Supreme Court of India
SAYEED AHMED & CO.versusSTATE OF UP & ORS.
- Citation
- 2009 INSC 896
- Decided
- 9 July 2009
- Disposal
- Case Partly allowed
- Bench
- R V RAVEENDRAN
Holding
The contractual bar bars interest for the pre‑reference and pendente‑lite periods, but the arbitrator may award interest from the date of the award at the rate specified in the award, and the High Court’s reduction of that rate to 6% is untenable.
Summary
The appellant, a contractor, completed a construction project for the State of Uttar Pradesh in 1996, after which disputes over payment led to arbitration in 1997. The arbitrator awarded the respondents to pay the contractor Rs.24,18,586 with interest at 18% per annum from April 1996, and also specified interest rates for amounts due on finalisation and security deposit. The contract contained clause G‑1.09, which expressly barred any claim for interest or damages, prompting the respondents to challenge the award under Section 34 of the Arbitration and Conciliation Act, 1996. The High Court set aside the award of interest up to the date of the award and reduced the post‑award interest rate to 6% per annum, a decision the contractor appealed. The Supreme Court held that the contractual bar precludes interest for the pre‑reference and pendente‑lite periods, but does not affect interest payable from the date of the award, which must follow the rate specified by the arbitrator under Section 31(7)(b). Consequently, the Court affirmed the High Court’s setting aside of pre‑award interest but restored the arbitrator’s post‑award interest rates, partially allowing the appeal.
Issues considered
- Whether an arbitrator can award interest for the pre‑reference and pendente‑lite periods when the contract contains an express prohibition on interest.
- Whether the contractual prohibition extends to interest payable from the date of the award and what rate of interest is permissible under Section 31(7)(b) of the Arbitration and Conciliation Act, 1996.
Legislation cited
- Arbitration and Conciliation Act, 1996s. 31(7)(a), s. 31(7)(b)
- Code of Civil Procedure, 1908s. 34
- Interest Act, 1978s. 3(3), s. 3(i)
Subjects
ArbitrationInterest awardArbitration and Conciliation Act 1996Section 31Contractual bar to interestPre‑reference periodPendente liteSection 34Interest Act 1978
Judgment
..... [2009] 10 S.C.R. 841
SAYEED AHMED & CO. A
V.
STATE OF UP & ORS.
(Civil Appeal No. 4197 of 2009)
JULY 9, 2009
B
[R. V. RAVEENDRAN AND P. SATHASIVAM, JJ.)
~
Arbitration and Conciliation Act, 1996: s.31(7)(a) and (b)
- Power of arbitrator to award interest - Pre-reference period,
pendente lite and future interest - Held : If arbitration c
agreement bars payment of interest, then such bar would
operate for pre-reference period and pendente lite only i.e.
only till date of award and not thereafter - Award of interest
by arbitrator from date of award till date of payment@ 18%
p.a. upheld. D
The construction work entrusted to appellant under
an agreement was completed on 31.3.1996. The
respondent rejected some of the claims of appellant
which gave rise to dispute. The matter was referred to
E
arbitrator on 13.3.1997. The arbitrator made an award
dated 31.7.2001 directing the respondents to pay to the
appellant Rs.24, 18,5861- with interest at 18% p.a. from
1.4.1996 till date of payment; the amount if any, due to
appellant on finalizing the final bill with interest at 14%
p.a. from 1.5.1996 till date of payment; and the security F
deposit amount due with interest at 12% p.a. from
1.10.1996 till date of payment. The application was filed
under Section 34 of Arbitration and Conciliation Act, 1996
for setting aside the award, which was dismissed.
G
.., The High Court held that having regard to the bar
contained in clause G 1.09 of the contract, the arbitrator
had no power to award interest and consequently, it set
aside that part of the award granting interest till date of
841 H
842 SUPREME COURT REPORTS [2009] 10 S.C.R.
-
A award. It however granted interest at 6% p.a. from the
date of award till the date of payment. Hence the appeal.
Partly allowing the appeal, the Court
HELD : 1.1. The legislature while enacting the
B Arbitration and Conciliation Act, 1996, incorporated a
specific provision in regard to award of interest by
Arbitrators. Sub-section (7) of section 31 of the Act deals
with the arbitrator's power to award interest. Clause (a)
relates to the period between the date on which the cause
C of action arose. and the date on which the award is made.
Clause (b) relates to the period from the date of award to
date of paymen~. [Para 10] [849-E-F]
Secretary, Irrigation Department, Govt. of Orissa vs. G. C.
