Supreme Court of India
UNION OF INDIAversusM/S. AMBLCA CONSTRUCTION
- Citation
- 2016 INSC 265
- Decided
- 16 March 2016
- Disposal
- Reference answered
- Bench
- RANJAN GOGOI
Holding
If the contract expressly bars the award of pendente lite interest, the arbitrator cannot award such interest.
Summary
The case concerned whether an arbitrator could award pendente lite interest when the underlying contract expressly barred interest on delayed payments. The dispute arose from a construction contract between the Union of India and M/s. Ambica Construction, which had undergone multiple arbitrations and court interventions. The Supreme Court examined the provisions of the Arbitration Act, 1940, the Arbitration and Conciliation Act, 1996, and the CPC, interpreting the contractual clause that prohibited interest. It held that an express contractual bar on pendente lite interest defeats the arbitrator’s power to award such interest, but a bar only on interest for delayed payment does not automatically extend to pendente lite interest. Consequently, the award of pendente lite interest in the earlier arbitration award was set aside and the award modified. The petition was disposed in favour of the Union of India.
Issues considered
- The arbitrator's power to award pendente lite interest under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996.
- Whether an express contractual clause barring interest on delayed payments also bars pendente lite interest.
- The effect of the Arbitration Act, 1940 (Section 3) and implied terms on the arbitrator's jurisdiction.
Legislation cited
Subjects
ArbitrationPendente lite interestContractual barArbitrator's jurisdictionArbitration Act 1940Arbitration and Conciliation Act 1996Interest award
Judgment
(2016] 2 S.C.R. 810
A UNION OF INDIA
v.
MIS. AMBlCA CONSTRUCTION
(Special Leave Petition (Civil) No.11114 of2009)
B MARCH 16,2016
[RANJAN GOGOi, ARUN MISHRA AND
PRAFULLA C. PANT, JJ.]
Arbitration Act,19./0: ss.3, 31 - Puwer of arbitrator to award
pendente lite interest in case contract bars the same - Held: If
c contract expressly bars award of interest pendente lite, the same
cannot be awarded by the Arbitrator -· Bar to award interest on
delayed payment by itself will not be readily inferred as express bar
to award interest pendente lite by the Arbitrator as ouster. of power
of Arbitrator has to be considered on various relevant aspects -
D The award of pendente lite interest inter alia must depend upon the
overall intention of the agreement and what is expressly excluded.
Answering the reference, the Court
HELD: 1. Section 3 of the Act of 1940 deals with the
provisions which are implied in the arbitration agreement. The
E provisions of section 3 make it clear that unless a different
intention is expressed in the arbitration agreement, the
agreement would include the provisions contained in the First
Schedule so far as they arc applicable to the reference. Provisions
in the First Schedule contain 8 paragraphs. It provides for
reference to a sole Arbitrator and in case there are even numbers
F
of Arbitrators, appointment of umpire is also provided. An
Arbitrator is required to pass award within 4 months from the
date of entering on the reference. In case Arbitrator fails to pass
an award within the specified time the umpire shall make the
award within 2 months. Para 6 of First Schedule provides that the
G Arbitrator or umpire shall examine the matters in difference and
the award shall be final and binding. Arbitrator or umpire has the
power for examining the witnesses and production of relevant
documents. Para 8 of Schedule I provides for costs of reference
and awards shall be in the discretion of the Arbitrator. [Para 5]
(816-A-D]
H
810
UNION OF INDIA v. M/S. AMBICA CONSTRUCTION 811
2. "Court" has been defined in section 2(c) of the Act to A
mean a civil court having jurisdiction to decide the questions
forming the subject-matter of the reference. The court can
exercise the power specified in Second Schedule of the Act.
However, Arbitrator is not a court. Arbitrator is the outcome of
agreement. He decides the disputes as per the agreement entered
B
into between the parties. Arbitration is an alternative forum for
resolution of disputes but an Arbitrator ipso facto does not enjoy
or possess all the powers conferred on the courts of law. Section
29 of the Act confers on the court power to award interest from
the date of decree. Section 34 of the C.P.C. confers on the court
power to award interest prior to the institution of the suit and c
during pendency of the suit and post decree. Section 31(7)(a) of
the 1996 Act confers power on Arbitrator to award interest
pendente lite, "unless otherwise agreed by parties". Thus, it is
clear from the provisions contained in section 31(7)(a) that the
coniract between the parties has been given importance and is
D
h;nding on t.he Arbitrator. Arbitration clause is also required to
be looked into while deciding the power of the Arbitrator and in
case there is any bar contained in the contract on award of interest,
it operates on which items and in the arbitration clause what are
the powers conferred on Arbitrator and whether bar on award of
interest has been confined to certain period or it relates to E
pendency of proceedings before Arbitrator. Grant of pemle11te 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 taken away and
F
for which period. (Paras 6, 7, 16, 23] (816-E; 817-A-C; 828-D-E;
836-C-D]
Board of Trustees for the Port of Calcutta v. Engineers-
De-Space-Age 1995 (6) Suppl. SCR 327 : (1996) 1 SCC
516; Madnani Construction Corporation (P) Ltd. v.
Union of India and Others 2009 (16) SCR 216 : (2010) G
1 SCC 549; Secretary, Irrigation Department,
Government of Orissa & Ors. v. GC. Roy 1991 (3)
Suppl. SCR 417: (1992) 1 SCC 508; Executii"e
Engineer, Dhenkanal Minor Irrigation Division, Orissa
& Ors. v. NC Budharaj (DJ by L.Rs. & Ors. 2001 (1) H
812 SUPREME COURT REPORTS [2016) 2 S.C.R.
A SCR 264 :(2001) 2 SCC 721; Sayeed Ahmed & Co. "
State of UP. & Ors. 2009 (10) SCR 841 : (2009) 12
SCC 26; Sree Kamatchi Amman Constructions v.
Divisional Railway Manager (Works}, Pa/ghat & Ors.
2010 (10) SCR 487: (2010) 8 SCC 767; Raipur
Development Authority & Ors. v. Mis. Chokhamal
B
Contractors & Ors. 1989 (3) SCR 144: (1989) 2 SCC
721; Executive Engineer (Irrigation) Balimela & Ors.
" Abhaduta Jena & Ors. 1988 (1) SCR 253 : (1988)
1 SCC 418; Nachiappa Chettiar & Ors, v. Subramaniam
Chettiar AIR 1960 SC 307 :1960 SCR 209; Satinder
c Singh v. Amrao Singh & Anr. AIR 1961 SC 908 : 1961
SCR 676 ; Firm Madan/al Roshanlal Mahajan v.
