UNION OF INDIAversusM/S BRIGHT POWER PROJECTS (I) P. LTD.

                        (2015] 6 S.C.R. 488


A                        UNION OF INDIA
                                 v.
          M/S BRIGHT POWER PROJECTS (I) P. LTD.
               (Criminal Appeal No. 2404 OF 2008)
8
                          JULY 02, 2015
             [ANIL R. DAVE, VIKRAMAJIT SEN AND
                PINAKI CHANDRA GHOSE, JJ.]
c Arbitration and Conciliation Act, 1996 - s. 31 (7) - Award of
  pendentelite interest on the amount of arbitral award- When
  the contract between the parties contained an express bar
  regarding award of interest - Propriety of - Held: s. 31 (7)
  specifically provides that arbitrator is bound by the terms of
D the contract so far as award of interest is concerned- Once
  the parties agreed that no interest would be paid, they were
  bound by that understanding - Thus, neither the party was
  entitled to claim interest nor the arbitral tribunal could have
  awarded the interest.
E
          Allowing the appeal, the Court
         HELD: 1. When parties to the contract had agreed
  to the fact that interest would not be awarded on the
F amount payable to the contractor under the contract,
  they were bound by their understanding. Having once
  agreed that the contractor would not claim any interest
  on the amount to be paid under the contract, he could
  not have claimed interest either before a civil court or
G before an Arbitral Tribunal. [Para 12] [492-E-F]
         2. Section 31(7) of the Act, by using the words
  "unless otherwise agreed by the parties", categorically
  specifies that the arbitrator is bound by the terms of the
H contract so far as award of interest from the date of
                              488
        UNION OF INDIA v. MIS BRIGHT POWER                    489
               PROJECTS (I) P. LTD.

cause of action to date of the award is concerned. A
Therefore, where the parties had agreed that no interest
shall b.e payable, the Arbitral Tribunal cannot award
interest. The Tribunal, failed to consider the provisions
of Section 31 (7)_ofthe Act and clause 13(3) of the contract
before awarding interest in the present case. [Paras B
14 and 17] [493-C; 494-F]

    Union of India v. Saraswat Trading Agency and Ors.
(2009)16 sec 504: 2009 (10) SCR 1063- relied on.
                                                               c
    Secretary, Irrigation Department, Government of Orissa
and Ors. v. G.C. Roy (1992) 1 SCC 508: 1991 (3) Suppl.
SCR 417 - distinguished.

                  Case Law Reference                           D
2009 (10) SCR 1063         relied on.          Para 15

1991 (3) Suppl. SCR 417 distinguished.         Para 16

      CIVILAPPELLATE JURISDICTION: Civil Appeal No.            E
2404 Of 2008

      From the Judgment and Order dated 07.08.2006 in
Appeal (L) No. 124 of 2006 of the High Court of Judicature
at Bombay                                                      F

       J. S. Attri, Manita Verma, S. N. Terdal, D. S. Mahra
for the appellant.

      Prashant Kumar, Triveni Potekar, Rajan Singh,Amarjit
Singh Bedi for the respondent.                             G

      The Judgment of the Court was delivered by

      ANIL R. DAVE, J. - 1. Being aggrieved by the
judgment delivered in Appeal (Lodging) No.124 of 2006 in H
490       SUPREME COURT REPORTS                 (2015] 6 S.C.R.


A  Arbitration Petition No.321 of 2005 dated 7'h August, 2006,
   delivered by the High Court of Judicature at Bombay, this
   appeal has been filed wherein the issue is whether the
   appellant is liable to pay interest to the respondent though
   there was a provision in the contract that n~ interest should
 B be paid on the amount payable to the contractor. The facts
   which are relevant for the purpose of deciding the issue, in a
   nutshell, are as under.

         2. The appellant and the respondent had entered into
C a contract whereby the respondent had to construct certain
  structures, which had been more particularly described in
  the agreement entered into by the parties on 20th January,
  1997.

o         3. In the course of execution of the contract, a dis-
  pute had arisen between the appellant and the respondent
  contractor and as agreed by the parties, the dispute had
  been referred to the Arbitral Tribunal. After hearing the con-
  cerned parties, the Arbitral Tribunal declared an award on
E 17th May, 2005, whereby it also awarded interest to the re-
  spondent contractor on the amount awarded, from the date
  of the reference till the date of the award.

