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TMI Blog2011 (7) TMI 1296X X X X Extracts X X X X X X X X Extracts X X X X ..... granting interest in respect of the amount payable to the contractor under the contract as well as the order of the learned Single Judge and the Division Bench of the High Court confirming the same. - Civil Appeal No. 2005 Of 2007 - - - Dated:- 12-7-2011 - P. Sathasivam And A.K. Patnaik, JJ. JUDGMENT P. Sathasivam, J. 1) This appeal by Union of India arises out of the final judgment and order dated 24.04.2006 passed by the High Court of Judicature at Bombay in Appeal No. 219 of 2006 in Arbitration Petition No. 274 of 2005 whereby the Division Bench of the High Court dismissed their appeal. 2) Brief facts: (a)On 16.05.1988, the respondent was awarded with a contract for the work of Provision of Signaling Arrangements at C Class Stations on Igatpuri-Bhusawal Section and 2 C Stations on Bhusawal-Badnera Section of Bhusawal Division of Central Railway at the cost of ₹ 18,10,400/-. On completion of the contract, the respondent raised certain disputes/claims by filing Suit No. 2822 of 1993 before the High Court and demanded for adjudication through arbitration. The High Court directed the General Manager of the Central Railway to appoint an arbitrator ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , no interest is payable on the amount payable to the Contractor under the contract. On the other hand, Mr. Ramesh Babu M.R., learned counsel appearing for the respondent submitted that irrespective of the bar in the contract arbitrator has power to award interest for which he strongly relied on the decision of this Court in Board of Trustees for the Port of Calcutta vs. Engineers-De-Space-Age, (1996) 1 SCC 516 and Madnani Construction Corporation Private Limited vs. Union of India and Others, (2010) 1 SCC 549. 6) We have already extracted the relevant clause wherein the words amounts payable to the Contractor under the contract are of paramount importance. If there is no prohibition in the arbitration agreement to exclude the jurisdiction of the arbitrator to entertain a claim for interest on the amount due under the contract, the arbitrator is free to consider and award interest in respect of the period. If there is a prohibition in the agreement to pay the interest, in that event, the arbitrator cannot grant the interest. Clause 1.15 prohibits payment of interest on the amount payable to the contractor under the contract. 7) It is not in dispute that the provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 41 and Section 3 of Arbitration Act illustrate this point). All the same, the agreement must be in conformity with law. The arbitrator must also act and make his award in accordance with the general law of the land and the agreement. (iv) Over the years, the English and Indian courts have acted on the assumption that where the agreement does not prohibit and a party to the reference makes a claim for interest, the arbitrator must have the power to award interest pendente lite. Thawardas has not been followed in the later decisions of this Court. It has been explained and distinguished on the basis that in that case there was no claim for interest but only a claim for unliquidated damages. It has been said repeatedly that observations in the said judgment were not intended to lay down any such absolute or universal rule as they appear to, on first impression. Until Jena case almost all the courts in the country had upheld the power of the arbitrator to award interest pendente lite. Continuity and certainty is a highly desirable feature of law. (v) Interest pendente lite is not a matter of substantive law, like interest for the period anterior to reference (pre- referen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has held that arbitrator has jurisdiction to interpret the clauses of the contract and to decide whether interest pendente lite could be awarded by him. The short question that arose in that case was that the arbitrator had awarded interest pendente lite notwithstanding the prohibition contained in the contract against the payment of interest on delayed payments. Ultimately, the two-Judge Bench of this Court has concluded that irrespective of the terms of the contract, the arbitrator was well within his jurisdiction in awarding interest pendente lite. It is useful to point out that the ratio in that decision was considered by this Court in Sayeed Ahmed and Company vs. State of Uttar Pradesh and Others, (2009) 12 SCC 26. While considering the very same issue, particularly, specific clause in the agreement prohibiting interest pendente lite, this Court considered the very same decision i.e. Board of Trustees for the Port of Calcutta (supra). After adverting to the clause in the Board of Trustees for the Port of Calcutta (supra) and the Constitution Bench in G.C. Roy's case (supra), this Court concluded as under: 23. The observation in Engineers-De-Space-Age that the term o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract. 11) In Union of India vs. Saraswat Trading Agency and Others, (2009) 16 SCC 504, though it was under the Arbitration and Conciliation Act, 1996, this Court has considered elaborately about the legal position in regard to interest after adverting to all the earlier decisions and basing reliance on clause 31 of the agreement held: 33. In the case in hand Clause 31 of the agreement is materially different. It bars payment of any interest or damage to the contractor for any reason whatsoever. We are, therefore, clearly of the view that no pre-reference or pendente lite interest was payable to the respondent on the amount under Item 3 and the arbitrator's award allowing pre-reference and pendente lite interest on that amount was plainly in breach of the express terms of the agreement. The order of the High Court insofar as pre-reference and pendente lite interest on the amount under Item 3 is concerned is, therefore, unsustainable. 12) At the end of the argument, learned counsel for the respondent heavily relied on the recent decision of this Court in Madnani Construction Corporation Private Limited (supra) which arose under the Arbitration Act, 1940. There als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reference, the arbitrator had the discretion to decide the rate of interest from the date of reference to date of award and he was not bound by any prohibition regarding interest contained in the contract, insofar as pendente lite period is concerned. This Court in Sayeed Ahmed held that the decision in Engineers-De-Space- Age would not apply to cases arising under the new Act. We extract below, the relevant portion from Sayeed Ahmed: (SCC p. 36, paras 23-24) 23. The observation in Engineers-De-Space-Age that the term of the contract merely prohibits the department/employer from paying interest to the contractor for delayed payment but once the matter goes to the arbitrator, the discretion of the arbitrator is not in any manner stifled by the terms of the contract and the arbitrator will be entitled to consider and grant the interest pendente lite, cannot be used to support an outlandish argument that bar on the Government or department paying interest is not a bar on the arbitrator awarding interest. Whether the provision in the contract bars the employer from entertaining any claim for interest or bars the contractor from making any claim for interest, it amounts to a clear pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the contractual terms insofar as the interest for the pendente lite period. But in the instant case the Arbitral Tribunal has refused to award interest for the pendente lite period. Where the Arbitral Tribunal has exercised its discretion and refused award of interest for the period pendente lite, even if the principles in those two cases were applicable, the award of the arbitrator could not be interfered with. On this ground also the decisions in Engineers-De-Space-Age and Madnani are inapplicable... 13) Inasmuch as we have already expressed similar view as mentioned above and conveyed our inability to apply the reasoning in Madnani Construction Corporation Private Limited (supra), we fully endorse the view expressed in Sree Kamatchi Amman Constructions (supra). 14) In the light of the above discussion, following conclusion emerge: Reliance based on the ratio in Board of Trustees for the Port of Calcutta (supra) is unacceptable since the said view has been overruled in Sayeed Ahmed and Company (supra) and insofar as the ratio in Madnani Construction Corporation Private Limited (supra) which is also unacceptable for the reasons mentioned in the earlier paras, we re ..... X X X X Extracts X X X X X X X X Extracts X X X X
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