D Roy 1992 (1) SCC 508; Executive Engineer, Dhenkanal
Minor Irrigation Division vs. N. C. Budharaj 2001 (2) SCC 721;
Bhagawati Oxygen Ltd. vs. Hindustan Copper Ltd. 2005 (6)
SCC 462; Superintending Engineer v. Subba Reddy 199 9
(4) SCC 423 and State of Rajasthan v. Ferro Concr.ete
E Construction Pvt. Ltd. 2009(8) SCALE 753, referred to.
1.2. Clause G-1.09 of the Contract makes it clear that
no interest or damages will be paid by Government, in
regard to : (i) any money or balance which may be lying
with the Government; (ii) any money which may become
F due owing to any dispute, difference or misunder-
standing between the Engineer-in-charge on the one
hand and the contractor on the other hand; (iii) any delay
on the part of the Engineer-in-Charge in making
periodical or final payment; or (iv) any other respect
G whatsoever. The clause is comprehensive and bars
interest under any head in clear and categorical terms.
In view of clause (a) of sub-section (7) of section 31 of
the Act, it is clear that the Arbitrator could not have
awarded interest upto the date of the award, as the
H
~ SAYEED AHMED & CO. v. STATE OF U P & ORS. 843
~
agreement between the parties barred payment of A
interest. The bar against award of interest would operate
not only during the pre-reference period that is up to
13.3.1997 but also during the pendente lite period that is
from 14.3.1997 to 31.7.2001. Whether the provision in the
contract bars the employer from entertaining any claim B
for interest or bars the contractor from making any claim
for interest, it amounts to a clear prohibition regarding
interest. The provision need not contain another bar
prohibiting arbitrator from awarding interest. [Paras 11
and 14] (850-H; 855-D-E] c
State of U.P. v. Harish Chandra & Co. 1999 (1) sec 63;
State of Orissa vs. 8.N. Agarwal/a 1997 (2) Sec 469, held
inapplicable.
)_
Board of Trustees for Port of Calcutta vs. Engineers-De- D
Space-Age 1996(1) SCC 516, referred to.
1.3. The arbitrator awarded interest at the rate of 18%
p.a. on Rs.24.18 lacs, 14% p.a. on amount found due on
finalisation the final bill and 12% p.a. on the security
E
deposit amount if any that has to be refunded. Clause (b)
of sub-section (7) of section 31 of the Act provides that if
the award does not otherwise direct, the amount awarded
~
shall carry interest at 18% p.a. Any provision in the
contract barring interest, will therefore operate only till the
F
date of award and not thereafter. The arbitrator has
awarded interest at three different rates on three different
amounts which are all less than 18% p.a. The said award
of interest by the arbitrator is not contrary to section
31(7)(b) of the Act. Unless the award of interest is found
to be unwarranted for reasons to be recorded, the court G
should not alter the rate of interest awarded by the
Arbitrator. The High Court did not assign any reasons for
reducing the rate of interest to 6% p.a. Therefore, such
reduction cannot be sustained. The rate of interest on the
H
844 SUPREME COURT REPORTS [2009] 10 S.C.R.
A amounts due and payable under the award, from the date
of award till date of payment shall be in terms of the award
of the arbitrator. [Paras 18 and 19] [856-B-E; 856-G]
Case Law Reference:
B 1992 (1) sec 508 referred to Para 9
2001 (2) sec 121 referred to Para 9
2005 (6) sec 462 referred to Para 9
1999 (4) sec 423 referred to Para 9
c
2009(8) SCALE 753 referred to Para 9
1999 (1) sec 63 held inapplicable Para 12
1997 (2) sec 469 held inapplicable Para 13
D
1996 (1) sec 516 referred to Para 14
CIVIL APPELLATE JURISDICTION : Civil Appeal No.
4197 of 2009.
E From the Judgment & Order dated 27.2.2008 of the High
Court of Uttarakhand at Nainital in A.O. No. 457 of 2006.
Vinay Kumar Garg for the Appellant.
Pramod Swarup, T.N. Singh, Chandra Prakash Pandey for
F the Respondents.
The Judgment of the Court was delivered by
R.V. RAVEENDRAN J. 1. Leave granted. The issue in
G this appeal is whether the Arbitrator can award interest for pre-
reference period and pendente lite, when the contract prohibits
the employer from entertaining any claim for interest.
