RELIANCE CELLULOSE PRODUCTS LTD. versus OIL AND NATURAL GAS CORPORATION LTD. on 20 July 2018

[2018] 6 S.C.R.

ARELIANCE CELLULOSE PRODUCTS LTD.

v.

OIL AND NATURAL GAS CORPORATION LTD.

(Civil Appeal No. 1110 of 2010)

BJULY 20, 2018

[R. F. NARIMAN AND INDU MALHOTRA, JJ.]

Arbitration Act, 1940 - Pre-reference, pendente lite interestand future interest – Power of arbitrator to award – On facts,disputes between parties referred to arbitration with regard to priceCfor supply of goods – Fixation of price by arbitrator and award ofpre-reference, pendente lite and future interest all at the rate of 18%per annum – Reduction of the interest to 10% per annum by theCivil Judge – High Court upheld the same – On appeal, held: Underthe Arbitration Act, an arbitrator has power to grant pre-referenceDinterest under the Interest Act, as well as pendente lite and futureinterest – However, he is constricted only by the fact that anagreement between the parties may contain an express bar to theaward of pre-reference and/or pendente lite interest – In the instantcase, clause 16 of the General Conditions of Contract clearly barspayment of interest for any delay – There is nothing in this clauseEwhich refers even obliquely to the Arbitrator’s power to grantinterest – There was no delay on account of the higher price as itbecame payable only on and from the date of the award – Even ifclause 16 were to have application, both pre-reference and pendentelite interest are not barred – Only reason given for reducing interestFfrom 18% to 10% being that ONGC is a Public Sector Undertaking,would not suffice to set aside what was within the Arbitrator’sdiscretion – Further, there is no finding that arbitrator exercisedthe discretion perversely – Thus, the grant of interest at the rate of18% as pre-reference, pendente lite and future interest upheld –Interest Act, 1978.G

Allowing Reliance’s appeal and dismissing ONGC’s appeal,the Court HELD: 1.1 Under the Arbitration Act, 1940, an arbitratorhas power to grant pre-reference interest under the Interest Act, H

Conclusion

1978 as well as pendente lite and future interest. However, he isconstricted only by the fact that an agreement between the partiesmay contain an express bar to the award of pre-reference and/orpendente lite interest. Since interest is compensatory in natureand is parasitic upon a principal sum not having been paid in time,this Court has frowned upon clauses that bar the payment ofinterest. It has therefore evolved the test of strict constructionof such clauses, and has gone on to state that unless there is aclear and express bar to the payment of interest that can beawarded by an arbitrator, clauses which do not refer to claimsbefore the Arbitrators or disputes between parties and clearlybar payment of interest, cannot stand in the way of an arbitratorawarding pre-reference or pendente lite interest. Thus, when onecontrasts a clause such as the clause in the *Second AmbicaConstruction Case with the clause in **Tehri HydroDevelopment Corporation Ltd., it becomes clear that unless acontractor agrees that no claim for interest will either beentertained or payable by the other party owing to dispute,difference, or misunderstandings between the parties or inrespect of delay on the part of the engineer or in any other respectwhatsoever, leading the Court to find an express bar againstpayment of interest, a clause which merely states that no interestwill be payable upon amounts payable to the contractor underthe contract would not be sufficient to bar an arbitrator fromawarding pendente lite interest under the 1940 Act. As has beenheld in the ***First Ambica Construction Case the grant ofpendente lite interest depends upon the phraseology used in theagreement, clauses conferring power relating to arbitration, thenature of claim and dispute referred to the Arbitrator, and onwhat items the power to award interest has been taken away andfor which period. The position as explained in some of thejudgments under Section 31(7) of the 1996 Act, is wholly different,inasmuch as Section 31(7) of the 1996 Act sanctifies agreementsbetween the parties and states that the moment the agreementsays otherwise, no interest becomes payable right from the dateof the cause of action until the award is delivered. [Para 22][645-D-H; 646-A-C]

1.2 In the instant case, clause 16 of the General Conditionsof Contract only speaks of any delay in payment not making ONGC