          4. Relying upon the judgment delivered in the case of
F Secretary, Irrigation Department. Government of Orissa
  and Ors. v. GC. Roy (1992) 1 SCC 508, the Arbitral Tribu-
  nal awarded interest on the amount of the award. In the
  said case, this Court had considered the provisions of Sec-
  tion 29 of the Arbitration Act, 1940, which dealt with pay-
G ment of interest pendente lite. After analyzing the scheme
  of the said Act, various earlier decisions and after consider-
  ing the very same issue, namely, whether an arbitrator has
  power to award interest pendente lite and, if so, on what
  principles, this Court had observed that the Arbitral Tribunal
H had power to award interest.
        UNION OF INDIA v. MIS BRIGHT POWER                       491
        PROJECTS (I) P. LTD. [ANIL R. DAVE, J.]

       5. Being aggrieved by the Award and especially be-         A
cause of interest being awarded by the Arbitral Tribunal, the
appellant filed Arbitration Petition No.321 of2005 in the High
Court of Judicature at Bombay. The said arbitration petition
was dismissed on 13th December, 2005.
                                                                  B
        6. Being aggrieved by the dismissal of the Arbitration
Petition, the appellant filed an appeal which was also dis-
missed by the Division Bench of the High Court of Judica-
ture at Bombay on 7th August, 2006. Judgment of a Division
Bench of the High Court of Judicature at Bombay dated 2nd C
July, 1997, delivered in the case of Union of India v. Anand
Builders was relied upon and except for stating the above
reason, no other reason was recorded by the High Court
while dismissing the appeal.
                                                               D
        7. According to the learned counsel appearing for the
appellant, it was not open to the Arbitral Tribunal to award
any interest to the contractor in view of a specific condition
incorporated in the contract entered into between the par-
ties that no interest would be paid to the contractor.         E

       8. On the other hand, the learned counsel appearing
for the respondent contractor submitted that the Division
Bench of the High Court had rightly upheld the order passed
by the learned Single Judge as well as the Arbitral Tribunal.     F

       9. On the aforesaid contentions, this Court has to de-
cide whether the contract between the parties contained an
express bar regarding award of interest and if so, whether
theArbitral Tribunal was justified in awarding interest for the G
period commencing from the date of reference till the date
of the award.

       10. Clause 13 (3) of the contract entered into between
the parties reads as under:                                       H
 492       SUPREME COURT REPORTS                  [2015] 6 S.C.R.


 A     "13(3). No interest will be payable upon the earnest
       money and the security deposit or amounts payable to
       the contractor under the contract, but Government
       Securities deposited in terms of sub-clause(1) of this
       clause will be repayable with interest accrued thereon."
 B
          11. Thus, it had been specifically understood between
   the parties that no interest was to be paid on the earnest
   money, security deposit and the amount payable to the
   contractor under the contract. So far as payment of interest
 C on Government Securities, which had been deposited by
   the respondent contractor with the appellant is concerned, it
   was specifically stated that the said amount was to be
   returned to the contractor along with interest accrued thereon,
   but so far as payment of interest on the amount payable to
 D the contractor under the contract was concerned, there was
   a specific term that no interest was to be paid thereon.

           12. When parties to the contract had agreed to the
   fact that interest would not be awarded on the amount
 E payable to the contractor under the contract, in our opinion,
   they were bound by their understanding. Having once agreed
   that the contractor would not claim any interest on the amount
   to be paid under the contract, he could not have claimed
   interest either before a civil court or before an Arbitral
 F Tribunal.

            13. Section 31 (7) of the Arbitration and Conciliation
   Act, 1996 (hereinafter referred to as 'the Act') is clear to the
   effect that unless otherwise agreed by the parties, the Arbitral
 G Tribunal can award interest at reasonable rate for a period
   commencing from that date when the cause of action arises
   till the date of the award. Section 31 (7) of the Act, reads as
   under:

_ H    "31 (7) (a) Unless otherwise agreed by the parties,
        UNION OF INDIA v. MIS BRIGHT POWER                     493
        PROJECTS (I) P. LTD. [ANIL R. DAVE, J.]

  where and in so far as an arbitral award is for the            A
  payment of money, the Arbitral Tribunal may include in
  the sum for which the award is made interest, at such
  rate as it deems reasonable, on the whole or any part
  of the money, for the whole or any part of the period
  between the date on which the cause of action arose            B
  and the date on which the award is made."

