanded to the Arbitrator to consider the matter afresh.
11. In State of Rajasthan and Anr. v. M/s. Ferro Concrete
Construction (P) Ltd., (2009) 12 SCC 1, a two-Judge Bench decision
of this Court was concerned with pre-reference interest given by an
award under the 1940 Act. This Court restated the position qua pre- E
reference interest by referring to the five-Judge Bench referred to
hereinabove and Bhagwati Oxygen (supra). What was highlighted was
the importance of the Interest Act, 1978, under Section 3 of which it is
clear that pre-reference interest can be allowed by an arbitrator unless
there is a bar by virtue of an express provision between the parties (see F
paragraphs 63 and 64).
12. In Union of India v. Saraswat Trading Agency, (2009) 16
SCC 504, the question of pendente lite interest arose under the Arbitration
and Conciliation Act, 1996. The clause which was said to bar interest in
the aforesaid case was clause 31 of the Agreement which provided as
G
follows:
“31. No interest or damage for delay in payment.—No interest
or damage shall be paid to the contractor for delay in payment
of the bill or any other amount due to the contractor for any
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628 SUPREME COURT REPORTS [2018] 6 S.C.R.
A reason whatsoever. The Railway Administration will, however,
make every endeavour for payment of the bills or other amount
due to the contractor within a reasonable time.”
[emphasis supplied]
The judgment in Engineers-De-Space-Age (supra) was
B distinguished by stating that clause 31 of the Agreement was materially
different as no interest or damage was payable for any reason
whatsoever, as a result of which it was held:
“33. In the case in hand Clause 31 of the agreement is materially
different. It bars payment of any interest or damage to the
C contractor for any reason whatsoever. We are, therefore, clearly
of the view that no pre-reference or pendente lite interest was
payable to the respondent on the amount under Item 3 and the
arbitrator’s award allowing pre-reference and pendente lite interest
on that amount was plainly in breach of the express terms of the
D agreement. The order of the High Court insofar as pre-reference
and pendente lite interest on the amount under Item 3 is concerned
is, therefore, unsustainable.”
This case has later been distinguished as having arisen under the
1996 Act, under which the position qua both pre-reference and pendente
E lite interest is materially different.
13. In Madnani Construction Corporation (P) Ltd. v. Union
of India and Ors., (2010) 1 SCC 549, two judges of this Court had to
deal with the grant of pre-reference interest under the Interest Act in an
award passed under the 1940 Act. Paragraphs 22 and 23 of the judgment
F set out the clauses which interdict payment of interest as follows:
“22. … Clause 16(2) of GCC is set out below:
“16. (2) No interest will be payable upon the earnest money or
the security deposit or amounts payable to the contractor under
the contract but government securities deposited in terms of
G such Clause (1) of this Clause will be repayable with interest
accrued thereto.”
23. … The relevant portion of Clause 30 relating to interest is set
out below:
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RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 629
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
“… That the contractor will have no claim for interest and A
damage whatsoever on any account in respect of such
withholding or retention under the lien referred to supra and
duly notified as such to the contractor.”
After referring to the Interest Act and Section 29 of the Arbitration
Act, 1940, the Court referred to a three-Judge Bench decision in State B
of U.P. v. Harish Chandra and Co., (1999) 1 SCC 63, as follows:
“34. In a subsequent decision of a three-Judge Bench in State of
U.P. v. Harish Chandra and Co. [(1999) 1 SCC 63] there was
stipulation in the arbitration agreement against grant of interest.
The relevant clause, namely, Clause 1.9 to the aforesaid effect is C
set out below: (SCC p. 67, para 9)
“9. … ‘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, D
difference; or misunderstanding between the Engineer-in-
Charge in marking periodical or final payments or in any other
respect whatsoever.’ “
Considering the said clause, the Court held that the prohibition in
the said clause does not prevent the contractor from raising the E
claim of interest by way of damages before the arbitrator on the
relevant items placed for adjudication. (See SCC p. 67, para 10.)
In saying so, the learned Judges relied on the ratio in B.N.
Agarwalla [(1997) 2 SCC 469] and G.C. Roy [(1992) 1 SCC
508].”