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Aliable for interest. There is nothing in this clause which referseven obliquely to the Arbitrator’s power to grant interest. ThisCourt finds that the said clause is narrower than the clauseconsidered by the three-Judge Bench in the *Second AmbicaConstruction Case which states that no interest will be payableon amounts payable to the contractor under the contract. ClauseB16 in the present case confines itself only to delay in paymentand not to any other amounts payable to the contractor under thecontract. Also, unlike the clause in **Tehri Hydro DevelopmentCorporation Ltd., clause 16 does not contain language which isso wide in nature that it would interdict an arbitrator from grantingCpendente lite interest. It will be remembered that the clause in**Tehri Hydro Development Corporation Ltd. spoke of no claimfor interest being entertained or payable in respect of any moneywhich may be lying with the Government owing to disputes,difference or misunderstanding between the parties and notmerely in respect of delay or omission; Further, the clause inD**Tehri Hydro Development Corporation Ltd. goes much furtherand makes it clear that no claim for interest is payable “in anyother respect whatsoever.” It is, thus, clear that clause 16 cannotpossibly interdict the payment of pendente lite interest on thefacts of the present case. [Para 23] [646-D-G]E1.3 The submission that, in any case, on the facts of thepresent case, clause 16 is not at all attracted inasmuch as factuallythere was no delay in payment as a sum of Rs.14,999/- per MThad, in fact, been paid for both 1200 MT and 600 MT, but thatthe balance only became payable on and from the date of the Faward, is right, as it is nobody’s case that there was delay inpayment on the facts of this case. It is only after Reliance went ina Writ Petition before the High Court that it became clear that ahigher price would be payable, which was left to the Arbitrator todetermine vide the High Court’s judgment referring the issue of price to an arbitrator, which was accepted by ONGC. In this viewGof the matter, it is clear that no delay on account of the higherprice ever took place as it became payable only on and from thedate of the award, Rs.14,999/- per MT having been paid on timeearlier. This being the case, it is clear that even if clause 16 wereto have application, both pre-reference and pendente lite interestHare not barred. [Para 24] [646-H; 647-A-C]

1.4 The only reason given for reducing interest from 18%to 10% being that ONGC is a Public Sector Undertaking, wouldnot suffice to set aside what was within the Arbitrator’s discretion.There is no finding that this discretion has been exercisedperversely, given the interest rates at the time of the award. Thegrant of interest at the rate of 18% as pre-reference and pendentelite interest is upheld. Considering the fact that ONGC hasdeposited the difference in the principal sums payable, and pre-reference, pendent lite and future interest, all at the rate of 10%being a sum of Rs.1,09,34,323/- till 21.01.1999, and a sum ofRs.46,86,138/- on 30.04.2003, it is made clear that recovery ofinterest till the two aforementioned dates will be at the rate of18%. Thus, for pre-reference, pendent lite and future interest,ONGC is to pay the differential amount of interest of 8% till21.01.1999 and 30.04.2003 within a period of eight weeks fromtoday. In the interest of justice, it is clarified that on and from21.01.1999, till payment, future interest is to be paid at 6% perannum on the balance differential sum of interest, being thedifference between 10% and 18%, and similarly, on the balancedifferential sum of interest between 10% and 18% on and from30.04.2003 till payment. [Para 25] [647-D-G]

Irrigation Department, State of Orissa v. G.C. Roy (1992)1 SCC 508 : [1991] 3 Suppl. SCR 417 ; ExecutiveEngineer (Irrigation), Balimela v. Abhaduta Jena(1988) 1 SCC 418 : [1988] 1 SCR 253 ; ExecutiveEngineer, Dhenkanal Minor Irrigation Division, Orissaand Ors. v. N.C. Budharaj (2001) 2 SCC 721 :[2001] 1 SCR 264 ; Board of Trustees for the Port ofCalcutta v. Engineers-De-Space-Age, (1996) 1 SCC516 : [1995] 6 Suppl. SCR 327 ; Bhagwati OxygenLtd. v. Hindustan Copper Ltd., (2005) 6 SCC 462 :[2005] 3 SCR 232 ; M.B. Patel and Co. v. ONGC (2008)8 SCC 251 : [2008] 8 SCR 35 ; State of Rajasthan andAnr. v. M/s. Ferro Concrete Construction (P) Ltd. (2009)12 SCC 1: [2009] 10 SCR 31 ; Union of India v.Saraswat Trading Agency (2009) 16 SCC 504 : [2009]10 SCR 1063; Madnani Construction Corporation (P)Ltd. v. Union of India and Ors. (2010) 1 SCC 549 :

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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1110of 2010.

