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2021 (11) TMI 728 - SC - Indian LawsValidity of award of interest by the sole arbitrator - earnest money and security deposits or not - in view of the specific clause 16(2) of the GCC whether the contractor is entitled to any interest pendente lite on the amounts payable to the contractor other than upon the earnest money or the security deposit? HELD THAT - An identical question came up for consideration before this Court in the recent decision of this Court in the case of GARG BUILDERS VERSUS BHARAT HEAVY ELECTRICALS LIMITED 2021 (10) TMI 250 - SUPREME COURT where it was held that the High Court was justified in rejecting the claim of the appellant seeking pendente lite interest on the award amount. Merely because the appellant has claimed interest does not imply that the contractor shall be entitled to interest pendente lite. Even if the appellant would have been awarded interest the same also was not permissible and could have been a subject matter of challenge. In short there cannot be an estoppel against law. The learned Arbitrator in the instant case has erred in awarding pendente lite and future interest on the amount due and payable to the contractor under the contract in question and the same has been erroneously confirmed by the High Court - the impugned judgment and order passed by the Division Bench of the High Court in an appeal under Section 37 of the 1996 Act and the order passed by the learned Single Judge in an application under Section 34 of the 1996 Act and the award passed by the learned Arbitral Tribunal awarding pendente lite and future interest on the amounts held to be due and payable to the contractor under the contract are hereby quashed and set aside. Appeal allowed.
Issues Involved:
1. Entitlement to Pendente Lite and Future Interest under the Contract. 2. Interpretation of Clause 16(2) of the General Conditions of Contract (GCC). 3. Applicability of Judicial Precedents on Awarding Interest by Arbitrators. 4. Concession by Counsel and Estoppel Against Law. Detailed Analysis: 1. Entitlement to Pendente Lite and Future Interest under the Contract: The primary issue was whether the contractor was entitled to pendente lite and future interest on amounts payable under the contract, given the specific bar in Clause 16(2) of the GCC. The Union of India argued that Clause 16(2) explicitly barred the payment of interest on any amounts payable under the contract, including pendente lite and future interest. The respondent contended that Clause 16(2) pertained only to earnest money and security deposits, and did not bar pendente lite interest on other amounts. 2. Interpretation of Clause 16(2) of the General Conditions of Contract (GCC): Clause 16(2) of the GCC states: "No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract." The Court noted that the language of Clause 16(2) was clear and unambiguous, barring interest on earnest money, security deposits, and any amounts payable under the contract. The Court rejected the respondent's argument that the clause should be read as pertaining only to earnest money and security deposits, emphasizing the disjunctive use of "or" indicating separate categories. 3. Applicability of Judicial Precedents on Awarding Interest by Arbitrators: The Court examined various precedents, including: - Union of India v. Bright Power Projects (India) (P) Ltd.: Held that specific contractual bars on interest bind both parties and arbitrators. - Garg Builders v. Bharat Heavy Electricals Limited: Reinforced that if a contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award such interest. - Secretary, Irrigation Department, State of Orissa v. G.C. Roy: Discussed the arbitrator's power to award interest when not explicitly barred by the contract. - Raveechee and Company v. Union of India: Stated that arbitrators have inherent power to award pendente lite interest unless expressly barred. The Court concluded that the precedents under the 1996 Act (such as Bright Power Projects and Garg Builders) were applicable and binding, emphasizing that the arbitrator is bound by the terms of the contract, including any specific bars on interest. 4. Concession by Counsel and Estoppel Against Law: The respondent argued that the appellant's counsel had conceded before the High Court that the issue was covered by a precedent allowing interest, and that the appellant had also claimed interest in its counter-claim. The Court held that any concession by counsel contrary to established law is not binding and does not create an estoppel against law. The Court further noted that even if the appellant had been awarded interest, it would not have been permissible under the contract and could have been challenged. Conclusion: The Supreme Court allowed the appeal, setting aside the judgments of the Division Bench and Single Judge of the High Court, and the award by the arbitrator granting pendente lite and future interest. The Court held that Clause 16(2) of the GCC explicitly barred such interest, and the arbitrator, being a creature of the contract, had no power to award interest contrary to the contract's terms. The appeal was allowed with no order as to costs.
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