F
It then referred to Engineers-De-Space-Age (supra) in
paragraph 35 and Saraswat Trading Agency (supra) in paragraphs 37
and 38. Finally, however, the two-Judge Bench held:-
“39. In the instant case also the relevant clauses, which have
been quoted above, namely, Clause 16(2) of GCC and Clause 30
G
of SCC do not contain any prohibition on the arbitrator to grant
interest. Therefore, the High Court was not right in interfering
with the arbitrator’s award on the matter of interest on the basis
of the aforesaid clauses. We therefore, on a strict construction of
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630 SUPREME COURT REPORTS [2018] 6 S.C.R.
A those clauses and relying on the ratio in Engineers [(1996) 1 SCC
516] find that the said clauses do not impose any bar on the arbitrator
in granting interest.”
14. In Sree Kamatchi Amman Constructions v. The
Divisional Railway Manager (Works), Palghat and Ors., (2010) 8
B SCC 767, a two-Judge Bench of this Court, after referring to some of
the earlier judgments of this Court, held: -
“18. At the outset it should be noticed that Engineers-De-Space-
Age [(1996) 1 SCC 516] and Madnani [(2010) 1 SCC 549] arose
under the old Arbitration Act, 1940 which did not contain a provision
C similar to Section 31(7) of the new Act. This Court, in Sayeed
Ahmed [(2009) 12 SCC 26] held that the decisions rendered under
the old Act may not be of assistance to decide the validity of grant
of interest under the new Act. The logic in Engineers-De-Space-
Age [(1996) 1 SCC 516] was that while the contract governed
the interest from the date of cause of action to date of reference,
D the arbitrator had the discretion to decide the rate of interest from
the date of reference to date of award and he was not bound by
any prohibition regarding interest contained in the contract, insofar
as pendente lite period is concerned. This Court in Sayeed Ahmed
[(2009) 12 SCC 26] held that the decision in Engineers-De-Space-
E Age [(1996) 1 SCC 516] would not apply to cases arising under
the new Act. We extract below, the relevant portion from Sayeed
Ahmed [(2009) 12 SCC 26] : (SCC p. 36, paras 23-24)
“23. The observation in Engineers-De-Space-Age [(1996) 1
SCC 516] that the term of the contract merely prohibits the
F department/ employer from paying interest to the contractor
for delayed payment but once the matter goes to the arbitrator,
the discretion of the arbitrator is not in any manner stifled by
the terms of the contract and the arbitrator will be entitled to
consider and grant the interest pendente lite, cannot be used to
support an outlandish argument that bar on the Government or
G department paying interest is not a bar on the arbitrator
awarding interest. Whether the provision in the contract bars
the employer from entertaining any claim for interest or bars
the contractor from making any claim for interest, it amounts
to a clear prohibition regarding interest. The provision need
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 631
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
not contain another bar prohibiting the arbitrator from awarding A
interest. The observations made in the context of interest
pendente lite cannot be used out of contract.
24. The learned counsel for the appellant next contended on
the basis of the above observations in Engineers-De-Space-
Age [(1996) 1 SCC 516], that even if Clause G 1.09 is held to B
bar interest in the pre-reference period, it should be held not to
apply to the pendente lite period, that is, from 14-3-1997 to 31-
7-2001. He contended that the award of interest during the
pendency of the reference was within the discretion of the
arbitrator and therefore, the award of interest for that period
could not have been interfered with by the High Court. In view C
of the Constitution Bench decisions in G.C. Roy [(1992) 1 SCC
508] and N.C. Budharaj [(2001) 2 SCC 721] rendered before
and after the decision in Engineers-De-Space-Age [(1996) 1
SCC 16], it is doubtful whether the observation in Engineers-
De-Space-Age [(1996) 1 SCC 516] in a case arising under D
the Arbitration Act, 1940 that the arbitrator could award interest
pendente lite, ignoring the express bar in the contract, is good
law. But that need not be considered further as this is a case
under the new Act where there is a specific provision regarding
award of interest by the arbitrator.”
E
The same reasoning applies to the decision in Madnani [(2010)
1 SCC 549] also as that also relates to a case under the old
Act and did not independently consider the issue but merely
relied upon the decision in Engineers-De-Space-Age [(1996)
1 SCC 516].
F
19. Section 37(1) [Sic 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 G
interest between the date when the cause of action arose to the
date of award.”
[emphasis supplied]
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632 SUPREME COURT REPORTS [2018] 6 S.C.R.