From the Judgment and Order dated 23.08.2006 of the High Courtof Gujarat at Ahmedabad in First Appeal No. 5767 of 1998

WITH

Civil Appeal No. 1111 of 2010.

Sandeep Sethi, ASG, K. V. Viswanathan, Sr. Adv., ShabyashachiPatra, Sanjeev Kumar (for M/s Khaitan & Co.), P. B. Suresh, VipinNair, Abhay Pratap Singh, Advs.for the appearing parties.

The Judgment of the Court was delivered by

R. F. NARIMAN, J. 1. The present appeals relate to questionswhich arise qua the pre-reference and pendente lite interest under theArbitration Act, 1940. The ONGC floated a notice inviting tender for thesupply of 1200 Metric Tons (hereinafter referred to as “MT”) of SodiumCarboxyl Methyl Cellulose (hereinafter referred to as “CMC”). RelianceCellulose Products Ltd. (hereinafter referred to as “Reliance”) submittedits tender quoting a price of Rs.14,999/- per MT for quantities above 900MT. It is not disputed that the offer of Reliance was accepted for thesupply of 1200 MT of CMC, and accordingly, a supply order dated01.12.1988 was placed on Reliance. Since Reliance agreed to supply1200 MT only if the price is higher than Rs.14,999/- per MT, the partiesultimately went to arbitration in order to decide what should be the contractprice for supply of 1200 MT of CMC. A separate order, referred to asthe repeat order, was also placed for supply of 600 MT of CMC. It isundisputed that the supply was made on time and payments were receivedfor both contracts at the rate of Rs.14,999/- per MT.

2. In October 1990, the petitioner filed a Special Civil Applicationbefore the Gujarat High Court in the course of which, by an order dated11.10.1990, the disputes between the parties were referred to arbitration,which were with regard to the price for the supply of 1200 MT and 600MT of CMC respectively. The original Arbitral Tribunal consisted ofJustice V.S. Deshpande and Mr. S. Tibrewal. Shri Deshpande havingdied, Justice B.J. Divan was appointed in his place.

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A3. By an award dated 29.12.1993, the Arbitrators fixed the priceof 1200 MT at Rs.18,500/- per MT, and Rs.20,500/- per MT insofar as600 MT of CMC was concerned. The Arbitrators awarded pre-reference,pendente lite and future interest all at the rate of 18% per annum.Objections were filed to the award by the ONGC. The learned CivilJudge, by his judgment dated 30.07.1998, rejected these objections, butBultimately reduced the interest for all three periods to 10% per annum.Needless to state, this interest was payable on the difference betweenRs.14,999/- and Rs.18,500/- and Rs.20,500/- respectively. The appealsthat were filed to the High Court yielded the same result vide theimpugned judgment dated 23.08.2006. Both parties are in appeal before Cus.

Cus.

4. Shri K.V. Viswanathan, who argued Civil Appeal No.1110/2010,has argued before us that no good reason is given for reducing interestfrom 18% to 10%. Indeed, the only reason that is forthcoming from theimpugned judgment is that interest has been reduced because ONGC isDa Public Sector Undertaking. According to him, therefore, pre-reference,pendente lite and future interest at 18% all become payable from thedate of the cause of action till 21.01.1999, when the ONGC had depositedan amount of Rs.1,09,34,323/-, and an amount of Rs.46,86,138/- on30.04.2003, on account of principal and interest at the rate of 10% perannum, and differential interest till date.E

5. In the ONGC appeal, the learned Additional Solicitor General,Shri Sandeep Sethi, has argued that though the plea that no pre-referenceor pendente lite interest was payable, there is an express bar to the grantof such interest between the parties, which was noted by both the learnedCivil Judge and the High Court, but no finding has been given thereon.FAccording to the learned ASG, clause 16 of the General Conditions ofContract clearly bars payment of interest for any delay and is set outhereinbelow:

“16. Our standard terms of payment are within 30 days of receiptof stores and inspection at site. But any delay in payment will notGmake the Commission liable for any interest.”