Hukumchand Mills Ltd., Indore, AIR 1967 SC 1030 :
1967 SCR 105; Union of India " Bungo Steel Furniture
Pvt. Ltd. AIR 1967 SC 1032 : 1967 SCR 3_24; Ashok
Construction Company v. Union of India (1971) 3 SCC
D
66; State of MP" Mis. Saith and Skelton Pvt. Ltd. 1972
(3) SCR 233 :(1972) l SCC 702; Hindustan
Construction Co. Ltd. v. State of Jammu & Kashmir
1992 (1) Suppl. SCR 297: (1992) 4 SCC 217; State of
Orissa v. B.N. Agarwal/a, 1997 (1) SCR 704: (1997)
E 2 SCC 469; State of UP. v. Harish Chandra & Co.
1998 (2) Suppl. SCR 660 : (1999) 1 sec 63;
Superintending Engineer v. B. Subba Reddy 1999 (2)
SCR 880 : (1999) 4 SCC 423; State of Rajasthan &
Anr. v. Ferro Concrete Construction (P) Ltd. 2009 (10)
SCR 31 :(2009) 12 SCC 1; Union of India v. Bright
F .
Power Projects (India) Pvt. Ltd. 2015 (6) SCR 488 :
(2015) 9 SCC 695; Union of India v. Krafters
Engineering & Leasing Pvt. Ltd. 2011 (8) SCR196 :
(2011) 7 SCC 279; Tehri Hydro Development
Corporation Limited and Another v. Jai Prakash
G Associates Limited 2012 (8) SCR 813 : (2012) 12 SCC
10 - referred to.
Case Law Reference
1995 (6) Suppl. SCR 327 referred to Para 1
2009 (16) SCR 216 referred to Para 1
H 1991 (3) Suppl. SCR 417 referred to Para 1
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 813
2001 (1) SCR 264 referred to Para 1 A
2009 (10) SCR S41 referred to Para 1
2010 (10) SCR 4S7 referred to Para 1
19S9 (3) SCR 144 referred to Paras
19SS (f) SCR 253 referred to Paras
B
1960 SCR 209 referred to Paras
1961 SCR 676 referred to Paras
1967 SCR 105 referred to Paras
1967 SCR 324 referred to Paras
(1971) 3 sec 66 referred to Paras c
1972 (3) SCR 233 referred to Paras
1992 (1) Suppl. SCR 297 referred to Para 10
1997 (1) SCR 704 referred to Para 11
199S (2) Suppl. SCR 660 referred to Para 13
D
.1?99 (2) SCR SSO referred to Para 15
;?0\19 (10) SCR 31 referred to Para 15
7\115 (6) SCR 4SS referred to Para 16
2!111 (S) SCR 196 referred to Para lS
2012 (S ) SCR S13 referred to Para 22 E
CIVIL APPELLATE JURISDICTION: Special Leaye to Appeal
(Civil) No. 11114 of2009.
From the Judgment and Order dated 31.03.2008 passed"by the
High Court at Calcutta in A.P.O. No. 5 of 2008.
F
WITH
SLP (C) No. 17219 of2009.
A.K. Panda, Sr. Adv., Ajay Singh~ Ranjeet Kumar, S.N. Terdal
(For Ms. Sushma Suri) Advs. with him for the Appellant.
Raj Kumar Mehta, Abhishek Upadhyay, Ms. Himanshi Andley, G
Advs. for the Respondent.
The Judgment of the Court was delivered by
ARUN MISHRA, J. I.The issue involved in the reference is in
regard to the power of the Arbitrator to award pendente lite interest
H
814 SUPREME COURT REPORTS (2016] 2 S.C.R.
A when contract contains bar for grant of interest in a case covered by the
.Arbitration Act, 1940 (hereinafter referred to as "the Act"). A Division
Bench of this Court had doubted the correctness of the decisions in
Board of Trustees for the Port of Ca/cul/a v. Engineers-De-Space-
Age ( 1996) I SCC 516; and Madnani Construction Corporation (PJ
Ltd. v. U11ion of India and Others (20 I 0) I SCC 549. In view of the
B
decision of the Constitution Bench judgment in Secrelary, Irrigution
Department, Government of Grisso & Ors. v. G.C. Roy ( 1992) I SCC
508 and Execulive Engi11ee1: Dlzenkanal Minor Irrigation Division,
Grisso & Ors. v. N.C. Budlwraj (DJ by L.Rs. & Ors. (200 I) 2 SCC
721 which held that the Arbitrator had the jurisdiction and authority to
c award interest for pre-reference period, pe11de11te file and future period
if there was no express bar in the contract regarding award of interest.
A doubt was expressed about the correctness of the decision in
Engineers-De-Space Age (supra) in Sayeed Ahmed & Co. v. State of
UP. & Ors. (2009) 12 SCC 26 and Sree Kamatchi Amman
Constructio11s v. Divisional Railway A1anager (Works), Pa/ghat &
D
Ors. (20 I 0) 8 SCC 767. Hence the matter had been referred to a larger
Bench for decision.
2. Jhe case has a chequered history. The tender of M/s. Am bi ca
Construction for fabrication of tie bars from M.S. Flats in CST-9 sleep-
ers was accepted on 8.9.1989. Final agreement was executed on
E 30.11.1989. The work was completed on 21.11.1990. With respect to
payments, certain differences and disputes arose between the parties.
Thus Mis. Ambica Construction prayed for appointment of an Arbitra-
tor. On 5.3.1991 as the petitioner M/s. Ambica Constn1ction was in se-
rious financial difficulties, it accepted the amount in full and final settle-
F ment. Later on, the Union of India informed the petitioner on 11.3.1991
that the matter was under consideration. However the Arbitrator was
not appointed. An application under section 20 of the Act was filed be-
fore the High Court of Calcutta for referring the case to arbitration. On
2.6.1992 the High Court directed to file the arbitration agreement in the
court and appointed two Arbitrators in terms of the arbitration clause.