A 15. In Union of India v. Krafters Engineering and Leasing
(P) Ltd. (2011) 7 SCC 279, a two-Judge Bench considered as to whether
clause 1.15 of the contract in that case would bar pendente lite interest.
Clause 1.15 reads as follows:
“1.15. Interest on amounts.—No interest will be payable upon
B the earnest money or the security deposit or amounts payable to
the contractor under the contract but government securities
deposited in terms of Clause 1.14.4 will be repayable with interest
accrued thereon.”
This Court, after referring to Engineers-De-Space-Age (supra)
C and Sayeed Ahmed [Sayeed Ahmed and Co. v. State of U.P., (2009)
12 SCC 26], then held that they were of the view that Sayeed Ahmed
(supra) having held to the contrary, Engineers-De-Space-Age (supra)
could not possibly be followed. Same was the position with Madnani
Construction (supra) which was dismissed by saying that it did not
independently consider the issue but merely relied upon the decision in
D Engineers-De-Space-Age (supra). The Court then went on to state:-
“20. In the light of the above discussion, the following conclusion
emerges: reliance based on the ratio in Engineers-De-Space-
Age [(1996) 1 SCC 516] is unacceptable since the said view has
been overruled in Sayeed Ahmed and Co. [(2009) 12 SCC 26 :
E (2009) 4 SCC (Civ) 629] and insofar as the ratio in Madnani
Construction Corpn. (P) Ltd. [(2010) 1 SCC 549 : (2010) 1 SCC
(Civ) 168] which is also unacceptable for the reasons mentioned
in the earlier paras, we reject the stand taken by the counsel for
the respondent. On the other hand, we fully accept the stand of
F the Union of India as rightly projected by Mr. A.S. Chandhiok,
learned ASG. We reiterate that where the parties had agreed that
no interest shall be payable, the arbitrator cannot award interest
for the amounts payable to the contractor under the contract.
Where the agreement between the parties does not prohibit grant
of interest and where a party claims interest and the said dispute
G is referred to the arbitrator, he shall have the power to award
interest pendente lite. As observed by the Constitution Bench in
G.C. Roy case [(1992) 1 SCC 508], in such a case, it must be
presumed that interest was an implied term of the agreement
between the parties. However, this does not mean that in every
H case, the arbitrator should necessarily award interest pendente
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 633
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
lite. In the subsequent decision of the Constitution Bench i.e. N.C. A
Budharaj case [(2001) 2 SCC 721], it has been reiterated that in
the absence of any specific stipulation or prohibition in the contract
to claim or grant any such interest, the arbitrator is free to award
interest.
21. In the light of the above principle and in view of the specific B
prohibition of contract contained in Clause 1.15, the arbitrator
ceases to have the power to grant interest. We also clarify that
the Arbitration Act, 1940 does not contain any specific provision
relating to the power of arbitrator to award interest. However, in
the Arbitration and Conciliation Act, 1996, there is a specific
provision with regard to award of interest by the arbitrator. The C
bar under Clause 1.15 is absolute and interest cannot be awarded
without rewriting the contract.”
16. Clearly, the conclusion of the Court that Engineers-De-
Space-Age (supra) had been overruled by Sayeed Ahmed (supra) is
incorrect for two reasons: first, a Bench of two learned Judges cannot D
overrule a coordinate Bench of two learned Judges; and second, the
Court in Sayeed Ahmed (supra) was not deciding a case arising under
the 1940 Act, but was deciding a case arising under the 1996 Act.
17. In Tehri Hydro Development Corporation Ltd. v. Jai
Prakash Associates Ltd., (2012) 12 SCC 10, a three-Judge Bench of E
this Court dealt with an award passed under the 1940 Act. The relevant
clauses barring interest under the agreement in that case are set out
herein below:-
“14. … Clauses 1.2.14 and 1.2.15 on which much arguments
have been advanced by the learned counsel for both sides may F
now be extracted below:
“PART II
CONDITIONS OF CONTRACT
1.2.14. No claim for delayed payment due to dispute, etc.— G
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
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634 SUPREME COURT REPORTS [2018] 6 S.C.R.
A 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.—No
omission on the part of the engineer-in-charge to pay the amount
B 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.”