6. He has cited a number of judgments to buttress his submissionthat clause 16 would amount to a contractual bar to the payment of anyinterest on the facts of this case. On the other hand, Shri Viswanathanhas also referred to various judgments. His argument is that clause 16

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does not apply at all on the facts of this case as there was no delay inpayment, but only the difference between the sum of Rs.14,999/- perMT and the higher figures mentioned above were payable on account ofthe disputes between the parties being resolved through arbitration. Inany case, he submitted that a holistic reading of the various decisionscited by both the learned ASG as well as by him would show that so faras the 1940 Act is concerned, interest would be payable only if there isno express bar in the agreement, and agreements between the partieshave to be construed strictly as interest is the grant of compensation forvalue of money lost, as has been held in some of the judgments. Thisbeing so, though there may be a bar inter-se the parties, yet the Arbitratoris not barred from awarding either pre-reference or pendente lite interest.It may be added that there is no dispute that future interest is to begranted, except as to the rate of interest awarded.

7. Two important five-Judge Bench judgments have laid downthat, under the 1940 Act, in the absence of an express bar under theagreement, the Arbitrator has jurisdiction to award interest for all threeperiods, i.e., pre-reference, pendente lite as well as future interest. Thejudgment of this Court in Irrigation Department, State of Orissa v.G.C. Roy, (1992) 1 SCC 508, overruled Jena’s case [ExecutiveEngineer (Irrigation), Balimela v. Abhaduta Jena, (1988) 1 SCC 418]and held that arbitrators under the 1940 Act would be clothed with thejurisdiction to award pendente lite interest. Insofar as pre-referenceinterest is concerned, another five-Judge Bench in Executive Engineer,Dhenkanal Minor Irrigation Division, Orissa and Ors. v. N.C.Budharaj, (2001) 2 SCC 721, held that arbitrators under the 1940 Actwere clothed with the power to award pre-reference interest even beforethe 1978 Interest Act came into force. We are concerned in the presentcase only with the 1940 Act. The 1996 Act has made a major departurefrom the position under the 1940 Act qua pre-reference and pendentelite interest which will emerge from the conspectus of case law laiddown by this Court.

8. In Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516, a two-Judge Bench of this Courthad to consider whether clause 13(g) of the contract barred the awardof interest pendente lite. Clause 13(g) of the contract in that case is setout hereunder:- AB

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A“No claim for interest will be entertained by the Commissionerswith respect to any money or balance which may be in their handsowing to any dispute between themselves and the Contractor orwith respect to any delay on the part of the Commissioners inmaking interim or final payment or otherwise.”

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After setting out the judgment in G.C. Roy (supra), this Courtheld:- “4. We are not dealing with a case in regard to award of interestfor the period prior to the reference. We are dealing with a caseCin 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 earlier the arbitratorwas prohibited from granting interest under the contract. Nowthe term in sub-clause (g) merely prohibits the Commissioner fromDentertaining any claim for interest and does not prohibit thearbitrator from awarding interest. The opening words “no claimfor interest will be entertained by the Commissioner” clearlyestablishes that the intention was to prohibit the Commissionerfrom granting interest on account of delayed payment to thecontractor. Clause has to be strictly construed for the simple reasonEthat as pointed out by the Constitution Bench, ordinarily, a personwho has a legitimate claim is entitled to payment within a reasonabletime and if the payment has been delayed beyond reasonable timehe can legitimately claim to be compensated for that delaywhatever nomenclature one may give to his claim in that behalf.FIf that be so, we would be justified in placing a strict constructionon the term of the contract on which reliance has been placed.Strictly construed the term of the contract merely prohibits theCommissioner from paying interest to the contractor for delayedpayment but once the matter goes to arbitration the discretion ofthe arbitrator is not, in any manner, stifled by this term of theGcontract and the arbitrator would be entitled to consider the questionof grant of interest pendente lite and award interest if he finds theclaim to be justified. We are, therefore, of the opinion that underthe clause of the contract the arbitrator was in no manner prohibitedfrom awarding interest pendente lite.”

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9. In Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd., (2005)6 SCC 462, a judgment of two learned judges arising out of the 1940Act, this Court was concerned with all the three periods relating to interest,and held that it was open for the Arbitrator acting under the 1940 Act toaward interest for each of these periods provided there is no contractualbar.

