2018 (7) TMI 2320 - SC - Indian Laws

Award of interest pendente lite at 12% on the award for damages excluding security deposits - Whether Clause 16(3) of the General Contract Clauses (GCC) restricted the power of the arbitrator to award interest pendente lite? - HELD THAT - The liability for interest pendente lite does not arise from any term of the contract, or during the terms of the contract, but in the course of determination by the Arbitrators of the losses or damages that are due to the claimant. Specifically, the liability to pay interest pendente lite arises because the claimant has been found entitled to the damages and has been kept out from those dues due to the pendency of the arbitration i.e. pendente lite. The Arbitrators rightly awarded interest pendente lite for the period from 26.09.1988 to 23.03.2001 which is the date of the award, on the amounts found due to the claimant. Undoubtedly, such a power must be considered inherent in an Arbitrator who also exercises the power to do equity, unless the agreement expressly bars an Arbitrator from awarding interest pendente lite. An agreement which bars interest is essentially an agreement that the parties will not claim interest on specified amounts. It does not bar an Arbitrator, who is never a party to the agreement from awarding it. Further, this Court considered an identical Clause in the contract in the case of Ambica Constructions v. Union of India 2017 (4) TMI 1423 - SUPREME COURT , wherein it observed that the Clause of the GCC did not bar the arbitrator from awarding interest pendente lite and affirmed the award passed by the arbitrator. The three Judge Bench of this Court held that the contention raised by the Union of India based on the Clause of the GCC that the arbitrator could not award interest pendente lite was not a valid contention and the arbitrator was completely justified in granting interest pendente lite. Thus when a dispute is referred to for adjudication to an arbitrator, a term of such a nature as contained in the Clause 16(3) of GCC, that is binding on the parties cannot be extended to bind an Arbitrator. The Arbitrator has the power to award interest pendente lite where justified - the award passed by the Arbitral Tribunal is restored - appeal allowed.

Summary

Issues:
1. Interpretation of Clause 16(3) of the General Contract Clauses restricting the power of arbitrators to award interest pendente lite.

Analysis:
The case involved a contractual dispute between M/s. Raveechee and Co. and the Union of India regarding a quarrying contract. The Arbitrators awarded a total amount to the claimant, including interest pendente lite at 12% on a specific claim. The High Court partly allowed the appeal by the Union of India, setting aside the interest amount awarded under Claim No. 12. The primary issue before the Supreme Court was whether Clause 16(3) of the General Contract Clauses limited the arbitrators' authority to grant interest pendente lite.

The Supreme Court analyzed the relevant clauses of the contract, specifically Clause 16(3, which stated that no interest would be payable on earnest money, security deposits, or amounts payable to the contractor under the contract. The Court examined the scope of this clause and concluded that it did not expressly prohibit the arbitrators from awarding interest pendente lite. The Court emphasized that interest pendente lite is typically granted to compensate a claimant for being deprived of money due to them during the arbitration process.

Referring to previous judgments, the Court highlighted that unless there is a clear and specific bar in the contract preventing the arbitrator from awarding interest pendente lite, the arbitrator retains the discretion to grant such interest. The Court cited cases such as Irrigation Deptt., State of Orissa v. G.C. Roy and Union of India v. Ambica Construction to support the principle that the arbitrator can award interest pendente lite unless explicitly prohibited.

Ultimately, the Supreme Court held that the arbitrators were justified in awarding interest pendente lite in this case, as the contract clause did not explicitly restrict this power. The Court set aside the High Court's judgment and reinstated the award passed by the Arbitral Tribunal regarding Claim No. 12, allowing the appeals accordingly.