C After referring to Krafters Engineering (supra) and some of
the earlier judgments, it was held:
“16. In Krafters Engg. case [(2011) 7 SCC 279 : (2011) 3 SCC
(Civ) 533] the somewhat discordant note struck by the decisions
of this Court in Port of Calcutta v. Engineers-De-Space-Age
D [(1996) 1 SCC 516] and Madnani Construction Corpn. (P) Ltd.
v. Union of India [(2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168]
were also taken note of. Thereafter, it was also noticed that the
decision in Engineers-De-Space-Age case [(1996) 1 SCC 516]
was considered in Sayeed Ahmed & Co. v. State of U.P. [(2009)
12 SCC 26 : (2009) 4 SCC (Civ) 629] and the decision in Madnani
E Construction case [(2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168]
was considered in Sree Kamatchi Amman Constructions v.
Railways [(2010) 8 SCC 767 : (2010) 3 SCC (Civ) 575] . In Sayeed
Ahmed case [(2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] (SCC
para 24) it was held that in the light of the decisions of the
F Constitution Bench in G.C. Roy 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 case [(1996) 1
SCC 516] 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 Constructions case [(2010) 8 SCC
G 767 : (2010) 3 SCC (Civ) 575] while considering Madnani case
[(2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168] this Court noted
that the decision in Madnani case [(2010) 1 SCC 549 : (2010) 1
SCC (Civ) 168] follows the decision in Engineers-De-Space-
Age case[(1996) 1 SCC 516].”
H
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NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
In this view of the matter, the Court held: A
“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 B
the view that the grant of pendente lite interest on the claim of Rs
10,17,461 lakhs is not justified. The award as well as the orders of
the courts below are accordingly modified to the aforesaid extent.
20. However, the grant of interest for the post-award period would
stand on a somewhat different footing. This very issue has been C
elaborately considered by this Court in B.N. Agarwalla [(1997) 2
SCC 469] in the light of the provisions of Section 29 of the
Arbitration Act, 1940. Eventually this Court took the view that in
a situation where the award passed by the arbitrator granting
interest from the date of the award till the date of payment is not
modified by the Court “… the effect would be as if the Court D
itself had granted interest from the date of the decree till the date
of payment…”. In view of the above, the grant of interest on the
amount of Rs 10,17,461 lakhs from the date of the award till the
date of the decree or date of payment, whichever is earlier, is
upheld. In the facts of the case we are of the view that the rate of E
interest should be 12% per annum as determined in the arbitration
proceeding between the parties.”
18. In Union of India v. Bright Power Projects (India) (P)
Ltd., (2015) 9 SCC 695, a three-Judge Bench of this Court had to deal
with interest awarded by an arbitral award under the 1996 Act. This F
judgment, like Sree Kamatchi Amman Constructions (supra), sets
out how Section 31(7)(a) is a complete departure from the position under
the 1940 Act. This Court held:-
“12. Section 31(7) of the Arbitration and Conciliation Act, 1996
(hereinafter referred to as “the Act”) is clear to the effect that G
unless otherwise agreed by the parties, the Arbitral Tribunal can
award interest at reasonable rate for a period commencing from
that date when the cause of action arises till the date of the award.
Section 31(7) of the Act, reads as under:
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636 SUPREME COURT REPORTS [2018] 6 S.C.R.
A “31. (7)(a) Unless otherwise agreed by the parties, where
and insofar 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 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
B
arose and the date on which the award is made.”
13. Section 31(7) of the Act, by using the words “unless otherwise
agreed by the parties”, categorically specifies that the arbitrator
is bound by the terms of the contract so far as award of interest
from the date of cause of action to date of the award is
C concerned. Therefore, where the parties had agreed that no
interest shall be payable, the Arbitral Tribunal cannot award
interest.
14. We may also refer to the decision of this Court in Union of
India v. Saraswat Trading Agency [(2009) 16 SCC 504: (2011)
D 3 SCC (Civ) 499]. This Court has observed in the said case that if
there is a bar against payment of interest in the contract, the
arbitrator cannot award any interest for such period. In view of
the specific bar under Clause 13(3) of the contract entered into
between the parties, we are of the view that the Arbitral Tribunal
E was not justified in awarding interest from the date of entering
upon the reference to the Arbitral Tribunal till the date of the
award.
xxxxxx
16. Relying upon the aforestated judgment delivered by this Court,
F the Arbitral Tribunal thought it proper to award interest on the
amount payable to the contractor for the period commencing from
the date on which the reference was entered upon till the date of
the award. The Tribunal, however, failed to consider the provisions
of Section 31(7) of the Act and Clause 13(3) of the contract before
G awarding interest in the present case.
