2019 (2) TMI 375 - SC - Indian Laws

Interest payable to the contractor on the money due to him - power of the arbitral tribunal in granting pre-reference and/or pendente lite interest - Whether the Arbitrators could award any interest in view of Clauses 50 and 51 of the General Conditions of Contract (GCC) which governed the terms between the parties? - Clauses 50 and 51 of the General Conditions of Contract - Principles of Ejusdem Generis - HC uphold the order declining interest - Held that - As a sequitur, the arbitrator would be within his jurisdiction to award pre-reference or pendente lite interest even if agreement between the parties was silent as to whether interest is to be awarded or not - Conversely, if the agreement between the parties specifically prohibits grant of interest, the arbitrator cannot award pendente lite interest in such cases. This proposition is predicated on the principle that an arbitrator is the creature of an agreement and he is supposed to act and make his award in accordance with the general law of the land and the agreement. 1940 Act was silent about the jurisdiction of the arbitrator in awarding pendente lite interest. However, there is a significant departure on this aspect insofar as 1996 Act is concerned. In the 1940 Act, there was no provision which prohibited the arbitrator from awarding interest for the pre-reference, pendente lite or post-award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the pre-award period, the arbitrator cannot award interest for the said period. The grant of pendente lite interest depends upon the phraseology used in the agreement, clauses conferring power relating to arbitration, the nature of claim and dispute referred to the arbitrator, and on what items the power to award interest has been taken away and for which period. Also, the position under Section 31(7) of the 1996 Act, is wholly different, inasmuch as Section 31(7) of the 1996 Act sanctifies agreements between the parties and states that the moment the agreement says otherwise, no interest becomes payable right from the date of the cause of action until the award is delivered. The rule of ejusdem generis would be applied only if there is distinct genus or a category, which is lacking in the instant case. This rule is applicable when particular words pertaining to a clause, category or genus are followed by general words. In such a situation, the general words are construed as limited to things of same kind as those specified. In that sense, this rule reflects an attempt to reconcile incompatibility between the specific and general words in view of the other rules of interpretation that all words in a statute are given effect if possible, that a statute is to be construed as a whole and that no words in a statute were presumed to be superfluous . The conclusions of the High Court in the impugned judgment are correct and need no interference - appeal dismissed.

Summary

Issues Involved:
1. Jurisdiction of Arbitrators to Award Interest
2. Interpretation of Contract Clauses 50 and 51 of GCC
3. Conflict Between Judgments
4. Applicability of Ejusdem Generis Rule

Detailed Analysis:

1. Jurisdiction of Arbitrators to Award Interest:
The core issue was whether the arbitrators had the jurisdiction to award interest given the clauses in the General Conditions of Contract (GCC). The arbitration was conducted under the Arbitration and Conciliation Act, 1996. The arbitral tribunal awarded interest despite Clauses 50 and 51 of the GCC, which barred interest on money due to the contractor. The High Court quashed the interest awarded by the arbitrators, holding that these clauses barred the arbitrators from granting interest. The Supreme Court upheld this view, noting that under the 1996 Act, arbitrators could not award pendente lite interest if expressly barred by the contract.

2. Interpretation of Contract Clauses 50 and 51 of GCC:
Clauses 50 and 51 of the GCC explicitly stated that no interest would be payable to the contractor on any money due. The Supreme Court agreed with the High Court's interpretation that these clauses precluded the arbitrators from awarding interest. The Court emphasized that an arbitrator must act in accordance with the agreement between the parties, and where the contract explicitly prohibits interest, the arbitrator lacks jurisdiction to award it. This interpretation was consistent with the legal position under the 1996 Act, which sanctifies agreements that bar the payment of interest.

3. Conflict Between Judgments:
The appellant argued that the judgment in Tehri Hydro Development Corporation (THDC) Limited v. Jai Prakash Associates Limited conflicted with an earlier judgment in State of Uttar Pradesh v. Harish Chandra and Company. The Supreme Court clarified that the judgment in Harish Chandra was under the 1940 Act, whereas the present case was under the 1996 Act. The Court noted that the 1996 Act contains specific provisions that prohibit arbitrators from awarding interest if the contract bars it, a distinction not present under the 1940 Act. The Court also highlighted that the clauses in the present case were similar to those in the THDC judgment, which held that no interest was payable.

4. Applicability of Ejusdem Generis Rule:
The appellant contended that the words "or any other respect whatsoever" in Clause 51 should be read ejusdem generis, implying that the prohibition on interest should be limited to specific contexts. The Supreme Court rejected this argument, agreeing with the High Court that the rule of ejusdem generis was not applicable. The Court explained that this rule applies only when there is a distinct genus or category, which was absent in this case. The wide wording of the clause indicated a broad prohibition on interest, not limited to specific instances.

Conclusion:
The Supreme Court upheld the High Court's judgment, concluding that the arbitrators did not have jurisdiction to award interest due to the express prohibition in Clauses 50 and 51 of the GCC. The Court also clarified that the interpretation of these clauses was consistent with the legal principles under the 1996 Act and that the rule of ejusdem generis did not apply in this context. The appeal was dismissed.