G Said Arbitrators failed to publish the award and as such an application
was filed for revocation of the authority ofjoint Arbitrators and another
sole Arbitrator was appointed. The sole Arbitrator ultimately published
the award on 30.12.1997. On an application filed by the Union oflndia,
the High Court vide order dated 9.4.1998 remitted the award to the
H Arbitrator to give an item-wise break-up. On 12.5.1998 the sole Arbitra-
UNION OF INDIA v. MiS. AMBJCA CONSTRUCTION 815
[ARUN MISHRA, J.]
tor published the item-wise award. Again the Union oflndia questioned A
the same before the High Court. The award was set aside on the ground
that the Arbitrator had not given an intelligible award in terms of clause
64(3)(a)(iii) of the agreement and had not taken into effect the supple-
mentary agreement dated 5 .3. 1991. The appeal preferred by the peti-
tioner was dismissed by the Division Bench of the High Court on
B
15.10.2004 against which an SLP was filed in which leave was granted
and ultimately C.A. No.6621i2005 was allowed and case was remitted
vide order dated 7.11.2005 passed by this Court to the Arbitrator for
assigning reasons and to pass fresh award. Thereafter, Arbitrator passed
a fresh award on 11.2.2006. Again an application was filed by the Union
of India under sections 30 and 33 of the Act. The Single Judge dis- c
missed the application vide order dated 26.6.2007. Union oflndia filed
an application for recall. The order dated 26.6.2007 was recalled. Yide
order dated 22.8.2007 learned Single Judge set aside the award with
regard to interest for pre-reference period and directed that interest
would be allowed on the principal sum of Rs.9,82,660i- at the rate of
D
10% per annum from 1.9.1992 the date from which the original Arbitra-
tor entered upon the reference. An appeal was preferred before the
Division Bench and the same had been paiily allowed with regard to
claim Nos.6 and 7. Aggrieved thereby, Mis. Ambica Construction had
preferred S.L.P. [CJ No.17219i2009 in this Court and Union of India
has also assailed the judgment and order of the High Court in S.L.P. [CJ E
No.11114i2009.
3. The only question for consideration is whether an Arbitrator has
the power to award pendente lite interest in case contract bars the
same in a case covered by Act and decisions of this Court in Engineers
De-Space Age (supra) and Madnani Co11structio11 Corporation (I') F
Ltd. (supra) have been correctly decided.
4. !twas submitted on behalfofthe Union oflndia thattheArbitrator
is bound by the terms of the contract and cannot award interest in case
the contract bars the same. On the other hand, learned counsel appearing
on behalf of Mis. Ambica Construction has contended that in view of G
the decision in E11gi11eers-De-Space Age (supra) followed in Madnani
Constructio11 Corporation {P) Ltd. (supra) notwithstanding the terms
in the contract agreement barring the award of interest would cover the
pre-reference period and not pendente lite interest.
5. There are certain provisions which are statutorily implied in
H
816 SUPREME COURT REPORTS [2016) 2 S.C.R.
A arbitration agreement unless excluded in the agreement. Section 3 of
the Act of 1940 deals with the provisions which are implied in the
arbitration agreement. Section 3 is extracted below :
"3. Provisions implied in arbitration agreement.-An
arbitration agreement, unless a different intention is expressed
B therein, shall be deemed to include the provisions set out in the
First Schedule in so far as they are applicable to the reference."
The provisions of section 3 make it clear that unless a different
intention is expressed in the arbitration agreement, the agreement would
include the provisions contained in the First Schedule so far as they are
c applicable to the reference. Provisions in the First Schedule contain 8
paragraphs. It provides for reference to a sole Arbitrator and in case
there are even numbers of Arbitrators, appointment of umpire is also
provided. An Arbitrator is required to pass award within 4 months fr~m
the date of entering on the reference. Jn case Arbitrator fai Is to pass an
award within the specified time the umpire shall make the award within
D 2 months. Para 6 of First Schedule provides that the Arbitrator or umpire
shall examine the matters in difference and the award shall be final and
binding. Arbitrator or umpire has the power for examining the witnesses
and production of relevant documents. Para 8 of Schedule I provides for
costs ofreference and awards shall be in the discretion of the Arbitrator.
E 6. "Court" has been defined in section 2(c) of the Act to mean a
civil court havingjurisdiction to decide the questions fonningthe subject-
matter of the reference. Section 41 of the Act is extracted hereunder:
"41. Procedure and powers of Court. -Subject to the provisions
of this Act and of rules made thereunder :
F
(a) The provisions of the Code of Civil Procedure, I 908 (5 of
I 908), shall apply to all proceedings before the Court, and to
all appeals, under this Act, and
(b) The Court shall have, for the purpose of, and in relation to
arbitration proceedings, the same power of making orders in
G
respect of any of the matters set out in the Second Schedule
as it has for the purpose of, and in relation to any proceedings
before the Court:
Provided that nothing in CI. (b) shall be taken to prejudice any
power which may be vested in an Arbitrator or umpire for making
H
UNION OF !NOIA v. ~/S. AMBICA CONSTRUCTION 817
[ARUN MISHRA, J.]
orders with respect to any of such matters." A
The court can exercise the power specified in Second Schedule of
the Act. However, Arbitrator is not a court. Arbitrator is the outcome of
agreement. He decides the disputes as per the agreement entered into
between the parties.Arbitration is an alternative forum for resolution of
disputes but an Arbitrator ipso facto does not enjoy or possess all the B
powers conferred on the courts of law.
7. Section 29 of the Act confers on the court power to award interest
from the date of decree. Section 34 of the C.P.C. confers on the court
power to award interest prior to the institution of the suit and during
pendency of the suit and post decree. c
8. A Constitution Bench of this Court in GC. Roy (supra) has
considered the question of power of the Arbitrator to award pendente
lite interest and it has been laid down that if the arbitration agreement or
the contract itself provides for interest, Arbitrator would have the
jurisdiction to award the interest. Similarly, where the agreement D
expressly provides that no interest pendente lite shall be payable'on the
amount due, the Arbitrator has no power to award pendente lite interest.
In GC. Roy (supra) this Court has held thus:
"xxx If the arbitration agreement or the contract itself provides
for award of interest on the amount found due from one party to E
the other, no question regarding the absence of Arbitrator's
jurisdiction to award the interest could arise as in that case the
Arbitrator has power to award interest pendent lite as well.
Similarly, where the agreement expressly provides that no interest
pendente lite shall be payable on the amount due, the Arbitrator
has no power to award pendente lite interest. But where the F
agreement does not provide either for grant or denial of interest
on the amount found due, the question arises whether in such an
event the Arbitrator has power and authority to grant pendente
lite interest."
The question involved in GC. Roy (supra) was with respect to the G
award of interest for the period commencing from the date of Arbitrator
entering upon the reference till the date of making the award. In GC.
Roy (supra), this Court has considered decisions in Raipur Development
Authority & Ors. v: Mis. Chokhamal Contractors & Ors., (1989) 2
SCC 721; Executive Engineer (Irrigation) Balimela & Ors. v.
H
818 SUPREME COURT REPORTS [2016] 2 S.C.R.
A Abhaduta Jena & Ors .. (1988) 1 SCC ./18; Nachiappa Chettiw· &
Ors, v. Subramaniam Chettia~ AIR 1960 SC 307; Satinder Singh v.