2. The respondents entrusted a construction work to
appellant under an agreement dated 30.3.1990. The work was
H
SAYEED AHMED & CO. v. STATE OF U P & ORS. 845
[R. V. RAVEENDRAN, J.]
completed by the appellant on 31.3.1996. Disputes arose A
between the parties by reason by rejection of claims of
appellant and they were referred to Arbitration on 13.3.1997.
Before the Arbitrator, the appellant made 11 claims
aggregating to Rs.133.43 lakhs. The Arbitrator made an award
dated 31.7.2001 directing the respondents to pay to the B
appellant the following:-
(i) Rs.24,18,586/- with interest at 18% PA from 1.4.1996
till date of payment.
(ii) The amount if any, due to appellant on finalizing the final c
bill with interest at 14% PA from 1.5.1996 till date of
payment; and
(iii) The security deposit amount due with interest at 12%
PA from 1.10.1996 till date of payment. D
3. The civil court by its judgment dated 7.12.2005
dismissed the application to set aside the award, filed by the
respondents under section 34 of the Arbitration and
Conciliation Act, 1996 ('Act' for short). The appeal filed by the
respondents was allowed in part by the High Court by impugned E
judgment dated 27.2.2008. The High Court held that having
regard to the bar contained in clause G 1.09 of the contract,
the arbitrator had no power to award interest and consequently,
set aside that part of the award granting interest till date of
award. The High Court however granted interest at 6% PA from F
the date of award till the date of payment. Aggrieved by the
deletion of interest upto the date of award and reduction of
interest from the date of award to 6% per annum, the appellant
has filed this appeal.
G
-•, 4. At the outset, it is necessary to refer to an erroneous
assumption made by the High Court in para 31 of the impugned
judgment. It has proceeded on the basis that the sum of
Rs.24, 18,586/- awarded by the Arbitrator includes the amount
due in regard to the final bill as also the amount of security
H
846 SUPREME COURT REPORTS [2009] 10 S.C.R.
•
A deposit and that interest has been awarded from different
dates, on different parts of the said sum of Rs.24, 18,586/-. But .,,.
the award of Rs.24, 18,586/- did not include the amount due in
regard to the final bill or security deposit. In fact the arbitrator
did not quantify the amount due in regard to the final bill or the
B security deposit, but directed the respondents to calculate and
pay the same with interest as indicated in the award. We give
below the break up of Rs.24, 18,586/- awarded by the arbitrator,
to show that the said amount did not include the final bill dues
or security deposit :
c SI. Claim No. Description of claim Amount
No. awarded
(i) (1) For non-availability of site Rs.6,30, 130/-
D (ii) (2) For non-payment for Rs.3,90,000/-
20,000 cubic meters of
earth work
(iii) (3) For non-availability of Rs. 20,000/-
drawings & design
E
(iv) (4) For variations in quantity Rs.1,03,500/-
of different items of work
(v) (5) For extra items Rs. 72,956/-
F (vi) (8) For stoppage of work Rs. 31,500/-
(vii) (9) For non-availability of Rs. 84,000/-
cement
(viii) (10) For delay in completion Rs. 1,55,000/-
G
of work
Re : Interest from the date of cause of action to date of
award
H 6. The issue regarding interest as noticed above revolves
SAYEED AHMED & CO. v. STATE OF U P & ORS. 847
[R. V. RAVEENDRAN, J.]
..... ' around clause G1 .09 of Technical Provisions forming part of the A
contract extracted below :
---- "G 1.09 No claim for interest or damages will be
entertained by the Government with respect to any money
or balance which may be lying with the Government or any
B
become due owing to any dispute, difference or
misunderstanding between the Engineer-in-Charge on the
one hand and the contractor on the other hand or with
respect to any delay on the part of the Engineer-in-charge
in making periodical or final payment or any other respect
whatsoever."
c
' 7. Sub-section (i) of Section 3 of the Interest Act 1978
provides that a court (as also an arbitrator) can in any
proceedings for recovery of any debt or damages, allow interest
to t.he person entitled to the debt or damages at a rate not D
exceeding the current rate of interest, for the whole or part of
the following period that is to say : (a) if the proceedings related
to a debt payable by virtue of a written instrument at a certain
time, then, from the date when the debt is payable to the date
of institution of proceedings; (b) if the proceedings did not E
relate to any such debt, then, from the date mentioned in this
regard in a written notice given by the person entitled or the
person making the claim to the person liable, that interest will
l'
be claimed to the date of institl1tion of the proceedings. Sub-
section (3) of section 3 provides that nothing in section 3 shall F
apply to any debt or damages upon which interest is payable
as of right by virtue of any agreement; or to any debt or
damages upon which payment of interest is barred by virtue
of an express agreement.