17. It is also pertinent to note that G.C. Roy case [(1992) 1 SCC
508] had been decided on 12-12-1991 on the basis of the provisions
of the Arbitration Act, 1940, which was not operative at the time
when the dispute on hand was decided by the Arbitral Tribunal.
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 637
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
18. Section 31(7)(a) of the Act ought to have been read and A
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
B
no right to award interest pendente lite.”
[emphasis supplied]
19. Given the labyrinth of case law referred to hereinabove, and
the perception that some of the judgments were pulling in different
directions, a reference was made to a three-Judge Bench. In Union of C
India v. Ambica Construction (“First Ambica Construction Case”),
(2016) 6 SCC 36, paragraph 1 reflects how the matter had been referred
to a larger Bench for decision. After referring to the labyrinth of case
law that has been referred to in this case, this Court held:
“21. This Court in Sayeed Ahmed [Sayeed Ahmed & Co. v. D
State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] has
also distinguished the decision in Harish Chandra [State of U.P.
v. Harish Chandra & Co., (1999) 1 SCC 63] in which Clause
1.09 came up for consideration thus: (Sayeed Ahmed case
[Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 :
(2009) 4 SCC (Civ) 629], SCC pp. 33-34, paras 17-19) E
“17. … This Court held that the said clause did not bar award
of interest on any claim for damages or for claim for payment
for work done. We extract below the reasoning for such
decision: (SCC p. 67, para 10)
F
‘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 monies or balances which may be lying
with the Government owing to any dispute, difference between
the Engineer-in-Charge and the contractor; or G
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
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638 SUPREME COURT REPORTS [2018] 6 S.C.R.
A monies 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
B
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
C before the arbitrator on the relevant items placed for
adjudication.’
18. In Harish Chandra [State of U.P. v. Harish Chandra &
Co., (1999) 1 SCC 63] a different version of Clause 1.09 was
considered. Having regard to the restrictive wording of that
D 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
E 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 misunderstanding between the Engineer-
F 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 [State of U.P. v. Harish Chandra &
G Co., (1999) 1 SCC 63] will not assist the appellant in any
manner.”
(emphasis in original)
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 639
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
In Harish Chandra [State of U.P. v. Harish Chandra & A
Co., (1999) 1 SCC 63], 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.
B
22. 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 the arbitrator. The award of pendente lite interest
inter alia must depend upon the overall intention of the
agreement and what is expressly excluded.” C
After referring to the earlier judgments, this Court held:-
“28. It is apparent from various decisions referred to above that
in G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy,
(1992) 1 SCC 508] the Constitution Bench of this Court has laid D
down that where the 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 [Dhenkanal
Minor Irrigation Division v. N.C. Budharaj, (2001) 2 SCC 721]
a Constitution Bench has observed that in case there is nothing in
the arbitration agreement to exclude jurisdiction of the arbitrator E
to entertaining claim for interest, the jurisdiction of the arbitrator
to consider and award interest in respect to all periods is subject
to Section 29 of the Act. In Hindustan Construction Co. Ltd.
[Hindustan Construction Co. Ltd. v. State of J&K, (1992) 4
SCC 217] this Court has followed the decision in G.C. Roy F
[Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC
508] and laid down that on the basis of principles of Section 34
the arbitrator would have the power to award pendente lite interest
also. In B.N. Agarwalla [State of Orissa v. B.N. Agarwalla,
(1997) 2 SCC 469], this Court has again followed G.C. Roy
[Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC G
508] and Hindustan Construction Co. Ltd. [Hindustan
Construction Co. Ltd. v. State of J&K, (1992) 4 SCC 217] with
respect to the power of the arbitrator to award pendente lite interest
H
640 SUPREME COURT REPORTS [2018] 6 S.C.R.
A and it was held that the arbitrator has the power to award interest.