10. In M.B. Patel and Co. v. ONGC, (2008) 8 SCC 251, theclause which was said to interdict interest was clause 18 of theAgreement which provided as follows:

“18. Interest on amounts.—No interest will be payable on thesecurity deposit or any other amount payable to the contractorunder the contract.”

The Court held that interest had been awarded in violation ofclause 14 of the Agreement as the Arbitrator did not take into accountthis clause at all. On this and other grounds, the Award as a whole wasset aside, and remanded to the Arbitrator to consider the matter afresh.

11. In State of Rajasthan and Anr. v. M/s. Ferro ConcreteConstruction (P) Ltd., (2009) 12 SCC 1, a two-Judge Bench decisionof this Court was concerned with pre-reference interest given by anaward under the 1940 Act. This Court restated the position qua pre-reference interest by referring to the five-Judge Bench referred tohereinabove and Bhagwati Oxygen (supra). What was highlighted wasthe importance of the Interest Act, 1978, under Section 3 of which it isclear that pre-reference interest can be allowed by an arbitrator unlessthere is a bar by virtue of an express provision between the parties (seeparagraphs 63 and 64).

12. In Union of India v. Saraswat Trading Agency, (2009) 16SCC 504, the question of pendente lite interest arose under the Arbitrationand Conciliation Act, 1996. The clause which was said to bar interest inthe aforesaid case was clause 31 of the Agreement which provided asfollows:

“31. No interest or damage for delay in payment.—No interestor damage shall be paid to the contractor for delay in paymentof the bill or any other amount due to the contractor for any A

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Areason whatsoever. The Railway Administration will, however,make every endeavour for payment of the bills or other amountdue to the contractor within a reasonable time.”

The judgment in Engineers-De-Space-Age (supra) wasBdistinguished by stating that clause 31 of the Agreement was materiallydifferent as no interest or damage was payable for any reasonwhatsoever, as a result of which it was held:

“33. In the case in hand Clause 31 of the agreement is materiallydifferent. It bars payment of any interest or damage to theCcontractor for any reason whatsoever. We are, therefore, clearlyof the view that no pre-reference or pendente lite interest waspayable to the respondent on the amount under Item 3 and thearbitrator’s award allowing pre-reference and pendente lite intereston that amount was plainly in breach of the express terms of theDagreement. The order of the High Court insofar as pre-referenceand pendente lite interest on the amount under Item 3 is concernedis, therefore, unsustainable.”

This case has later been distinguished as having arisen under the1996 Act, under which the position qua both pre-reference and pendenteElite interest is materially different.

13. In Madnani Construction Corporation (P) Ltd. v. Unionof India and Ors., (2010) 1 SCC 549, two judges of this Court had todeal with the grant of pre-reference interest under the Interest Act in anaward passed under the 1940 Act. Paragraphs 22 and 23 of the judgmentset out the clauses which interdict payment of interest as follows:F

“22. … Clause 16(2) of GCC is set out below:

“16. (2) No interest will be payable upon the earnest money orthe security deposit or amounts payable to the contractor underthe contract but government securities deposited in terms ofGsuch Clause (1) of this Clause will be repayable with interestaccrued thereto.”

23. … The relevant portion of Clause 30 relating to interest is setout below:

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“… That the contractor will have no claim for interest anddamage whatsoever on any account in respect of suchwithholding or retention under the lien referred to supra andduly notified as such to the contractor.”

After referring to the Interest Act and Section 29 of the ArbitrationAct, 1940, the Court referred to a three-Judge Bench decision in Stateof U.P. v. Harish Chandra and Co., (1999) 1 SCC 63, as follows:

“34. In a subsequent decision of a three-Judge Bench in State ofU.P. v. Harish Chandra and Co. [(1999) 1 SCC 63] there wasstipulation in the arbitration agreement against grant of interest.The relevant clause, namely, Clause 1.9 to the aforesaid effect isset out below: (SCC p. 67, para 9)

“9. … ‘1.9. No claim for delayed payment due to dispute,etc.—No claim for interest or damages will be entertained bythe Government with respect to any moneys or balances whichmay 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 otherrespect whatsoever.’ “

Considering the said clause, the Court held that the prohibition inthe said clause does not prevent the contractor from raising theclaim of interest by way of damages before the arbitrator on therelevant items placed for adjudication. (See SCC p. 67, para 10.)In saying so, the learned Judges relied on the ratio in B.N.Agarwalla [(1997) 2 SCC 469] and G.C. Roy [(1992) 1 SCC508].”