8. The Arbitration Act, 1940 did not contain any specific G
'" provision relating to power of Arbitrator to award interest. That
led to considerable confusion about the power of Arbitrators
in regard of award of interest from the date of e;ause of action
to date of award, that is pre-reference period (from the date of
cause of action upto the date of reference) and pendente lite H
848 SUPREME COURT REPORTS [2009] 10 S.C.R.
A (from the date of reference to date of award). Ultimately, this
Court made it clear that the Arbitrator had the jurisdiction and
authority to award interest for the three periods namely pre-
reference period, pendente lite and future period (from the date
of award) if there was no express bar in the contract regarding
B award of interest - vide Secretary, Irrigation Department, Govt.
of Orissa vs. G. C. Roy - 1992 (1) SCC 508, Executive
Engineer, Dhenkanal Minor Irrigation Division vs. N. C.
t
Budharaj - 2001 (2) SCC 721 as also the decision in
Bhagawati Oxygen Ltd. vs. Hindustan Copper Ltd. - 2005 (6)
c sec 462.
9. Two more decisions dealing with cases arising under
Arbitration Act, 1940 requires to be noticed. In Superintending
Engineer v. Subba Reddy [1999 (4) SCC 423] this Court held
that interest for pre-reference period can be awarded only if
D there was an agreement to that effect or if it was allowable
under the Interest Act, 1978. Therefore, claim for interest for pre-
reference period, which is barred as per the agreement or
under the Interest Act, 1978 could not be allowed. This Court
however held that Arbitrator can award interest pendente lite
E and future interest. The principles relating to interest were
summarized by this court in State of Rajasthan v. Ferro
C'::>ilcrete Construction Pvt. Ltd. (CA No.2764 of 2009 decided
on 22.4.2009) thus:
F (a) where a provision for interest is made on any debt
or damages, in any agreement, interest shall be
paid in accordance with the such agreement.
(b) Where payment of interest on any debt or damages
is barred by express provision in the contract, no
G interest shall be awarded.
(c) Where there is no express bar in the contract and
where there is also no provision for payment of
interest then the principles of section 3 of Interest
H Act will apply and consequently interest will be
SAYEED AHMED & CO. v. STATE OF U P & ORS. 849
[R. V. RAVEENDRAN, J.]
payable: A
(i) where the proceedings 1elate to a debt
(ascertained sum) payable by virtue of a written
instrument at a certain time, then from the date when
the debt is payable to the date of institution of the
8
proceedings;
(ii) where the proceedings is for recovery of
t
damages or for recovery of a debt which is not
payable at a certain time, then from the date
mentioned in a written notice given by the person C
-( making a claim to the person liable for the claim that
interest will be claimed.
(d) Payment of interest pendente lite and future interest
shall not be governed by provisions of Interest Act, 0
1978, but by provisions of section 34 of Code of
Civil Procedure 1908 or the provisions of ~a_w
governing Arbitration as the case may be.
10. The Legislature while enacting the Arbitration and
Conciliation Act, 1996, incorporated a specific provision in E
regard to award of interest by Arbitrators. Sub-section(?) of
section 31 of the Act deals with the Arbitrato~s power to award
interest. Clause (a) relates to the period between the date on
which the cause of action arose and the date on which the
award is made. Clause (b) relates to the period from the date F
of award to date of payment. The said sub-section (7) is
extracted below :
"?(a) Unless otherwise agreed by the parties, where and
in so far as an arbitral award is for the payment of money, G
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 arose and the date on which the award H
850 SUPREME COURT REPORTS [2009] 10 S.C.R.
'
A 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 eighteen per centum per annum from the date of
-
the award to the date of payment.
B
Having regard to sub-section (7) of section 31 of the Act, the
difference between pre-reference period and pendente lite
period has disappeared in so far as award of interest by
arbitrator. The said section recognises only two periods and
C makes the following provisions :
(a) In regard to the period between the date on which the
cause of action arose and the date on which the award is
made (pre-reference period plus pendente lite), the arbitral
D tribunal may award interest at such rate as it deems
reasonable, for the whole or any part of the period, unless
otherwise agreed by the parties.
(b) For the period from the date of award to the date of ' .
payment the interest shall be 18% per annum if no specific
E order is made in regard to interest. The arbitrator may
however award interest at a different rate for the period
between the date of award and date of payment.