In Harish Chandra [State of U.P. v. Harish Chandra & Co.,
(1999) 1 SCC 63] this Court interpreted Clause 1.9 which provided
that no claim for interest or damages will be entertained by the
Government in respect to any monies or balances which may be
lying with the Government. It was held that there was no provision
B
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.
[State of Rajasthan v. Ferro Concrete Construction (P) Ltd.,
(2009) 12 SCC 1 : (2009) 4 SCC (Civ) 604] this Court considered
C Clause 4 containing a stipulation that no interest was payable on
amount withheld under the agreement. It was held that Clause 4,
which 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 [Sayeed Ahmed & Co.
v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] this
D
Court has emphasised that award of interest would depend upon
nature of the clause in the agreement. In Bright Power Projects
(India) (P) Ltd. [Union of India v. Bright Power Projects
(India) (P) Ltd., (2015) 9 SCC 695 : (2015) 4 SCC (Civ) 702] this
Court has considered the expression “unless otherwise agreed by
E parties” employed in Section 31(7)(a) of the 1996 Act and laid
down that in case contract bars claim of interest the contractor
could not have claimed interest. The provision of Section 31(7)(a)
of the 1996 Act is binding upon the arbitrator. In Sree Kamatchi
Amman Constructions [Sree Kamatchi Amman Constructions
v. Railways, (2010) 8 SCC 767: (2010) 3 SCC (Civ) 575] similar
F
view has been taken.
29. 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 [Port of Calcutta v. Engineers-De-Space-Age,
(1996) 1 SCC 516] which has been referred for our consideration
G in which this Court after consideration of G.C. Roy case [Irrigation
Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] has
observed thus: (Engineers-De-Space-Age case [Port of
Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516] , SCC
pp. 519-20, paras 3-4)
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 641
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
“3. … It will appear from what the Constitution Bench stated A
to be the legal position, that ordinarily a person who is 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
B
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 C
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
D
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, E
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
F
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. G
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
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642 SUPREME COURT REPORTS [2018] 6 S.C.R.
A 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 awarding interest. The opening
words “no claim for interest will be entertained by the
B
Commissioner” clearly establishes that the intention was to
prohibit the Commissioner from granting interest on account
of delayed payment to the contractor. Clause 13 has to be
strictly construed for the simple reason that as pointed out by
the Constitution Bench, ordinarily, a person who has a legitimate
C 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.”
30. In Sayeed Ahmed [Sayeed Ahmed & Co. v. State of U.P.,
D (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] the decision in
Engineers-De-Space-Age[Port of Calcutta v. Engineers-De-
Space-Age, (1996) 1 SCC 516] 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
E as to the correctness of certain observations made in Engineers-
De-Space-Age [Port of Calcutta v. Engineers-De-Space-Age,
(1996) 1 SCC 516] 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
F Sayeed Ahmed [Sayeed Ahmed & Co. v. State of U.P., (2009)
12 SCC 26 : (2009) 4 SCC (Civ) 629] arose under the Arbitration
and Conciliation Act, 1996, and there was a specific provision
under the new Act regarding the award of interest by the arbitrator.
From the discussion made in Sayeed Ahmed [Sayeed Ahmed &
Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629]
G it is apparent that this Court has emphasised 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.”
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 643
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
The Court then referred to the three-Judge Bench judgment in A
Tehri Hydro Development Corporation Ltd. (supra) and finally
answered the reference as follows:-
“32. In para 4 in Engineers-De-Space-Age [Port of Calcutta v.
Engineers-De-Space-Age, (1996) 1 SCC 516] this Court has
observed that bar under the contract will not be applicable to the B
arbitrator cannot be said to be observation of general application.
In our opinion, it would depend upon the stipulation in the contract
in each case whether the power of the arbitrator to grant pendente
lite interest is expressly taken away. If answer is “yes” then the
arbitrator would have no power to award pendente lite interest.
C
33. The decision in Madnani Construction Corpn. [Madnani
Construction Corpn. (P) Ltd. v. Union of India, (2010) 1 SCC
549 : (2010) 1 SCC (Civ) 168] has followed the decision in
Engineers-De-Space-Age [Port of Calcutta v. Engineers-De-
Space-Age, (1996) 1 SCC 516]. The same is also required to be
diluted to the extent that express stipulation under contract may D
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 E
taken away and for which period.
34. Thus, our answer to the reference is that if the contract
expressly bars the 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 F
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 consider the
case on merits.”