It then referred to Engineers-De-Space-Age (supra) inparagraph 35 and Saraswat Trading Agency (supra) in paragraphs 37and 38. Finally, however, the two-Judge Bench held:- “39. In the instant case also the relevant clauses, which havebeen quoted above, namely, Clause 16(2) of GCC and Clause 30of SCC do not contain any prohibition on the arbitrator to grantinterest. Therefore, the High Court was not right in interferingwith the arbitrator’s award on the matter of interest on the basisof the aforesaid clauses. We therefore, on a strict construction of A

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those clauses and relying on the ratio in Engineers [(1996) 1 SCC516] find that the said clauses do not impose any bar on the arbitratorin granting interest.”

14. In Sree Kamatchi Amman Constructions v. TheDivisional Railway Manager (Works), Palghat and Ors., (2010) 8BSCC 767, a two-Judge Bench of this Court, after referring to some ofthe earlier judgments of this Court, held: - “18. At the outset it should be noticed that Engineers-De-Space-Age [(1996) 1 SCC 516] and Madnani [(2010) 1 SCC 549] aroseunder the old Arbitration Act, 1940 which did not contain a provisionsimilar to Section 31(7) of the new Act. This Court, in SayeedAhmed [(2009) 12 SCC 26] held that the decisions rendered underthe old Act may not be of assistance to decide the validity of grantof interest under the new Act. The logic in Engineers-De-Space-Age [(1996) 1 SCC 516] was that while the contract governedthe interest from the date of cause of action to date of reference,the arbitrator had the discretion to decide the rate of interest fromthe date of reference to date of award and he was not bound byany prohibition regarding interest contained in the contract, insofaras pendente lite period is concerned. This Court in Sayeed Ahmed[(2009) 12 SCC 26] held that the decision in Engineers-De-Space-Age [(1996) 1 SCC 516] would not apply to cases arising underthe new Act. We extract below, the relevant portion from SayeedAhmed [(2009) 12 SCC 26] : (SCC p. 36, paras 23-24)

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“23. The observation in Engineers-De-Space-Age [(1996) 1SCC 516] that the term of the contract merely prohibits thedepartment/ employer from paying interest to the contractorfor delayed payment but once the matter goes to the arbitrator,the discretion of the arbitrator is not in any manner stifled bythe terms of the contract and the arbitrator will be entitled toconsider and grant the interest pendente lite, cannot be used tosupport an outlandish argument that bar on the Government ordepartment paying interest is not a bar on the arbitratorawarding interest. Whether the provision in the contract barsthe employer from entertaining any claim for interest or barsthe contractor from making any claim for interest, it amountsto a clear prohibition regarding interest. The provision need F

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not contain another bar prohibiting the arbitrator from awardinginterest. The observations made in the context of interestpendente lite cannot be used out of contract.

24. The learned counsel for the appellant next contended onthe basis of the above observations in Engineers-De-Space-Age [(1996) 1 SCC 516], that even if Clause G 1.09 is held tobar interest in the pre-reference period, it should be held not toapply to the pendente lite period, that is, from 14-3-1997 to 31-7-2001. He contended that the award of interest during thependency of the reference was within the discretion of thearbitrator and therefore, the award of interest for that periodcould not have been interfered with by the High Court. In viewof the Constitution Bench decisions in G.C. Roy [(1992) 1 SCC508] and N.C. Budharaj [(2001) 2 SCC 721] rendered beforeand after the decision in Engineers-De-Space-Age [(1996) 1SCC 16], it is doubtful whether the observation in Engineers-De-Space-Age [(1996) 1 SCC 516] in a case arising underthe Arbitration Act, 1940 that the arbitrator could award interestpendente lite, ignoring the express bar in the contract, is goodlaw. But that need not be considered further as this is a caseunder the new Act where there is a specific provision regardingaward of interest by the arbitrator.”