The decisions of this Court with reference to the awards under r
F the old Arbitration Act making a distinction between the pre-
reference period and pendente lite period and the observation
therein that arbitrator has the discretion to award interest during
pendente lite period inspite of any bar against interest
contained in the contract between the parties are not applicable
G to arbitrations governed by the Arbitration and Conciliation Act
1996.
.,
11. Clause G-1.09 makes it clear that no interest or
damages will be paid by Government, in regard to : (i) any
money or balance which may be lying with the Government; (ii)
H any money which may become due owing to any dispute,
SAYEED AHMED & CO. v. STATE OF U P & ORS. 851
[R. V. RAVEENDRAN, J.]
difference or misunderstanding between the Engineer-in-charge A
on the one hand and the contractor on the other hand; (iii) any
delay on the part of the Engineer-in-Charge in making
periodical or final payment; or (iv) any other respect whatsoever.
The clause is comprehensive and bars interest under any head
in clear and categorical terms. In view of clause (a) of sub- B .
section (7) of section 31 of the Act, it is clear that the Arbitrator
could not have awarded interest upto the date of the award, as
the agreement between the parties barred payment of interest.
The bar against award of interest would operate not only during
tt1e pre-reference period that is up to 13.3.1997 but also d·uring c
the pendente lite period that is from 14.3.1997 to 31.7.2001.
12. The appellant strongly relied upon the decision of this
Court in State of U.P. v. Harish Chandra & Co. [1999 (1) SCC
63], to contend that clause 1.09 of the contract did not bar the
award of interest. The clause barring interest that fell for D
consideration in that decision was ~s under :
"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 E
may be lying with the Government owing to any dispute,
difference; or misunderstanding between the Engineer-in-
Charge in marking periodical or final payments or in any
other respect whatsoever."
This Court held that the said clause did not bar award of interest F
on any claim for damages or for claim for payment for work
done. We extract below the reasoning for such decision :
"A mere look at the clause shows that the claim for interest
by way of damages was not to be entertained against the G
Government with respect to only a specified type of amount,
.~ namely, any moneys or balances which may be lying with
the Government owing to any dispute, difference between
the Engineer"in-Charge and the contractor; or
misunderstanding between the Engineer-in-Charge and H
852 SUPREME COURT REPORTS [2009] 10 S.C.R.
A the contractor in marking periodical or finally payments or
~
in any other respect whatsoever. The words 'or in any other
respect whatsoever" also referred to the dispute pertaining ·~
to the moneys or balances which may be lying with the
Government pursuant to the agreement meaning thereby
B security deposit or retention money or any other amount
which might have been with the Government and refund of
which might have been withheld by the Government. The
claim for damages or claim for payment for the work done
and which was not paid for would not obviously cover any
c money which may be said to be lying with the
Government. Consequently, on the express language of
this clause, there is no prohibition which could be culled
out against the respondent-contractor that he could not
raise the claim for interest by way of damages before the
arbitrator on the relevant items placed for adjudication."
D
In Harish Chandra (supra) a different version of clause 1.09
was considered. Having regard to the restrictive wording of that
clause, this Court held that it did not bar award of interest on a
claim for damages or a claim for payments for work done and
E which was not paid. This Court held that the said clause barred
award of interest only on amounts which may be lying with the
Government by way of security deposit/retention money or any
other amount refund of which was withheld by the government.
But in this case, clause G-1.09 is significantly different. It ,.
F 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-in-
Charge and contractor or with respect to any delay on the pa11
of the Engineer-in-Charge in making periodical or final payment
G or in respect of any other respect whatsoever. The bar under
clause G-1.09 in this case being absolute, the decision in
Harish Chandra will not assist the appellant in any manner.
13. The appellant next relied upon the judgment of this
Court in State ofOrissa vs. B.N. Agarwa/la [1997 (2) SCC 46H].
H
SAYEED AHMED & CO. v. STATE OF UP & ORS. 853
' [R. V. RAVEENDRAN, J.]
In that case, this Court held that Arbitrator has jurisdiction to A
award (i) interest for pre-reference period, (ii) interest for
pendente lite and (iii) future interest. This Court also held that
-;
the following part of clause (4) of the contract dealing with
"Rates, materials and workmanship" did not bar award of
interest by the arbitrator on the claims of the contractor : B
"No interest is payable on amount withheld under the item
of the agreement".
Interpreting the said clause (which provided that interest was
not payable on the amount which was withheld), this Court held c
that it referred only to the amount withheld by the employer State
towards retention money for the defect liability period. This
Court in fact clarified that the position that if the terms of contract
expressly stipulated that no interest would be payable, then
arbitrator would not get the jurisdiction to award interest. As D
clause G-1.09 in the present case contains an express bar and
is different from the clause considered in B.N. Agarwal/a
(supra), the said decision is also of no assistance.