Amrao Singh & Am:, AIR 1961 SC 908; Firm Madan/a/ Roshanla/
Mahajan v. Hukumchand Mills Ltd.. illdore, AIR 1967 SC 1030;
Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC
1032; Asl10k Construction Company v. Union of India, (1971) 3
B
SCC 66; State of MP v. Mis. Saith and Skelton Pvt. Ltd., (1972) 1
SCC 702, various foreign coutts decisions and decisions of the High
Court. This Court has also referred to Halsbury's Laws of England in
Paras 36 & 3 7 thus:-
"36. "534. Express and implied clauses.- In general, the parties
c to an arbitration agreement may include in it such clauses as they
think fit. By statute, however, certain terms are implied in an
arbitration agreement unless a contrary intention is expressed or
implied therein. Moreover, it is normally an implied term of an
arbitration agreement that the Arbitrator must decide the dispute
D in accordance with the ordinary law. This includes the basic rules
as to procedure, although parties can expressly or impliedly consent
to depart from those rules. The normal principles on which terms
are implied in an agreement have to be considered in th~ context
that the agreement relates to an arbitration."
E 37. At page 303, para 580 (4th edn., Vol. 2) dealing with the
award of interest, it reads:
"580. /111erest.- A Arbitrator or umpire has power to award
interest on the amount of any debt or damages for the whole or
any part of the period between the date when the cause of action
F arose and the date of the award."
Ultimately, in GC. Roy (supra), this Comt has answered the question
whether Arbitrator has the power to award interest pendent lite. Their
Lordships have reiterated that they have dealt with the situation where
the agreement does not provide for grant of such interest nor does it
prohibit such grant when the agreement is silent as to award of interest.
G
This Court has laid down various principles in para 43 of the report thus:
"43. The question still remains whether Arbitrator has the power
to award interest pende111e lite, and if so on what principle. We
must reiterate that we are dealing with the situation where the
agreement does not provide for grant of such interest nor does it
H
UNION OF INDIA v. MIS. AMBlCA CONSTRUCTION 819
fARUN MISHRA, J.l
prohibit such grant. In other words, we are dealing with a case A
where the agreement is silent as to award of interest. On a
conspectus of aforementioned decisions, the following principles
emerge:
(i)A person deprived of the use of money to which he is legitimately
entitled has a right to be compensated for the deprivation, call it B
by any name. It may be called interest, compensation or damages.
This basic consideration is as valid for the period the dispute is
pending before the Arbitrator as it is for the period prior to the
Arbitrator entering upon the reference. This is the principle of
Section 34, Civil Procedure Code and there is no reason or principle
to hold otherwise in the case of Arbitrator.
c
(ii) An Arbitrator is an alternative form (sic forum) for resolution
of disputes arising between the parties. If so, he must have the
power to decide all the disputes or differences arising between
the parties. If the Arbitrator has no power to award interest
pendente lite, the party claiming it would have to approach the D
court for that purpose, even though he may have obtained
satisfaction in respect of other claims from the Arbitrator. This
would lead to multiplicity of proceedings.
(iii) An Arbitrator is the creature of an agreement. It is open to
the parties to confer upon him such powers and prescribe such E
procedure for him to follow, as they think fit, so long as they are
not opposed to law. (The proviso to Section 41 and Section 3 of
Arbitration Act illustrate this point). All the same, the agreement
must be in conformity with law. The Arbitrator must also act and
make his award in accordance with the general law of the land F
and the agreement.
(iv) Over the years, the English and Indian cou1ts have acted on
the assumption that where the agreement does not prohibit and a
paity to the reference makes a claim for interest, the Arbitrator
must have the power to award interest pendente lite. Seth G
Thawardas· Pherwnal v. Union of India, AIR 1955 SC 468 has
not been followed in the later decisions of this Court. It has been
explained and distinguished on the basis that in that case there
was no claim for interest but only a claim for unliquidated damages.
ft has been said re·; •eatcdly that observations in the said judgment
H
820 SUPREME COURT REPORTS [2016] 2 S.C.R.
A were not intended to lay down any such absolute or universal rule
as they appear to, on first impression. Until Executive Engineer
(Irrigation) Ba/imela & Ors. v. Abhaduta Jena.& Ors., (1988)
I SCC 418 almost all the courts in the country had upheld the
power of the Arbitrator to award interest pendeme lite. Continuity
and certainty is a highly desirable feature of law.
B
(v) Interest pendeme lite is not a matter of substantive law, like
interest for the period anterior to reference (pre-reference period).
For doing complete justice between the parties, such power has
always been inferred."
c "44. Having regard to the above consideration. we think that the
following is the correct principle which should be followed in this
behalf:
Where the agreement between the parties does not prohibit grant
of interest and where a party claims interest and that dispute
D (along with the claim for principal amount or independently) is
referred to the Arbitrator, he shall have the power to award interest
pendente lite. This is for the reason that in such a case it must be
presumed that interest was an implied term of the agreement
between the parties and therefore when the parties refer all their
disputes - or refer the dispute as to interest as such - to the
E Arbitrator, he shall have the power to award interest. This does
not mean that in every case the Arbitrator should necessarily award
interest pendente lite. It is a matter within his discretion to be
exercised in the light of all the facts and circumstances of the
case, keeping the ends of justice in view."
F The Constitution Bench of this Court has laid down that where the
agreement between the parties does not prohibit grant of interest and
where the party claims interest and that dispute is referred to the
Arbitrator, he shall have the power to award interest pendent lite. The
law declared has been held applicable prospectively.
G 9. Another Constitution Bench of this Court in N.C. Budharaj
(supra), considered the question of award of interest by the Arbitrator
for the pre-reference period. In that connection, discussion has been
made and it has been observed as long as there is nothing in the arbitration
agreement to exclude the jurisdiction of the Arbitrator entertaining claim
for interest on the amount due under the contract or any provision to
H
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 821
[ARUN MISHRA, J.]