The same reasoning applies to the decision in Madnani [(2010)1 SCC 549] also as that also relates to a case under the oldAct and did not independently consider the issue but merelyrelied upon the decision in Engineers-De-Space-Age [(1996)1 SCC 516].

19. Section 37(1) [Sic Section 31(7)] of the new Act by using thewords “unless otherwise agreed by the parties” categoricallyclarifies that the arbitrator is bound by the terms of the contractinsofar as the award of interest from the date of cause of actionto the date of award. Therefore, where the parties had agreedthat no interest shall be payable, the Arbitral Tribunal cannot awardinterest between the date when the cause of action arose to thedate of award.”

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A15. In Union of India v. Krafters Engineering and Leasing(P) Ltd. (2011) 7 SCC 279, a two-Judge Bench considered as to whetherclause 1.15 of the contract in that case would bar pendente lite interest.Clause 1.15 reads as follows:

“1.15. Interest on amounts.—No interest will be payable uponBthe earnest money or the security deposit or amounts payable tothe contractor under the contract but government securitiesdeposited in terms of Clause 1.14.4 will be repayable with interestaccrued thereon.”

This Court, after referring to Engineers-De-Space-Age (supra)Cand Sayeed Ahmed [Sayeed Ahmed and Co. v. State of U.P., (2009)12 SCC 26], then held that they were of the view that Sayeed Ahmed(supra) having held to the contrary, Engineers-De-Space-Age (supra)could not possibly be followed. Same was the position with MadnaniConstruction (supra) which was dismissed by saying that it did notindependently consider the issue but merely relied upon the decision inDEngineers-De-Space-Age (supra). The Court then went on to state:-

“20. In the light of the above discussion, the following conclusionemerges: reliance based on the ratio in Engineers-De-Space-Age [(1996) 1 SCC 516] is unacceptable since the said view hasbeen overruled in Sayeed Ahmed and Co. [(2009) 12 SCC 26 :E(2009) 4 SCC (Civ) 629] and insofar as the ratio in MadnaniConstruction Corpn. (P) Ltd. [(2010) 1 SCC 549 : (2010) 1 SCC(Civ) 168] which is also unacceptable for the reasons mentionedin the earlier paras, we reject the stand taken by the counsel forthe respondent. On the other hand, we fully accept the stand ofFthe Union of India as rightly projected by Mr. A.S. Chandhiok,learned ASG. We reiterate that where the parties had agreed thatno interest shall be payable, the arbitrator cannot award interestfor the amounts payable to the contractor under the contract.Where the agreement between the parties does not prohibit grantof interest and where a party claims interest and the said disputeGis referred to the arbitrator, he shall have the power to awardinterest pendente lite. As observed by the Constitution Bench inG.C. Roy case [(1992) 1 SCC 508], in such a case, it must bepresumed that interest was an implied term of the agreementbetween the parties. However, this does not mean that in everyHcase, the arbitrator should necessarily award interest pendente lite. In the subsequent decision of the Constitution Bench i.e. N.C.Budharaj case [(2001) 2 SCC 721], it has been reiterated that inthe absence of any specific stipulation or prohibition in the contractto claim or grant any such interest, the arbitrator is free to awardinterest.

21. In the light of the above principle and in view of the specificprohibition of contract contained in Clause 1.15, the arbitratorceases to have the power to grant interest. We also clarify thatthe Arbitration Act, 1940 does not contain any specific provisionrelating to the power of arbitrator to award interest. However, inthe Arbitration and Conciliation Act, 1996, there is a specificprovision with regard to award of interest by the arbitrator. Thebar under Clause 1.15 is absolute and interest cannot be awardedwithout rewriting the contract.”

16. Clearly, the conclusion of the Court that Engineers-De-Space-Age (supra) had been overruled by Sayeed Ahmed (supra) isincorrect for two reasons: first, a Bench of two learned Judges cannotoverrule a coordinate Bench of two learned Judges; and second, theCourt in Sayeed Ahmed (supra) was not deciding a case arising underthe 1940 Act, but was deciding a case arising under the 1996 Act.