G
20. The aforesaid judgment was applied by another three-Judge
Bench soon thereafter in Ambica Construction v. Union of India
(“Second Ambica Construction Case”), (2017) 14 SCC 323. In this
case, the concerned clause, which is clause 2 of the Agreement, reads
as follows:-
H
644 SUPREME COURT REPORTS [2018] 6 S.C.R.
A “(2) Interest on amounts.— No interest will be payable upon
the earnest money or the security deposit or amounts payable to
the contractor under the contract, but government securities
deposited in terms of sub-clause (1) of this clause will be repayable
with interest accrued thereon.”
B [at paragraph 5]
This Court found that the aforesaid clause was no bar, after
referring to paragraph 34 of the First Ambica Construction Case
(supra):
“6. The only contention advanced at the hands of the learned
C counsel for the appellant, was based on the judgment of this Court
in Union of India v. Ambica Construction [Union of India v.
Ambica Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ)
36], wherein, having examined the legal position declared by this
Court by a Constitution Bench in Irrigation Deptt., State of Orissa
D v. G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy,
(1992) 1 SCC 508], it was held as under: (Ambica Construction
case [Union of India v. Ambica Construction, (2016) 6 SCC
36 : (2016) 3 SCC (Civ) 36] , SCC p. 59, para 34)
“34. Thus, our answer to the reference is that if the contract
E expressly bars the 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 the arbitrator
has to be considered on various relevant aspects referred to in
F the decisions of this Court, it would be for the Division Bench
to consider the case on merits.”
A perusal of the conclusions drawn by this Court in the above
judgment, rendered by a three-Judge Division Bench, leaves
no room for any doubt, that the bar to award interest on the
G amounts payable under the contract, would not be sufficient to
deny payment of pendente lite interest. In the above view of
the matter, we are satisfied, that the clause relied upon by the
learned counsel for the Union of India, to substantiate his
contention, that pendente lite interest could not be awarded to
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 645
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
the appellant, was not a valid consideration, for the proposition A
being canvassed. We are therefore satisfied, that the arbitrator,
while passing his award dated 28-6-1999, was fully justified in
granting interest pendente lite to the appellant.”
21. To complete the litany of case law, we must now refer to a
recent judgment delivered on 03.07.2018 by yet another Division Bench B
of this Court in M/s Raveechee v. Union of India (Civil Appeal Nos.
5964-5965 of 2018). Clause 16.3, with which this judgment was
concerned, was identical in terms with the clause which barred interest
in the Second Ambica Construction Case (supra). This judgment
referred to and followed judgments in Engineers-De-Space-Age
(supra), Madnani Construction (supra) and the three-Judge Bench in C
the Second Ambica Construction Case (supra) to hold that such a
clause would not be considered to be a bar to the payment of pendente
lite interest.
22. A conspectus of the decisions that have been referred to above
would show that under the 1940 Act, an arbitrator has power to grant D
pre-reference interest under the Interest Act, 1978 as well as pendente
lite and future interest. However, he is constricted only by the fact that
an agreement between the parties may contain an express bar to the
award of pre-reference and/or pendente lite interest. Since interest is
compensatory in nature and is parasitic upon a principal sum not having E
been paid in time, this Court has frowned upon clauses that bar the
payment of interest. It has therefore evolved the test of strict construction
of such clauses, and has gone on to state that unless there is a clear and
express bar to the payment of interest that can be awarded by an arbitrator,
clauses which do not refer to claims before the Arbitrators or disputes
between parties and clearly bar payment of interest, cannot stand in the F
way of an arbitrator awarding pre-reference or pendente lite interest.