claim interest on the amount due, the jurisdiction of the Arbitrator to A
award interest for pre-reference perio:I under section 29 of the Arbitration
Act, 1940 has to be upheld. 111 m<1jority opinion, this Court has held thus:
"25. If that be the position, courts which oflate encourage litigants
to opt for and avail of the alternative method of resolution of
disputes, would be penalising or placing those who avail of the B
same in a serious disadvantage. Both logic and reason should
counsel courts to lean more in favour of the Arbitrator holding to
possess all the powers as are necessary to do complete and full
justice between the parties in the same manner in which the civil
court seized of the same dispute could have done. By agreeing to
settle all the disputes and claims arising out of or relating to the
c
contract between the parties through arbitration instead of having
recourse to civil court to vindicate their rights the party concerned
cannot be considered to have frittered away and given up any
claim which otherwise it could have succe~sfully asserted before
courts and obtained relief. By agreeing to have settlement of D
disputes through arbirration, the party concerned must be
understood to have only opted for a different forum ofadjudication
with less cumbersome procedure, delay and expense and not to
abandon all or any of its substantive rights under the various laws
in force, according to which only even the Arbitrator is obliged to
adjudicate the clajms referred to him. As long as there is nothing E
in the arbitration agreement to exclude the jurisdiction of the
Arbitrator to entertain a claim for interest on the amounts due
under the contract, or any prohibition to claim interest on the
amounts due and become payable t.nder the contract, the
furisdiction of the Arbitrator to consider and award interest in F
respect of all periods subject only to Section 29 of the Arbitration
Act, 1940 al).d that too the powers of the court thereunder, has to
be upheld. The submission. that the Arbitrator cannot have
jurisdiction to award interest for the period prior to the date of his
appointment or entering into reference which alone confers upon
him power, is too stale and technical to be countenanced in our G
hands, for the simple reason that in every case the appointment of
an Arbitrator or even resort to court to vindicate rights could be
only after disputes have cropped up between the parties and
• continue to·su!isist unresolved, and that ifthe Arbitrator has the
power to deal with and decide disputes v.hich cropped up at a H
822 SUPREME COURT REPORTS (2016] 2 S.C.R.
A point of time and for the period prior to the appointment of an
Arbitrator, it is beyond comprehension as to why and for what
reason and with what justification the Arbitrator should be denied
only the power to award interest for the pre-reference period
when such interest becomes payable and has to be awarded as
an accessory or incidental to the sum awarded as due and payable,
B
taking into account the deprivation of the use of such sum to the
person lawfully entitled to the same.
26. For all the reasons stated above, we answer the reference by
holding that the Arbitrator appointed with or without the
intervention of the court, has jurisdiction to award interest, on the
c sums found due and payable, for the pre-reference period, in the
absence of any specific stipulation or prohibition in the contract to
claim or grant any such interest. The decision in Je11a case taking
a contraview does not lay down the correct position and stands
overruled, prospectively, which means that this decision shall not
D entitle any party nor shall it empower any court to reopen
proceedings which have already become final, and apply only to
any pending proceedings. No costs."
It has also been observed that GC. Roy's case (supra) cannot be
said to have overruled Executive E11gineer (Irrigation) Balimela's case
E (supra) insofar as it dealt with the power of Arbitrator to award interest
for the pre-reference period.
I 0. A 3 Judges Bench of this Court in Hi11dusta11 Cons/ruction
Co. Ltd. v. State of Ja111111u & Kashmir (1992) ./ SCC 217 has laid
down that the Arbitrator has the power to award pe11dente file interest
F on the basis of principle of Section 34 of the Code of Civil Procedure
though same is not applicable. However, the observation has to be
considered in case there is no express bar in the agreement for awarding
pendente lite interest as it has simply followed what has been laid down
in GC. Roy (supra). This Court has laid down thus:
G "5. The question of interest can be easily disposed of as it is
covered by recent decisions of this Court. It is sufficient to refer
to the latest decision of a five Judge bench of this Court in
Secretary, lrrigatio11 Departme/lf, Govt. of Orissa & Ors. v.
GC. Roy. Though the said decision deals with the power of the
Arbitrator to award interest pell(/e111e lite, the principle of the
1-1 decision makes it clear that the Arbitrator is competent to award
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 823
[ARUN MISHRA, J.]
interest for the period commencing with the date of award to the A
date of decree or date of realisation, whichever is earlier. This is
also quite logical for, while award of interest for the period prior
to an Arbitrator entering upon the reference is a matter of
substantive law. 1' "' grant of interest for the post-award period is
a matter of procedure. Section 34 of Code of Civil Procedure
B
provides both for awarding of interest pendente lite as well as
for the post-decree period and the principle of Section 34 has
been held applicable to proceedings before the Arbitrator, though
the section as such may not apply. In this connection, the decision
in Union of India v. Bungo Steel Furniture (PJ Ltd. AIR 1967
SC 1032 may be seen as also the decision in Gujarat Water c
Supply & Sewerage Board v. Unique Erectors (Gujarat) P.
Ltd. /9891 532 SCC which upholds the said power though on
a somewhat different reasoning. We, therefore, think that the
award on Item No. 8 should have been upheld."
I I.In Sayeed Ahmed (supra) various decisions of this Court have D
been referred. In State of Orissa 1( B.N. Agarwal/a, (1997) 2 SCC
469, this Court has laid down thus:
"18. In vie\v of the aforesaid decisions there can now be no doubt
with regard to the jurisdiction of the Arbitrator to grant interest.
The principles which can now be said to be well-settled are that E
the Arbitrator has the jurisdiction to award pre-reference interest
in cases which arose after the Interest Act, 1978 had become
applicable. With regard to those cases pertaining to the period
prior to the applicability of the Interest Act, I 978, in the absence
of any substantive law, contract or usage, the Arbitrator has no
jurisdiction to award interest. For the period during which the F
arbitration proceedings were pending in view of the decision in
GC. Roy case and Hindustan Constrnction Ltd. case, the
Arbitrator has the power to award interest. The power of the
Arbitrator to award interest for the post-award period also exists
and this aspect has been considered in the discussion relating to G
Civil Appea!No. 9234of1994 in the later part of this judgment."
12. The decision in B.N. Agarwal/a (supra) has been considered
and distinguished 'by this Court in Sayeed Ahmed (supra) thus:
"20. The appellant next relied upon the judgment of this Court in
State of Orissa v. B.N. Aga111•a/la (1997) 2 SCC 469. In that H
824 SUPREME COURT REPORTS [2016] 2 S.C.R.
A case, this Court held that the Arbitrator has jurisdiction to 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: (SCC p. 478, para 22)
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 that
c it referred only to the amount withheld by the employer State
towards retention money for the defect liability period. This Court
in fact clarified the position that ifthe terms of contract expressly
stipulated that no interest would be payable, then the Arbitrator
would not get the jurisdiction to award interest. As Clause G 1.09
in the present case contains an express bar and is different from
D the clause considered in B.N. Aganl'alla (supra) the said decision
is also of no assistance."
In B.N. Aganmlla (supra) this Court has observed that 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.
E The stipulation was no interest was payable on amount withheld under
the agreement.
13. In Sayeed Ahmed (supra), this Court has referred the decision
in State of U.P. v. Harish Chandra & Co. (1999) I SCC 63, in which
this Court has interpreted the stipulation contained in clause 1.9 of the
F agreement which came up for consideration before a 3 Judges Bench of
this Court. Clause 1.9 is extracted hereunder:
"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
G 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 has interpreted the clause 1.9 and held that there is no
provision which could be culled out against tl1e respondent-contractor
H that he could not raise claim of interest by way of damages before the
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 825
fARUN MISHRA, J.]