        14. Section 31(7) of the Act, by using the words
 "unless otherwise agreed by the parties", categorically
specifies that the arbitrator is bound by the terms of the C
contract so far as award of interest from the date of cause of
action to date of the award is concerned. Therefore, where
the parties had agreed that no interest shall be payable, the
Arbitral Tribunal cannot award interest.
                                                                  D
        15. We may also refer to the decision of this Court in
Union of India v. Saraswat Trading Agency and others
(2009)16 SCC 504. This Court has observed in the said
case that if there is a bar against payment of interest in the
contract, the arbitrator cannot award any interest for such E
period. In view of the specific bar under Clause 13(3) of the
contract entered into between the parties, we are of the view
that the Arbitral Tribunal was not justified in awarding interest
from the date of entering upon the reference to the Arbitral
Tribunal till the date of the award.                              F

       16. The Arbitral Tribunal had mainly relied upon the
judgment delivered by this Court in G C Roy's case (supra).
In the said case, the situation was different. The contract
between the parties did not contain any condition that interest G
would not be paid. In para 44 of the said judgment, it has
been observed as under :

  "44. Having regard to the above consideration, we think
  that the following is the correct principle which should       H
494       SUPREME COURT REPORTS                   (2015] 6 S.C.R.


A      be followed in this behalf:

       Where the agreement between the parties does not
       prohibit grant of interest and where a party claims in-
       terest and that dispute (along with the claim for princi-
 B     pal amount or independently) is referred to the arbitra-
       tor, 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
C      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 in-
       terest pendente lite. It is a matter within his discretion
D      to be exercised in the light of all the facts and circum-
       stances of the case, keeping the ends of justice in view."

           17. Relying upon the aforestated judgment delivered
   by this Court, the Arbitral Tribunal thought it proper to award
 E interest on the amount payable to the contractor for the pe-
   riod commencing from the date on which the reference was
   entered upon till the date of the award. The Tribunal, how-
   ever, failed to consider the provisions of Section 31 (7) of the
   Act and clause 13(3) of the contract before awarding inter-
 F est in the present case.

         18. It is also pertinent to note that GC. Roy's case
  (supra) had been decided on December 12, 1991 on the
  basis of the provisions of the Arbitration Act, 1940, which
G was not operative at the time when the dispute on hand was
  decided by the Arbitral Tribunal.

        19. Section 31(7)(a) of the Act ought to have been
  read and interpreted by the Arbitral Tribunal before taking
H any decision with regard to awarding interest. The said Sec-
          UNIOl'J OF INDIA v..M/S .E3RIGHT POWER                  495
          PROJECTS (I) P. LTD. [ANIL R. DAVE, J.]

tion, which has been reproduced hereinabove, gives more A
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 no right to award inter-
est pendente lite.
                                                               B
        20. By relying upon the judgments which pertained to
different period when statutory provisions were different, the
Arbitral Tribunal had awarded int~rest on the amount pay-
able to the contractor for the period from the date when the
reference was entered upon till the date of the award and C
the said view of the Arbitral Tribunal had been confirmed by
the High Court. In our opinion, the Arbitral Tribunal and the
High Court ought to have considered the provisions of the
Act and the terms of agreement entered upon by the par-
~.                                                             D
       21. In the aforestated circumstances, the Arbitral
Tribunal ought not to have awarded interest to the respondent
from the date of reference till the date of the award.
                                                                   E
       22. For the aforestated reasons, we set aside the
impugned judgment and the award so far as it pertains to
payment of interest pendente lite and direct that no interest
would be paid on the amount payable under the contract to
the respondent from the date of the reference till the date of     F
the award.

        23. The appeal is allowed with no order as to costs.

Kalpana K. Tripathy                             Appeal allowed.
                                                                   G




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