Thus, when one contrasts a clause such as the clause in the Second
Ambica Construction Case (supra) with the clause in Tehri Hydro
Development Corporation Ltd. (supra), it becomes clear that unless
a contractor agrees that no claim for interest will either be entertained G
or payable by the other party owing to dispute, difference, or
misunderstandings between the parties or in respect of delay on the part
of the engineer or in any other respect whatsoever, leading the Court to
find an express bar against payment of interest, a clause which merely
H
646 SUPREME COURT REPORTS [2018] 6 S.C.R.
A states that no interest will be payable upon amounts payable to the
contractor under the contract would not be sufficient to bar an arbitrator
from awarding pendente lite interest under the 1940 Act. As has been
held in the First Ambica Construction Case (supra), the grant of
pendente lite interest depends upon the phraseology used in the agreement,
clauses conferring power relating to arbitration, the nature of claim and
B
dispute referred to the Arbitrator, and on what items the power to award
interest has been taken away and for which period. We hasten to add
that the position as has been explained in some of the judgments above
under Section 31(7) of the 1996 Act, is wholly different, inasmuch as
Section 31(7) of the 1996 Act sanctifies agreements between the parties
C and states that the moment the agreement says otherwise, no interest
becomes payable right from the date of the cause of action until the
award is delivered.
23. In the present case, clause 16 of the General Conditions of
Contract only speaks of any delay in payment not making ONGC liable
D for interest. There is nothing in this clause which refers even obliquely
to the Arbitrator’s power to grant interest. This Court finds that the
aforesaid clause is narrower than the clause considered by the three-
Judge Bench in the Second Ambica Construction Case (supra) which
states that no interest will be payable on amounts payable to the contractor
under the contract. Clause 16 in the present case confines itself only to
E delay in payment and not to any other amounts payable to the contractor
under the contract. Also, unlike the clause in Tehri Hydro Development
Corporation Ltd. (supra), clause 16 does not contain language which
is so wide in nature that it would interdict an arbitrator from granting
pendente lite interest. It will be remembered that the clause in Tehri
F Hydro Development Corporation Ltd. (supra) spoke of no claim for
interest being entertained or payable in respect of any money which
may be lying with the Government owing to disputes, difference or
misunderstanding between the parties and not merely in respect of delay
or omission; Further, the clause in Tehri Hydro Development
Corporation Ltd. (supra) goes much further and makes it clear that no
G claim for interest is payable “in any other respect whatsoever.” It is,
thus, clear that clause 16 cannot possibly interdict the payment of
pendente lite interest on the facts of the present case.
24.We now come to Shri Viswanathan’s argument that, in any
case, on the facts of the present case, clause 16 is not at all attracted
H
RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND 647
NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.]
inasmuch as factually there was no delay in payment as a sum of A
Rs.14,999/- per MT had, in fact, been paid for both 1200 MT and 600
MT, but that the balance only became payable on and from the date of
the award. Shri Viswanathan is right, as it is nobody’s case that there
was delay in payment on the facts of this case. It is only after Reliance
went in a Writ Petition before the High Court that it became clear that a
B
higher price would be payable, which was left to the Arbitrator to
determine vide the High Court’s judgment referring the issue of price to
an arbitrator, which was accepted by ONGC. In this view of the matter,
it is clear that no delay on account of the higher price ever took place as
it became payable only on and from the date of the award, Rs.14,999/-
per MT having been paid on time earlier. This being the case, it is clear C
that even if clause 16 were to have application, both pre-reference and
pendente lite interest are not barred.
25.Coming to Shri Viswanathan’s appeal, we think that the only
reason given for reducing interest from 18% to 10% being that ONGC
is a Public Sector Undertaking, would not suffice to set aside what was D
within the Arbitrator’s discretion. There is no finding that this discretion
has been exercised perversely, given the interest rates at the time of the
award. We thus uphold the grant of interest at the rate of 18% as pre-
reference and pendente lite interest. Considering the fact that ONGC
has deposited the difference in the principal sums payable, and pre-
reference, pendent lite and future interest, all at the rate of 10% being a E
sum of Rs.1,09,34,323/- till 21.01.1999, and a sum of Rs.46,86,138/- on
30.04.2003, we make it clear that recovery of interest till the two
aforementioned dates will be at the rate of 18%. Thus, for pre-reference,
pendent lite and future interest, ONGC is to pay the differential amount
of interest of 8% till 21.01.1999 and 30.04.2003 within a period of eight F
weeks from today. In the interest of justice, we clarify that on and from
21.01.1999, till payment, future interest is to be paid at 6% per annum on
the balance differential sum of interest, being the difference between
10% and 18%, and similarly, on the balance differential sum of interest
between 10% and 18% on and from 30.04.2003 till payment. Accordingly,
the appeal of ONGC is dismissed and the appeal of Reliance is allowed G
in terms of this judgment.
Nidhi Jain Appeals disposed of.
H
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