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2025 (4) TMI 173 - SC - Indian LawsWhether the contractual clause that bars the appellant/contractor from claiming any interest on any payment arrears or balance due to it amounts to an express bar on the arbitrator s power to grant pendente lite interest as per the law under the Arbitration Act 1940? - HELD THAT - Under the 1940 Act a stricter approach is followed that requires a clear and express clause against the payment of interest in case of difference dispute or misunderstanding in case of delay of payment or any other case whatsoever to constitute a bar on the arbitrator from granting interest. A clause that only provides that interest shall not be granted on amounts payable under the contract would not be sufficient. On the other hand under the 1996 Act wherein Section 31(7)(a) sanctifies party autonomy interest is not payable the moment the contract provides otherwise. Clause 22 prohibits the appellant (contractor) from claiming interest on any payment arrears or balance which may be found due to him at any time. Applying the above-stated law we find that this clause does not expressly bar the award of pendente lite interest in the event of disputes differences or misunderstandings between the parties or on delayed payment or in any other respect whatsoever. Under the 1940 Act this Court has not readily inferred a bar on the arbitrator from clauses that merely bar the contractor from claiming interest and the same will apply to this case as well. Considering that the arbitrator entered reference in 1991 and the award was made in 1995 along with the passage of time in litigation as well as the amounts already paid by the respondent including post-award interest @ 9% it is deemed appropriate to grant 9% pendente lite interest instead of 15% as granted by the arbitral tribunal from 18.12.1991 till 07.03.1995 (date of the arbitral award) within a period of 60 days. Application disposed off.
ISSUES PRESENTED and CONSIDERED
The core legal issue considered in this judgment is whether a contractual clause that prohibits a contractor from claiming interest on any payment, arrears, or balance due amounts to an express bar on the arbitrator's power to grant pendente lite interest under the Arbitration Act, 1940 ("1940 Act"). ISSUE-WISE DETAILED ANALYSIS Relevant Legal Framework and Precedents The legal framework involves the interpretation of the Arbitration Act, 1940, particularly regarding the arbitrator's power to award interest. The precedents considered include the decisions in Reliance Cellulose Products Ltd. v. Oil and Natural Gas Corporation Limited, G.C. Roy, N.C. Budharaj, and Ambica Construction, which address the arbitrator's authority to grant interest unless expressly barred by contract. Court's Interpretation and Reasoning The Court examined Clause 22 of the contract, which prohibits the contractor from claiming interest on any payment, arrears, or balance due at any time. The Court emphasized the need for a clear and express contractual bar on the payment of pendente lite interest to restrict the arbitrator's power. The Court noted that under the 1940 Act, a stricter approach is required, necessitating a clear and express clause against the payment of interest in cases of dispute or delay to bar the arbitrator from granting interest. Key Evidence and Findings The Court found that Clause 22 did not expressly bar the award of pendente lite interest in the event of disputes or delays, as it did not specifically mention disputes or arbitration proceedings. The clause merely prohibited the contractor from claiming interest on amounts due, which was insufficient to bar the arbitrator under the 1940 Act. Application of Law to Facts The Court applied the principles established in the precedents to the facts of the case, determining that the contractual clause in question did not meet the threshold of an express bar required to prevent the arbitrator from awarding pendente lite interest. The Court concluded that the clause's language did not explicitly exclude the arbitrator's power to grant such interest. Treatment of Competing Arguments The appellant argued that the clause did not expressly bar the arbitrator from awarding pendente lite interest, relying on the decision in Reliance Cellulose. The respondent contended that the clause was an ouster clause under both the 1940 Act and the 1996 Act, barring the arbitrator from awarding interest. The Court rejected the respondent's interpretation, emphasizing the need for an express bar, which was absent in the clause. Conclusions The Court concluded that the contractual clause did not expressly bar the arbitrator from awarding pendente lite interest. Consequently, the arbitrator's award of interest was valid under the 1940 Act. SIGNIFICANT HOLDINGS Preserve Verbatim Quotes of Crucial Legal Reasoning "A conspectus of the decisions that have been referred to above would show that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act, 1978 as well as pendente lite and future interest. However, he is constricted only by the fact that an agreement between the parties may contain an express bar to the award of pre-reference and/or pendente lite interest." Core Principles Established The judgment reaffirms that under the 1940 Act, an arbitrator has the power to award pendente lite interest unless there is a clear and express contractual clause barring such an award. The interpretation of such clauses requires a strict construction, focusing on the specific language used in the contract. Final Determinations on Each Issue The Court allowed the appeal, setting aside the High Court's judgment that upheld the District Judge's decision to set aside the arbitrator's award of pendente lite interest. The Court directed that 9% pendente lite interest be granted from the date the arbitrator entered reference until the date of the arbitral award, considering the amounts already paid and the passage of time.
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