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TMI Blog2021 (10) TMI 250X X X X Extracts X X X X X X X X Extracts X X X X ..... - the High Court was justified in rejecting the claim of the appellant seeking pendente lite interest on the award amount. Whether Clause 17 of the Contract is ultra vires in terms of Section 28 of the Indian Contract Act, 1872? - HELD THAT:- Exception I to Section 28 saves contracts where the right to move the Court for appropriate relief is restricted but where the parties have agreed to resolve their dispute through arbitration. Thus, a lawful agreement to refer the matter to arbitration can be made a condition precedent before going to courts and it does not violate Section 28. No cause of action then accrues until the Arbitrator has made the award and the only amount awarded in such arbitration is recoverable in respect of the dispute so referred. Section 31(7)(a) of the 1996 Act which allows parties to waive any claim to interest including pendente lite and the power of the Arbitrator to grant interest is subject to the agreement of the parties - when there is an express statutory permission for the parties to contract out of receiving interest and they have done so without any vitiation of free consent, it is not open for the Arbitrator to grant pendent lite interest. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. The respondent challenged the said award under Section 34 of the 1996 Act before the Delhi High Court in O.M.P. (COMM.) 28/2017 on various grounds, inter alia, on the ground that the learned Arbitrator being creature of the arbitration agreement travelled beyond the terms of the contract in awarding pendente lite interest on the award amount as the same was expressly barred in terms of the contract. The learned Single Judge vide his final judgment and order dated 10.03.2017 held as under: The Arbitrator fell in error in holding that the aforesaid clause only prescribed prereference interest and not pendente lite interest. As stated earlier, in terms of Section 31(7)(a) of the Act, the power of the arbitral tribunal to award pre award interest is contingent to the parties not agreeing to the contrary. Preaward interest includes both prereference interest as well as pendente lite interest. Thus, the conclusion of the Arbitrator that award of pendente lite interest was not prescribed by clause 17 of the Agreement is not sustainable. Accordingly, the impugned award to the extent of award of pendente lite interest is set aside. The petition is disposed of. No orders as to co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gnizes the right of the parties to contract out of the payment of interest arising out of any debt or damages and sanctifies contracts which bars the payment of interest arising out of debt or damages. Therefore, Clause 17 of the Contract is not violative of any the provisions of the Indian Contract Act, 1872. In light of the arguments advanced, the learned counsel prays for dismissal of the appeal. 10. We have carefully considered the submissions of the learned counsel for both the parties made at the Bar. The law relating to award of pendente lite interest by Arbitrator under the 1996 Act is no longer res integra. The provisions of the 1996 Act give paramount importance to the contract entered into between the parties and categorically restricts the power of an arbitrator to award prereference and pendente lite interest when the parties themselves have agreed to the contrary. Section 31(7)(a) of the 1996 Act which deals with the payment of interest is as under : 31(7)(a) Unless otherwise agreed by the parties, where and insofar as an arbitral award is for the payment of money, the arbitral tribunal may include in the sum for which the award is made interest, at such rate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the 1996 Act. This has been clarified in Sri Chittaranjan Maity (supra) as under : 16. Relying on a decision of this Court in Ambica Construction v. Union of India, (2017) 14 SCC 323, the learned Senior Counsel for the appellant submits that mere bar to award interest on the amounts payable under the contract would not be sufficient to deny payment on pendente lite interest. Therefore, the arbitrator was justified in awarding the pendente lite interest. However, it is not clear from Ambica Construction (supra) as to whether it was decided under the Arbitration Act, 1940 (for short the 1940 Act ) or under the 1996 Act. It has relied on a judgment of Constitution Bench in State of Orissa v. G.C. Roy, (1992) 1 SCC 508. This judgment was with reference to the 1940 Act. In the 1940 Act, there was no provision which prohibited the arbitrator from awarding interest for the prereference, pendente lite or postaward period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the preaward period, the arbitrator cannot award interest for the said period. Therefore, the decision in Ambica Construction (supra) cannot be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayments are governed in general by the Interest Act, 1978 in addition to the specific statutes that govern an impugned matter. Section 2 (a) of the Interest Act defines a Court which includes both a Tribunal and an Arbitrator. In turn, Section 3 allows a Court to grant interest at prevailing interest rates in various cases. The provisions of Section 3 (3) of the Interest Act, 1978 explicitly allows the parties to waive their claim to an interest by virtue of an agreement. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is barred by virtue of an express agreement . 22. Thus, when there is an express statutory permission for the parties to contract out of receiving interest and they have done so without any vitiation of free consent, it is not open for the Arbitrator to grant pendent lite interest. We are of the considered opinion that Clause 17 of the contract is not ultra vires in terms of Section 28 of the Indian Contract Act, 1872. 23. In the result, the appeal fails and is accordingly dismissed. Having regard to the facts and circumstances of the case, we direct the parties to bear their own costs. 24. Pen ..... X X X X Extracts X X X X X X X X Extracts X X X X
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