Case Note & Summary
The appeal was directed against the order of the Division Bench of the High Court of Delhi, which upheld the judgment of the learned Single Judge denying pendente lite interest on the award amount to the appellant, Garg Builders. The dispute arose from a contract for the construction of a boundary wall at a power project, where the appellant claimed various amounts, including interest, after the appointment of an arbitrator. The learned Arbitrator awarded pendente lite and future interest, which was subsequently challenged by the respondent, Bharat Heavy Electricals Limited, on the grounds that the contract explicitly barred such interest. The Single Judge ruled that the Arbitrator erred in awarding pendente lite interest, leading to the appeal. The Supreme Court analyzed the provisions of the Arbitration and Conciliation Act, 1996, particularly Section 31(7)(a), which restricts the arbitrator's power to award interest when the contract prohibits it. The court emphasized that the contract's clear language barred interest on any sums due, including those awarded by the arbitrator. The court also addressed the validity of the contractual clause under Section 28 of the Indian Contract Act, 1872, concluding that it did not violate the law as it did not extinguish rights but merely set terms for interest. Ultimately, the Supreme Court dismissed the appeal, affirming the High Court's decision and directing the parties to bear their own costs.
Headnote
A) Arbitration - Authority of Arbitrator - Award of Pendente Lite Interest - Arbitration and Conciliation Act, 1996, Section 31(7)(a) - The court held that if a contract explicitly prohibits the award of interest, the arbitrator cannot grant pendente lite interest. The clause in the contract was clear and categorical, thus restricting the arbitrator's power to award interest (Paras 10-12). B) Contract Law - Validity of Contractual Clauses - Indian Contract Act, 1872, Section 28 - The court determined that a clause barring interest does not violate Section 28 as it does not extinguish the parties' rights but merely stipulates the terms of interest. The agreement to refer disputes to arbitration was lawful and did not contravene the provisions of the Act (Paras 19-22).
Issue of Consideration
Whether the learned Arbitrator had the authority to award pendente lite interest despite the contractual clause barring such payment.
Final Decision
The Supreme Court dismissed the appeal, affirming the High Court's decision that the arbitrator could not award pendente lite interest due to the explicit contractual clause barring such payment. The court directed the parties to bear their own costs.
Law Points
- Arbitration
- Interest
- Contractual Provisions
- Pendente Lite Interest
- Section 11 Arbitration and Conciliation Act
- 1996
- Section 31(7)(a) Arbitration and Conciliation Act
- Section 28 Indian Contract Act
- 1872
- Interest Act
- 1978
