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TMI Blog2016 (3) TMI 653X X X X Extracts X X X X X X X X Extracts X X X X ..... est 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 aforementioned 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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. Anothe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d. The submission that the Arbitrator cannot have jurisdiction to award interest for the period prior to the date of his 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion, 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 to 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th respect to any moneys or balances which may be lying with the Government owing to any dispute, difference; or misunderstanding between the Engineer-in- Charge 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 claim 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 decision in State of Rajasthan & Anr. v. Ferro Concrete Construction (P) Ltd. (2009) 12 SCC 1 thus : "12. The principles relating ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ourt 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 bar 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stitution 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 C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ording 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". 4. We are not dealing with a case in regard to award of interest for the period prior to the reference. We are dealing with a case in regard to award of interest by the Arbitrator post reference. The short question, therefore, is whether in view of sub-clause (g) of clause 13 of the contract extracted earl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he arbitrator had no power to grant pendente lite interest. This Court has also doubted the correctness of the decisions in Engineers-De-Space Age (supra) and Madnani Construction Corporation (P) Ltd. (supra). This court has considered the aforesaid clauses and various decisions in Tehri Hydro Development Corporation (supra) in which one of us Ranjan Gogoi, J. spoke for the Court. This Court has laid down thus :- "14. This will lead the court to a consideration of what is the principal bone of contention between the parties in the present case, namely, the issue with regard to payment of interest. Clauses 1.2.14 and 1.2.15 on which much arguments have been advanced by Learned Counsel for both sides may now be extracted below: PART - II CONDITIONS OF CONTRACT 1.2.14. No claim for delayed payment due to dispute, etc. - The contractor agrees that no claim for interest of damages will be entertained or payable by the Government in respect of any money or balances which may be lying with the Government owing to any disputes, differences or misunderstandings between the parties or in respect of any delay or omission on the part of the engineer-in-charge in making immediate or final ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ewhat discordant note struck by the decisions of this Court in Port of Calcutta v. Engineers-De-Space-Age (supra) and Madnani Construction Corporation Private Limited v. Union of India and Ors. (supra), were also taken note of. Thereafter, it was also noticed that the decision in Engineers-De-Space-Age's case (supra) was considered in Sayeed Ahmed & Co. v. State of U.P. (supra) and the decision in Madnani Construction case (supra) was considered in Sree Kamatchi Amman Constructions v. Railways (2010) 8 SCC 767. In Sayeed Ahmed's case (supra) (SCC para 24) it was held that in the light of the decision of the Constitution Bench in G.C. Roy's case (1992) 1 SCC 508 and N.C. Budharaj case (2001) 2 SCC 721 it is doubtful whether the observations in Engineers-de-Space-Age's case (supra) to the effect that the Arbitrator could award interest pendente lite, ignoring the express bar in the contract, is good law. In Sree Kamatchi Amman Construction's case (Supra) while considering Madnani's case (supra) this Court noted that the decision in Madnani case (supra) follows the decision in Engineers-de-Space-Age's case (supra). 17. From the above discussions, it is cr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Deptt. of Irrigation v. Abhaduta Jena (1988) 1 SCC 418 was not overruled was only in the context of the issue of award of interest for the pre- reference period. The decision in Asian Techs Limited case (supra) also relied on by the respondent takes note of the decision in Engineers-De-Space-Age case (supra) to come to the conclusion the prohibition on payment of interest contained in Clause 11 of the agreement between the parties was qua the department and did not bar the arbitrator from entertaining the claim. It has already been noticed that the correctness of the propositions laid down in Engineers- De-Space-Age case (supra) have been doubted in the subsequent decisions of this Court, reference to which has already been made. 19. Clauses 1.2.14 and 1.2.15, already extracted and analysed, imposed a clear bar on either entertainment or payment of interest in any situation of non-payment or delayed payment of either the amounts due for work done or lying in security deposit. On the basis of the discussions that have preceded we, therefore, take the view that the grant of pendente lite interest on the claim of Rs. 10,17,461/- is not justified. The award as well as the orders ..... X X X X Extracts X X X X X X X X Extracts X X X X
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