Arbitrator on the relevant items placed for adjudication. A
This Court in Sayeed Ahmed (supra) has also distinguished the
decision in Harish Chandra (supra) in which clause .1.09 came up for
consideration thus:
"17. xx xx x This Court held that the said clause did not bar
award of interest on any claim for damages or for claim for B
payment for work done. We extract below the reasoning for such
decision: (SCC p. 67, para I 0)
"JO. 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, c
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 the contractor in making
periodical or final payments or in any other respect whatsoever. D
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 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 E
Government. The claim for damages or claim for payment
·for the work done and which was not paid for would not
obviously cover ony 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 F
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."
(emphasis supplied)
18. In Harish Chandra ( 1999) I SCC 63 a different version G
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 aiid which was not paid. This Court held that the
said cliiuse barred award of interest only on amounts which
H
826 SUPREME COURT REPORTS [2016] 2 S.C.R.
A 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.
19. But in the present case, Clause G 1.09 is significantly
different. It specifically provides that no interest shall be payable
B 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
part of the Engineer-in-Charge in making periodical or final
payment or in respect of any other respect whatsoever. The
bar under Clause G 1.09 in this case being absolute, the decision
c in Harish Chandra (supra) will not assist the appellant in any
manner."
In Harish Chandra (supra), 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
D money which may be said to be lying with the Government.
14. 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 Arbitrator. The
award of pendente lite interest inter a/ia must depend upon the overall
E intention of the agreement and what is expressly excluded.
15. In Sayeed Ahmed (supra), this Court has referred the decision
in Superintending Engineer v. B. Subba Reddy ( 1999) 4 SCC 423
and observed thus :
"11. Two more decisions dealing with cases arising under the
F
Arbitration Act, 1940 require to be noticed. In Superintending
Engineer v. B. Subba Reddy ( 1999) 4 SCC 423 this Court held
that interest for pre-reference period can be awarded only ifthere
was an agreement to that effect or if it was allowable under the
Interest Act, 1978. Therefore, claim for interest for pre-reference
G period, which is barred as per the agreement or under the Interest
Act, 1978 could not be allowed. This Court however held that the
Arbitrator can award interest pendente lite and future interest."
In Sayeed Ahmed (supra) this Court has also referred the decision
in State of Rajasthan & Anr. v. Ferro Concrete Construction (PJ Ltd.
H (2009) 12 sec 1 thus :
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 827
fARUN MISHRA, J.l
"12. The principles relating to interest were summarised by this A
Court in State of Rajasthan v. Ferro Concrete Construction
(P) Ltd. (2009) 12 sec 1 thus:
(a) Where a provision for interest is made on any debt or damages,
in any agreement, interest shall be paid in accordance with such
agreement. B
( b) Where payment of interest on any debt or damages is barred
by express provision in the contract, no interest shal I be awarded.
(c) Where there is no expre~s bar in the contract and where there
is also no provision for payment of interest then the principles of
Section 3 of the Interest Act will apply and consequently interest c
will be payable:
(i) where the proceedings relate 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 proceedings; D
(ii) where the proceedings is for recovery of 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
making a claim to the person liable for the claim that interest will
be claimed. E
(d) Payment of interest pendente lite and future interest shall not
be governed by the provisions of the Interest Act, 1978, but by the
provisions of Section 34 of the Code of Civil Procedure, 1908 or
the provisions of law governing arbitration as the case may be."
F
In Sayeed Ahmed (supra), the provisions of Arbitration &
Conciliation Act, 1996 were applicable.
16. A 3-Judge Bench of this Court in Union of India v. Bri>I,ht
Power Projects (India) Pvt. Ltd. (20°15) 9 SCC 695 h~s considered the
provisions contained in section 31 (7)(a) of the Arbitration and Conciliation
Act, 1996 and considered the words "unless otherwise agreed by parties" G
in the said section and held that the Arbitrator is bound by the terms of
the contract so far as award of interest from the date of execution to the
date of award is concerned. This Court considered clause 13(3) of the
contract and came to the conclusion that once agreed that contractor
would not claim any interest on the amount to be paid under the contract, H
828 SUPREME COURT REPORTS (2016] 2 S.C.R.
A he could not have claimed the interest. The Arbitrator while awarding
interest failed to consider the provisions of section 31 (7)(a) and binding
nature of clause 13(3) of the terms of agreement. With respect to section
31 (7)(a) of the Arbitration & Conciliation Act, 1996 this Court in Union
of India v. Bright Power Projects (supra) has observed thus :
B "18. Section 31(7)(a) of the Act ought to have been read and
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
c no right to award interest pendente li!e ."
Section 31(7)(a) of the 1996 Act confers power on Arbitrator to
award interest pendente lite, "unless otherwise agreed by parties''. Thus,
it is clear from the provisions contained in section 31 (7)(a) that the
contract between the parties has been given importance and is binding
D on the Arbitrator. Arbitration clause is also required to be looked into
while deciding the power of the Arbitrator and in case there is any bar
contained in the contract on award of interest, it operates on which
items and in the arbitration clause what are the powers conferred on
Arbitrator and whether bar on award of interest has been confined to
E certain period or it relates to pendency of proceedings before Arbitrator.
17. In Sree Kamatchi A111111a11 Constructions (supra), it was
observed that the words "unless otherwise agreed by the parties" in
section 31 of new Act of 1996 clarify that Arbitrator i~ bound by the
terms of contract for award of interest pendente lite. It was also held
F thus:
"19. Section 31 (7) of the new Act by using the words "unless
otherwise aweed by the parties" categorically clarifies that the
Arbitrator is bound by the terms of the contract insofar as the
award of interest fiwn the date of cause of action to the date
ofaward. Therefore, where the parties had agreed that no interest
G
shall be payable, the Arbitral Tribunal cannot award interest
between the date when the cause of action arose to the date of
award.
20. We are of the view that the decisions in Engineers-De-Space-
Age (supra) and Madnani (supra) are inapplicable for yet another
H
UNION OF INDIA v. M/S. AMBICA CONSTRUCTION 829
[ARUN MISHRA, J.]
reason. In Engineers-De-Space-Age (supra) and Madnani A
(supra) the Arbitrator had awarded interest for the pendente lite
period. This Court upheld the award of such interest under the old
Act on the ground that the Arbitrator had the discretion to decide
whether interest should be awarded or not during the pendente
lite period and he was not bound by the contractual terms insofar
B
as the interest for the pendente lite period. But in the instant case
the Arbitral Tribunal has refused to award interest for the pendente
lite period. Where theArbitral Tribunal has exercised its discretion
and refused award of interest for the period pendente lite, even if
the principles in those two cases were applicable, the award of
the Arbitrator could not be interfered with. On this ground also c
the decisions in Engineers-De-Space-Age (supra) and Mad11a11i
(supra) are inapplicable. Be that as it may."
