Case Note & Summary
The appeal arose from a works contract dispute where the appellant contractor was awarded an arbitral award of Rs. 1,78,17,146 with 15% pendente lite interest by the arbitrator. The respondent State challenged the award, and the District Judge set aside the interest portion, holding that Clause 22 of the agreement barred the contractor from claiming interest at any time. The High Court upheld this decision. The Supreme Court, interpreting Clause 22, held that it did not expressly bar the arbitrator from awarding pendente lite interest, as it only barred the contractor from claiming interest on payments, arrears, or balances due under the contract, but did not refer to claims before the arbitrator or disputes between parties. Relying on Reliance Cellulose Products Ltd v. Oil and Natural Gas Corporation Limited and other precedents, the Court allowed the appeal, restored the arbitrator's award of 15% pendente lite interest, and directed the respondent to pay the same.
Headnote
A) Arbitration Law - Pendente Lite Interest - Contractual Bar - Strict Construction - Arbitration Act, 1940 - Clause 22 of agreement barring contractor from claiming interest on any payment, arrears or balance due - The Supreme Court held that such a clause does not expressly bar the arbitrator from awarding pendente lite interest, as it does not refer to claims before the arbitrator or disputes between parties. The Court allowed the appeal and directed payment of pendente lite interest on the arbitral sum. (Paras 3, 9)
B) Arbitration Law - Interpretation of Contractual Clauses - Distinction between 1940 Act and 1996 Act - Arbitration Act, 1940 vs Arbitration and Conciliation Act, 1996, Section 31(7) - The Court noted that under the 1940 Act, a clause barring interest is strictly construed, whereas under the 1996 Act, Section 31(7) sanctifies agreements and bars interest if the agreement says otherwise. (Para 9)
Issue of Consideration
Whether a contractual clause that bars the contractor from claiming interest on any payment, arrears or balance due amounts to an express bar on the arbitrator's power to grant pendente lite interest under the Arbitration Act, 1940.
Final Decision
Appeal allowed. The order of the High Court and District Judge setting aside the arbitrator's award of pendente lite interest is set aside. The arbitrator's award of 15% pendente lite interest is restored. The respondent is directed to pay the interest amount as per the award.
Law Points
- Arbitrator's power to grant pendente lite interest under Arbitration Act
- 1940
- Contractual clause barring interest must be strictly construed
- Express bar required to oust arbitrator's power to award interest
- Distinction between interpretation under 1940 Act and 1996 Act
Case Details
Civil Appeal arising out of SLP (C) No. 0000 of 2023
Pamidighantam Sri Narasimha
Vinayak Mehrotra (for appellant), Sansriti Pathak (for respondent)
M/S FERRO CONCRETE CONSTRUCTION (INDIA) PVT. LTD.
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Nature of Litigation
Civil appeal against High Court order upholding District Judge's decision to set aside arbitrator's award of pendente lite interest.
Remedy Sought
Appellant contractor sought restoration of arbitrator's award of 15% pendente lite interest.
Filing Reason
Dispute over interpretation of Clause 22 of the agreement barring interest, and whether it bars arbitrator from granting pendente lite interest.
Previous Decisions
Arbitrator awarded 15% pendente lite interest; District Judge set aside interest portion; High Court upheld District Judge's order.
Issues
Whether Clause 22 of the agreement bars the arbitrator from awarding pendente lite interest under the Arbitration Act, 1940.
Submissions/Arguments
Appellant: Clause 22 does not expressly bar arbitrator from awarding pendente lite interest; relies on Reliance Cellulose and Pam Developments.
Respondent: Clause 22 is a clear bar; narrower clauses have been treated as ouster clauses; payment already made includes interest component.
Ratio Decidendi
Under the Arbitration Act, 1940, a contractual clause barring a contractor from claiming interest on payments, arrears, or balances due does not expressly bar the arbitrator from awarding pendente lite interest, as it does not refer to claims before the arbitrator or disputes between parties. Such clauses must be strictly construed, and only a clear and express bar can oust the arbitrator's power to award pendente lite interest.
Judgment Excerpts
It is just as necessary to follow a precedent as it is to make a precedent.
The contractor shall not be entitled to claim any interest upon any payment, any arrears or upon any balance, which may be found due to him at any time.
Unless there is a clear and express bar to the payment of interest that can be awarded by an arbitrator, clauses which do not refer to claims before the arbitrators or disputes between parties and clearly bar payment of interest, cannot stand in the way of an arbitrator awarding pre-reference or pendente lite interest.
Procedural History
Arbitral award dated 07.03.1995 granted 15% pendente lite interest. Respondent filed objections; District Judge by order dated 16.08.2005 set aside interest portion and granted 9% simple interest. Both parties appealed; High Court dismissed appeals by order dated 06.01.2023. Appellant filed SLP; Supreme Court granted leave and allowed appeal.
Acts & Sections
- Arbitration Act, 1940:
- Arbitration and Conciliation Act, 1996: Section 31(7)
- Interest Act, 1978:
