Law Web: What is distinction between power of court and power of arbitrator?

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

powers conferred on the courts of law.

Now we come to the question of correctness of decision of this

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 G.C. 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 his money to which he is legitimately entitled as

of right 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 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 if he 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 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 pendente lite the Arbitrator must act in

accordance therewith. In other words, according to their

Lordships the Arbitrator is expected to act and make his

award in accordance with the general law of the land but

subject to an agreement, 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 and that

dispute is referred to the Arbitrator, he shall have the power

to award interest pendente 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 Bench”.

Reportable

IN THE SUPREME COURT OF INDIA

CIVIL APPELLATE JURISDICTION

SPECIAL LEAVE PETITION [C] No.11114/2009

Union of India

Vs.

M/s. Ambica Construction

(With SLP [C] No.17219/2009]

Citation:2016(5) MHLJ210 SC

1. The issue involved in the reference is in regard to the power of the

Arbitrator to award pendente lite interest 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 Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516; and

Madnani Construction Corporation (P) Ltd. v. Union of India and Others

(2010) 1 SCC 549. In view of the decision of the Constitution Bench

judgment in Secretary, Irrigation Department, Government of Orissa &

Ors. v. G.C. Roy (1992) 1 SCC 508 and Executive Engineer, Dhenkanal

Minor Irrigation Division, Orissa & Ors. v. N.C. Budharaj (D) by L.Rs.

& Ors. (2001) 2 SCC 721 which held that the Arbitrator had the

jurisdiction and authority to award interest for pre-reference period,

pendente lite 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 U.P. & Ors. (2009) 12 SCC 26 and Sree Kamatchi Amman

Constructions v. Divisional Railway Manager (Works), Palghat & Ors.

(2010) 8 SCC 767. Hence the matter had been referred to a larger Bench

for decision.

2. The case has a chequered history. The tender of M/s. Ambica

Construction for fabrication of tie bars from M.S. Flats in CST-9 sleepers

was accepted on 8.9.1989. Final agreement was executed on 30.11.1989.

The work was completed on 21.11.1990. With respect to payments,

certain differences and disputes arose between the parties. Thus M/s.

Ambica Construction prayed for appointment of an Arbitrator. On

5.3.1991 as the petitioner M/s. Ambica Construction was in serious

financial difficulties, it accepted the amount in full and final settlement.

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 before 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. Said

Arbitrators failed to publish the award and as such an application was

filed for revocation of the authority of joint 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 of India, the

High Court vide order dated 9.4.1998 remitted the award to the Arbitrator

to give an item-wise break-up. On 12.5.1998 the sole Arbitrator published

the item-wise award. Again the Union of India questioned 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 supplementary

agreement dated 5.3.1991. The appeal preferred by the petitioner was

dismissed by the Division Bench of the High Court on 15.10.2004

against which an SLP was filed in which leave was granted and

ultimately C.A. No.6621/2005 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 dismissed the

application vide order dated 26.6.2007. Union of India filed an

application for recall. The order dated 26.6.2007 was recalled. Vide 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.9,82,660/- at the rate of 10% perPage 4

annum from 1.9.1992 the date from which the original Arbitrator entered

upon the reference. An appeal was preferred before the Division Bench

and the same had been partly allowed with regard to claim Nos.6 and 7.

Aggrieved thereby, M/s. Ambica Construction had preferred S.L.P. [C]

No.17219/2009 in this Court and Union of India has also assailed the

judgment and order of the High Court in S.L.P. [C] No.11114/2009.

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 Construction Corporation (P) Ltd. (supra) have

been correctly decided.

4. It was submitted on behalf of the Union of India that the Arbitrator

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 M/s. Ambica Construction has contended that in view of the

decision in Engineers-De-Space Age (supra) followed in Madnani

Construction Corporation (P) Ltd. (supra) notwithstanding the terms in

the contract agreement barring the award of interest would cover the prereference

period and not pendente lite interest.

5. There are certain provisions which are statutorily implied in

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 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

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 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 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.

6. “Court” has been defined in section 2(c) of the Act to mean a

civil court having jurisdiction to decide the questions forming the

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 :

(a) The provisions of the Code of Civil Procedure, 1908 (5

of 1908), 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 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 orders with respect to any of such matters.”

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

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.

8. A Constitution Bench of this Court in G.C. 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 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 G.C. 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 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 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 G.C. Roy (supra) was with respect to the

award of interest for the period commencing from the date of Arbitrator

entering upon the reference till the date of making the award. In G.C.

Roy (supra), this Court has considered decisions in Raipur Development

Authority & Ors. v. M/s. Chokhamal Contractors & Ors., (1989) 2 SCC

721; Executive Engineer (Irrigation) Balimela & Ors. v. Abhaduta Jena

& Ors., (1988) 1 SCC 418; Nachiappa Chettiar & Ors, v. Subramaniam

Chettiar, AIR 1960 SC 307; Satinder Singh v. Amrao Singh & Anr., AIR

1961 SC 908; Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills

Ltd., Indore, AIR 1967 SC 1030; Union of India v. Bungo Steel Furniture

Pvt. Ltd., AIR 1967 SC 1032; Ashok Construction Company v. Union of

India, (1971) 3 SCC 66; State of M.P. v. M/s. Saith and Skelton Pvt. Ltd.,

(1972) 1 SCC 702, various foreign courts decisions and decisions of thePage 8

High Court. This Court has also referred to Halsbury’s Laws of England

in Paras 36 & 37 thus:-

“36. “534. Express and implied clauses.— In general, the

parties 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 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 the context

that the agreement relates to an arbitration.”

37. At page 303, para 580 (4th edn., Vol. 2) dealing with

the award of interest, it reads:

“580. Interest.— 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 arose and the date of the award.”

Ultimately, in G.C. Roy (supra), this Court 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.

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 pendente 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 prohibit such grant. In other words,

we are dealing with a case where the agreement is silent as

to award of interest. On a conspectus of aforementionedPage 9

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 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.

(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 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

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 and the agreement.

(iv) Over the years, the English and Indian courts have acted

on the assumption that where the agreement does not prohibit

and a party to the reference makes a claim for interest, the

Arbitrator must have the power to award interest pendente

lite. Seth Thawardas Pherumal 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. It has been said repeatedly

that observations in the said judgment were not intended to

lay down any such absolute or universal rule as they appear

to, on first impression. Until Executive Engineer (Irrigation)

Balimela & Ors. v. Abhaduta Jena & Ors., (1988) 1 SCC 418Page 10

almost all the courts in the country had upheld the power of

the Arbitrator to award interest pendente lite. Continuity and

certainty is a highly desirable feature of law.

(v) Interest pendente 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.”

“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 (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 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.”

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.

9. Another Constitution Bench of this Court in N.C. Budharaj (supra),

considered the question of award of interest by the Arbitrator for the prereference

period. In that connection, discussion has been made and it hasPage 11

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 claim interest on

the amount due, the jurisdiction of the Arbitrator to award interest for

pre-reference period under section 29 of the Arbitration Act, 1940 has to

be upheld. In majority opinion, this Court has held thus:

“25. If that be the position, courts which of late 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 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 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

successfully asserted before courts and obtained relief. By

agreeing to have settlement of disputes through arbitration,

the party concerned must be understood to have only opted

for a different forum of adjudication 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 claims referred to him. As long as there is

nothing 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 under

the contract, the jurisdiction of the Arbitrator to consider and

award interest in respect of all periods subject only to

Section 29 of the Arbitration Act, 1940 and 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 hisPage 12

appointment or entering into reference which alone confers

upon him power, is too stale and technical to be

countenanced in our 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 subsist

unresolved, and that if the Arbitrator has the power to deal

with and decide disputes which cropped up at 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, 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 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 Jena case taking a contraview does

not lay down the correct position and stands overruled,

prospectively, which means that this decision shall not

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 G.C. Roy’s case (supra) cannot be said

to have overruled Executive Engineer (Irrigation) Balimela’s case (supra)

insofar as it dealt with the power of Arbitrator to award interest for the

pre-reference period.

10. A 3 Judges Bench of this Court in Hindustan Construction Co.

Ltd. v. State of Jammu & Kashmir (1992) 4 SCC 217 has laid down that

the Arbitrator has the power to award pendente lite interest on the basis ofPage 13

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 G.C. Roy (supra). This

Court has laid down thus:

“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, Irrigation Department, Govt. of Orissa

& Ors. v. G.C. Roy. Though the said decision deals with the

power of the Arbitrator to award interest pendente lite, the

principle of the decision makes it clear that the Arbitrator is

competent to award interest for the period commencing with

the date of award to the 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,

the grant of interest for the post-award period is a matter of

procedure. Section 34 of Code of Civil Procedure 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 (P) Ltd.

AIR 1967 SC 1032 may be seen as also the decision in

Gujarat Water Supply & Sewerage Board v. Unique

Erectors (Gujarat) P. Ltd. 1989 1 532 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.”

11. In Sayeed Ahmed (supra) various decisions of this Court have been

referred. In State of Orissa v. B.N. Agarwalla, (1997) 2 SCC 469, this

Court has laid down thus:

“18. In view of the aforesaid decisions there can now be no

doubt with regard to the jurisdiction of the Arbitrator toPage 14

grant interest. The principles which can now be said to be

well-settled are that 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, 1978, in the absence of any substantive

law, contract or usage, the Arbitrator has no jurisdiction to

award interest. For the period during which the arbitration

proceedings were pending in view of the decision in G.C.

Roy case and Hindustan Construction 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 Civil Appeal No. 9234 of 1994 in the later part of

this judgment.”

12. The decision in B.N. Agarwalla (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. Agarwalla (1997) 2 SCC

469. In that 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)

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 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

if the terms of contract expressly stipulated that no interest

would be payable, then the Arbitrator would not get the

jurisdiction to award interest. As Clause G1.09 in the present

case contains an express bar and is different from the clause

considered in B.N. Agarwalla (supra) the said decision is

also of no assistance.”

In B.N. Agarwalla (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. 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) 1 SCC 63, in which this

Court has interpreted the stipulation contained in clause 1.9 of the

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 be lying with the Government owing to any dispute,

difference; or misunderstanding between the Engineer-inCharge

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 the respondent-contractor

that he could not raise claim of interest by way of damages before the

Arbitrator on the relevant items placed for adjudication.

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. x x x x x This Court held that the said clause did not

bar award of interest on any claim for damages or for claimPage 16

for payment for work done. We extract below the reasoning

for such decision: (SCC p. 67, para 10)

“10. 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, 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. 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 Government.

The claim for damages or claim for payment for the

work done and which was not paid for would not

obviously cover any 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.”

(emphasis supplied)

18. In Harish Chandra (1999) 1 SCC 63 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 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.

19. But in the present case, Clause G1.09 is significantly

different. It specifically provides that no interest shall be

payable in respect of any money that may become due

owing to any dispute, difference or misunderstandingPage 17

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 G1.09 in this case

being absolute, the decision 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

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 alia must depend upon the overall

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 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 if 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 the Arbitrator can

award interest pendente lite and future interest.”

In Sayeed Ahmed (supra) this Court has also referred the decisionPage 18

in State of Rajasthan & Anr. v. Ferro Concrete Construction (P) Ltd.

(2009) 12 SCC 1 thus :

“12. The principles relating to interest were summarised by

this Court in State of Rajasthan v. Ferro Concrete

Construction (P) Ltd. (2009) 12 SCC 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) Where payment of interest on any debt or damages is

barred by express provision in the contract, no interest shall

be awarded.

there is also no provision for payment of interest then the

principles of Section 3 of the Interest Act will apply and

consequently interest 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;

(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.

(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.”

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. Bright Power

Projects (India) Pvt. Ltd. (2015) 9 SCC 695 has considered thePage 19

provisions contained in section 31(7)(a) of the Arbitration and

Conciliation Act, 1996 and considered the words “unless otherwise

agreed by parties” 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, 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 :

“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 no right to award interest

pendente lite.”

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 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 barPage 20

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 pendency of proceedings before Arbitrator.

17. In Sree Kamatchi Amman 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 is bound by the terms of contract

for award of interest pendente lite. It was also held thus :

“19. Section 31(7) of the new Act by using the words

“unless otherwise agreed by the parties” categorically

clarifies that the Arbitrator is bound by the terms of the

contract insofar as the award of interest from the date of

cause of action to the date of award. Therefore, where the

parties had agreed that no interest 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-DeSpace-Age

(supra) and Madnani (supra) are inapplicable for

yet another reason. In Engineers-De-Space-Age (supra) and

Madnani (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 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 the Arbitral 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 the decisions in

Engineers-De-Space-Age (supra) and Madnani (supra) are

inapplicable. Be that as it may.”Page 21

18. This Court in Union 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 excluded. This

Court considered the nature of the claim vis-à-vis the provision contained

in the relevant clause.

19. It is apparent from various decisions referred to above that in G.C.

Roy (supra) Constitution Bench of this Court has laid down where

agreement expressly provides that no interest pendente lite shall be

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. In Hindustan Construction Co. Ltd. (supra) this Court has

followed decision in G.C. 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. Agarwalla (supra), this Court has again

followed G.C. Roy (supra) and Hindustan Construction Co. Ltd. (supra)

with respect to power of arbitrator to award pendente lite 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 moneys 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 damages before the

arbitrator on the relevant items placed for adjudication. In Ferro

Concrete Construction (P) 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 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 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