18. This Court in Unio11 of India v. Krafters Engineering &
Leasing Pvt. Ltd. (2011) 7 SCC 279 has held that by a provision in the
agreement, the jurisdiction of the Arbitrator to award interest can be D
excluded. This Court considered the nature of the claim vis-a-vis the
provision contained in the relevant clause.
19. It is apparent from various decisions referred to above that in
GC. Roy (supra) Constitution Bench of this Coutt has laid down where
agreement expressly provides that no interest pendente lite shall be E
payable on amount due. The arbitrator has no power to award interest.
In N.C. Budharaj (supra) a Constitution Bench has observed that in
case there is nothing in the arbitration agreement to exclude jurisdiction
of arbitrator to entertaining claim for interest, the jurisdiction of arbitrator
to consider and award interest in respect to all periods is subject to
section 29 of the Act. I_n Hi11dusta11 Co11structio11 Co. Ltd. (supra) this F
Court has followed decision in GC. Roy (supra) and laid down that on
the basis of principles of section 34 arbitrator would have the power to
award pendente lite interest also. In B.N. Agarwal/a (supra), this Court
has again followed GC. Roy (supra) and Hi11dusta11 Co11structio11 Co.
Ltd. (supra) with respect to power of arbitrator to award pende/1/e lite G
interest and it was held that arbitrator has power to award interest. In
Harish Chandra (supra) this Court interpreted the clause 1.9 which
provided that no claim for interest or damages will be entertained by the
Government in respect to any mon·eys or balances which may be lying
with the Government. It was held that there was no provision which
could be culled out against the contractor not to claim interest by way of H
830 SUPREME COURT REPORTS [2016] 2 S.C.R.
A damages before the arbitrator on the relevant items placed for
adjudication. In Ferro Concrete Construction (PJ Ltd. (supra) this Court
considered clause 4 containing a stipulation that no interest was payable
on amount withheld under the agreement. It was held that clause 4 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
B
Ahmed (supra) this Court has emphasized that award of interest would
depend upon nature of the clause in the agreement. In Bright Power
Projects (India) Pvt. Ltd. (supra) this Court has considered the
expression "unless otherwise agreed by parties" employed in section
31(7)(a) of the Act of 1996 and laid down that in case contract bars
c claim of interest contractor could not have claimed interest. The provision
of section 31 (7)(a) of the Act of 1996 is binding upon the arbitrator. In
Sree Kamatchi Amman Constructions (supra) similar view has been
taken.
20. Now we come to the question of correctness of decision of this
D Court rendered by a Bench of two Judges in Engineers-De-Space-
Age (supra) which has been referred for our consideration in which this
Court after consideration of GC. Roy's case has observed thus:
"3 ..... It will appear from what the Constitution Bench stated to
be the legal position, that ordinarily a person who is deprived of
E his money to which he is legitimately entitled as ofright 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 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
F 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 ifhe were to be denied the power
to award interest pendente lite, the party entitled thereto would
be required to go to a court which would result in multiplicity of
G 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
agreement and if the agreement between the parties prohibits the
payment of interest pe11de11te lite the Arbitrator must act in
accordance therewith. In other words, according to their Lordships
H the Arbitrator is expected to act and make his award in accordance
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 831
[ARUN MISHRA, J.]
with the general law of the land but subject to an agreement, A
provided, the agreement is valid and legal. Lastly, 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
B
and that dispute is referred to the Arbitrator, he shall have the
power to award interest pendenle 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 c
Bench".
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 sub-clause D
(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
E
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
that as pointed out by the Constitution Bench, ordinarily, a person
who has a legitimate claim is entitled to payment within a reasonable F
time and ifthe 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."
21. In Sayeed Ahmed (supra) the decision in Engineers-De-Space-
Age (supra) has been considered and it was observed that it cannot be G
used to support an outlandish argument that bar on the Government or
department paying interest is not a baron the Arbitrator awarding interest.
This Court expressed doubt as to the correctness of certain observations
made in Engineers-De-Space-Age (supra) 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 H
832 SUPREME COURT REPORTS [2016] 2 S.C.R.
A the case in Sayeed Ahmed (supra) arose under the Arbitration and
Conciliation Act of 1996, and there was a specific provision undernew
Act regarding award of interest by the Arbitrator. From the discussion
made in Sayeed Ahmed (supra) it is apparent that this Court has
emphasized that it would depend upon the nature of clause and claim
etc. and it is required to be found on consideration of stipulation whether
B
interest is barred, if yes, on what amounts interest is barred under the
contract.
22. A three-Judge Bench of this Court in Tehri Hrdro Development
Corporation Limited and Another v. Jai Prakash Associates Limited,
c (2012) 12 SCC I 0, has considered the question which has been referred
in the instant case and it has been laid down in the context of clauses
1.2.14 and 1.2.15 imposed a clear baron eitherentertainment 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. Thus, the
arbitrator had no power to grant pendente lite interest. This Court has
D also doubted the correctness of the decisions in Engineers-De-Space
Age (supra) and Madnani Construction Corporation (P) Ltd. (supra).
This court has considered the aforesaid clauses and various decisions in
Tehri Hydro Development Corporation (supra) in which one of us
Ranjan Gogoi,J. spoke for the Court. This Court has laid down thus:-
E "14. This will lead the court to a consideration of what is the
principal bone of contention between the parties in the present
case, namely, the issue with regard to payment of interest. Clauses
1.2.14 and 1.2.15 on which much arguments have been advanced
by Learned Counsel for both sides inay now be extracted below: ·
F PART - II
CONDITIONS OF CONTRACT
1.2.14. No claim for delayed payment due to dispute, etc. -
The contractor agrees that no claim for interest of damages will
be entertained or payable by the Government in respect of any
G 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 delay or omission on the part of the
engineer-in-charge in making immediate or final payments or in
any other respect whatsoever.
H ·-1.2.15. Interest on money due to the comractor. - No omission
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION ;,;": 833
[ARUN MISHRA, J.]
on the part of the engineer-in-charge to pay the amount due upon A
·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.