14. The learned counsel for the appellant submitted that
E
even though the bar in clause G-1.09 may prohibit the employer
from paying interest, it does not bar the Arbitrator from
awarding interest. For this purpose, he relied upon the decision
of this Court in Board of Trustees for Port of Calcutta vs.
'(
Engineers-De-Space-Age [1996 (1) SCC 516]. In that case,
F
this Court considered the validity of award of interest pendente
lite by the Arbitrator notwithstanding the prohibition contained
in the contract against payment of interest on delayed
payments. The following clause fell for consideration of this
Court in that case : ·
G
"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 H
854 SUPREME COURT REPORTS [2009] 10 S.C.R.
A payment or otherwise."
After referring to the Constitution Bench decision in G. C. Roy ·'
(supra) this Court held :
"We are not dealing with a case in regard to award of
B interest for the period prior to the reference. We are
dealing with a case in regard to award of interest by the
arbitrator post reference. The short question, therefore, is
whether in view of sub-clause (g) of clause 13 of the
contract extracted earlier the arbitrator was prohibited from
c 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 Commissioner"
D 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 th.at as pointed out by the
Constitution Bench, ordinarily, a person who has a
E 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. If that be so, we would
F be justified in placing a strict construction on the term of
the contract on which reliance has been placed. Strictly
construed the terms 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
G
by this term of the 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
H
SAYEED AHMED & CO. v. STATE OF U P & ORS. 855
[R. V. RAVEENDRAN, J.]
prohibited from awarding interest pendente lite." A
This Court held that the bar in the contract operated only for
the pre-reference period and that the Arbitrator had the power
and authority to award interest pendente lite at his discretion,
without reference to the bar in the contract. The observation in B
Engineers-De-Space-Age (supra) that the term of the contract
merely prohibits the department/employer from paying interest
to the contractor for delayed payment but once the matter goes
to 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, 9annot C
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. Whether the provision in the
contract bars the employer from entertaining any claim for
interest or bars the contractor from making any claim for D
interest, it amounts to a clear prohibition regarding interest. The
provision need not contain another bar prohibiting Arbitrator
from awarding interest. The observations made in the context
of interest pendente lite cannot be used out of contract.
E
15. The learned counsel for appellant next contended on
the basis of the above observations in Engineers-Oe-Space-
Age, that even if clause G-1.09 is held to 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 F
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
by the High Court. In view of the Constitution Bench decisions
in G.C. Roy and N.C. Budharaj (supra) rendered before and G
after the decision in Engineers-De-Space-Age, it is doubtful
whether the observation in Engineers-De-Space-Age in a case
arising under Arbitration Act, 1940 that 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
H
856 SUPREME COURT REPORTS [2009] 10 S.C.R.
A a case under the new Act where there is a specific provision
regarding award of interest by Arbitrator.
Re : interest from the date of award
18. The arbitrator awarded interest at the rate of 18% per
B annum on Rs.24,18,586/-, 14% per annum on amount found due
on finalisation the final bill and 12% per annum on the security
deposit amount if any that has to be refunded. As noticed
above, clause (b) of sub-section (7) of section 31 of the Act
provides that if the award does not otherwise direct, the amount
C awarded shall carry interest as directed by the award and in
the ab~ence of any provision of 18% per annum. Any provision
in the contract barring interest, will therefore operate only till the
date of award and not thereafter. The arbitrator has awarded
interest at three different rates on three different amounts which
D are all less than 18% per annum. The said award of interest
by the arbitrator is not contrary to section 31 (7)(b) of the Act.
Unless the award of interest is found to be unwarranted for
reasons to be recorded, the court should not alter the rate of
interest awarded by the Arbitrator. The High Court has not
E assigned any reasons for reducing the rate of interest to 6%
per annum. Therefore, such reduction cannot be sustained.
19. In view of the above, we allow this appeal in part and
modify the judgment of the High Court as follows :
F (a) The Judgment of the High Court setting aside the award
of interest upto the date of award is affirmed.
(b) The decision of the High Court reducing the rate of
interest to 6% per annum from the date of award is set
G aside. The rate of interest on the amounts due and payable
under the award, from the date of award till date of
payment shall be in terms of the award of the Arbitrator.
(c) Parties to bear their respective costs.
H D.G. Appeal partly allowed.
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