A reading of the aforesaid two clauses of the contract agreement B
between the parties clearly reveal that despite some ovei"lapping
of the circumstances contemplated by the two clauses, no interest
is payable to the contractor for delay in payment, either, interim or
final, for the works done or on any amount lying in deposit by way
of guarantee. The aforesaid contemplated consequence would
be applicable both to a situation where withholding of payment is c
on account of some dispute or difference between the parties or
even otherwise.
15. Of the several decisions of this Court referred to by the learned
counsel for the appellant the judgments of the Constitution Bench
of this Court in Irrigation Deptt., Gow. of Orissa v. GC. Roy, D
(1992) 1 SCC 508 and Dhenkanal Minor Irrigation Division v.
N. C. Budharaj, (200 I) 2 SCC 721 will require specific notice.
The true ratio laid down in the aforesaid. two judgments have
been elaborately considered in a more recent pronouncement of
this Court in the case of Union </!India v. Krajters Engg. and E
Leasing (P) Ltd., (2011) 7 SCC 279. In Krajters Engineers's
case (supra) the ratio of the decision in GC. Roy's case (supra)
was identified to mean that if the agreement between the parties
does not prohibit grant of interest and the claim of a party to
interest is referred to the arbitrator, the arbitrator would have the
power to award the interest. This is on the basis that in such a F
case of silence (where the agreement is silent) it must be presumed
that interest was an implied term of the agreeme·nt and, therefore,
whether such a claim is tenable can be examined by the arbitrator
in the reference made to him. The aforesaid view, specifically, is
with regard to pendente lite interest. Jn the subsequent decision G
of the Constitution Bench inN.C. Budharaj's case (supra) a similar
view has been taken with regard to interest for the pre-reference
period.
In
16. Krajters Engineers' case (supr;;,), the somewhat discordant
note struck by the decisions of this Court in Port of Calcutta v. H
834 SUPREME COURT REPORTS [2016] 2 S.C.R.
A Engineers-De-Space-Age (supra) and Madnani Construction
Corporation Private Limited v. Union of India and Ors.
(supra), were also taken note of. Thereafter, it was also noticed
that the decision in Engineers-De-Space-Ages case (supra) was
considered in Sayeed Ahmed & Co. v. State of U.P. (supra) and
the decision in Madnani Construction case (supra) was
B
considered in Sree Kamatchi Amman Constructions v. Railways
(2010) 8 SCC 767. In Sayeed Ahmeds case (supra) (SCC para
24) it was held that in the light of the decision of the Constitution
Bench in GC. Roys case (1992) 1 SCC 508 and N.C. Budharaj
case (200 I) 2 SCC 721 it is doubtful whether the observations in
c Engineers-de-Space-Age's case (supra) to the effect that the
Arbitrator could award interest pendente lite, ignoring the express
bar in the contract, is good law. Jn Sree Kamatchi Amman
Construction's case (Supra) while considering MadnaniS case
(supra) this Court noted that the decision in Madnani case (supra)
follows the decision in Engineers-de-Space-Age's case (supra).
D
17. From the above discussions, it is crystal clear that insofar as
pendente lite interest is concerned, the observations contained in
Para 43 and 44 of the judgment in GC. Roy case (supra) will
hold the field. Though the gist of the said principle has been noticed
earlier it would still be appropriate to set out para 44 ofthe judgment
E in GC. Roy's case (supra) which is in the following terms:
44. Having regard to the above consideration, we think that the
following is the correct principle.which should be followed in this
behalf.
F Where the agreement between the parties does not prohibit grant
of interest and where a party claims interest and that dispute (along
with the claim for principal amount or independently) is referred
to the arbitrator, he shall have the power to award interest
pendente lite. This is for the reason that in such a case it must be
presumed that interest was an implied term of the agreement
G between the parties and therefore when the parties refer all their
disputes - or refer the dispute as to interest as such - to the arbitrator,
he shall have the power to award interest. This does not mean
that in every case the arbitrator should necessarily award interest
pendenle lite. It is a matter within his discretion to be exercised
in the light of all the facts and circumstances of the case, keeping
H
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 835
[ARUN MISHRA, J.l
the ends ofjustice in view. A
18. The provisions of the U.P. Civil Laws (Reforms and
Amendment) Act amending the First Schedule to the Arbitration
Act, 1940 does not assist the respondent contractor in any manner
to sustain the claim ofaward of interest pendente lite, inasmuch,
as Para 7-A of the First Schedule, as amended, is only an enaliling
provision which will have no application to a situation where there
is an express bar to the entertainment or payment of interest on
the delayed payment either of an amount due for the work done
. or of an amount lying in deposit as security. The decision in·B.N.
Agarwalla case (supra) on which reliance has been placed by
the learned counsel for the respondent, once again, does not assist
c
the claim of the respondent ·to interesi pende/1/e lite inasmuch as
in B.N. Aganmlla case (supra) the views of the Constitution
Bench in GC. Roy case (supra) with regard to interest pende/1/e
lite could not have been and, in fact, were not even remotely
doubted. The observation of the Bench in B.N. Aganrnlla case D
that in GC. Roy case (supra) the decision in Depll. ofIrrigation
v. Abhaduta Jena (1988) 1 SCC 418 was not overruled was only
in the context of the issue of award of interest for the pre-
reference period. The decision in Asian Techs Limited case
(supra) also relied on by the respondent takes note of the decision
in Engineers-De-Space-Age case (supra) to come to the E
conclusion the prohibition on payment of interest contained in
Clause 11 of the agreement between the parties was qua the
department and did not bar the arbitrator from entertaining the
claim. It has already been noticed that the correctness of the
propositions laid down in Engineers-De-Space-Age case (supra) F
have been doubted in the subsequent decisions of this Court,
reference to which has already been made.
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 G
amounts due for work done or lying in security deposit. On the
basis of the discussions that have preceded we, therefore, take
the view that the grant of pendente lite interest on the claim of
Rs. 10, 17,461/- is not justified. The award as well as the orders of
the courts below are accordingly modified to the aforesaid extent."
H .
836 SUPREME COURT REPORTS [2016] 2 S.C.R.
A In para 4 in Engineers-De-Space-Age (supra) this Court has
observed that bar under the contract will not be applicable to 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
power of Arbitrator to grant pendente lite interest is expressly taken
away. If answer is 'yes' then Arbitrator would have no power to award
B
pendente lite interest.
23. The decision in Madnani Construction Corporation (supra)
has followed decision in Engineers-De-Space-Age (supra). Same is
also required to be diluted to the extent that express stipulation under
contract may debar the Arbitrator from awarding interest pendente lite.
c 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 taken away and for which
~riod.
D 24. Thus, our answer to the reference is that if contract expressly
bars award of interest pendente lite, the same cannot be awarded by
the Arbitrator. 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
E of 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.
Devika Gujral Reference ans\rered.
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