17. In Tehri Hydro Development Corporation Ltd. v. JaiPrakash Associates Ltd., (2012) 12 SCC 10, a three-Judge Bench ofthis Court dealt with an award passed under the 1940 Act. The relevantclauses barring interest under the agreement in that case are set outherein below:- “14. … Clauses 1.2.14 and 1.2.15 on which much argumentshave been advanced by the learned counsel for both sides maynow 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 damageswill be entertained or payable by the Government in respect ofany money or balances which may be lying with theGovernment owing to any disputes, differences ormisunderstandings between the parties or in respect of any A

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delay or omission on the part of the engineer-in-charge inmaking immediate or final payments or in any other respectwhatsoever.

1.2.15. Interest on money due to the contractor.—Noomission on the part of the engineer-in-charge to pay the amountdue upon measurement or otherwise shall vitiate or make voidthe contract, nor shall the contractor be entitled to interest uponany guarantee or payments in arrears nor upon any balancewhich may on the final settlement of his accounts be due tohim.”

After referring to Krafters Engineering (supra) and some ofthe earlier judgments, it was held:

“16. In Krafters Engg. case [(2011) 7 SCC 279 : (2011) 3 SCC(Civ) 533] the somewhat discordant note struck by the decisionsof this Court in Port of Calcutta v. Engineers-De-Space-Age[(1996) 1 SCC 516] and Madnani Construction Corpn. (P) Ltd.v. Union of India [(2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168]were also taken note of. Thereafter, it was also noticed that thedecision in Engineers-De-Space-Age case [(1996) 1 SCC 516]was considered in Sayeed Ahmed & Co. v. State of U.P. [(2009)12 SCC 26 : (2009) 4 SCC (Civ) 629] and the decision in MadnaniConstruction case [(2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168]was considered in Sree Kamatchi Amman Constructions v.Railways [(2010) 8 SCC 767 : (2010) 3 SCC (Civ) 575] . In SayeedAhmed case [(2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] (SCCpara 24) it was held that in the light of the decisions of theConstitution Bench in G.C. Roy case[(1992) 1 SCC 508] andN.C. Budharaj case [(2001) 2 SCC 721] it is doubtful whetherthe observations in Engineers-De-Space-Age case [(1996) 1SCC 516] to the effect that the arbitrator could award interestpendente lite, ignoring the express bar in the contract, is good law.In Sree Kamatchi Amman Constructions case [(2010) 8 SCC767 : (2010) 3 SCC (Civ) 575] while considering Madnani case[(2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168] this Court notedthat the decision in Madnani case [(2010) 1 SCC 549 : (2010) 1SCC (Civ) 168] follows the decision in Engineers-De-Space-Age case[(1996) 1 SCC 516].”

In this view of the matter, the Court held:

“19. Clauses 1.2.14 and 1.2.15, already extracted and analysed,imposed a clear bar on either entertainment or payment of interestin any situation of non-payment or delayed payment of either theamounts due for work done or lying in security deposit. On thebasis of the discussions that have preceded we, therefore, takethe view that the grant of pendente lite interest on the claim of Rs10,17,461 lakhs is not justified. The award as well as the orders ofthe courts below are accordingly modified to the aforesaid extent.

20. However, the grant of interest for the post-award period wouldstand on a somewhat different footing. This very issue has beenelaborately considered by this Court in B.N. Agarwalla [(1997) 2SCC 469] in the light of the provisions of Section 29 of theArbitration Act, 1940. Eventually this Court took the view that ina situation where the award passed by the arbitrator grantinginterest from the date of the award till the date of payment is notmodified by the Court “… the effect would be as if the Courtitself had granted interest from the date of the decree till the dateof payment…”. In view of the above, the grant of interest on theamount of Rs 10,17,461 lakhs from the date of the award till thedate of the decree or date of payment, whichever is earlier, isupheld. In the facts of the case we are of the view that the rate ofinterest should be 12% per annum as determined in the arbitrationproceeding between the parties.”

18. In Union of India v. Bright Power Projects (India) (P)Ltd., (2015) 9 SCC 695, a three-Judge Bench of this Court had to dealwith interest awarded by an arbitral award under the 1996 Act. Thisjudgment, like Sree Kamatchi Amman Constructions (supra), setsout how Section 31(7)(a) is a complete departure from the position underthe 1940 Act. This Court held:-

“12. Section 31(7) of the Arbitration and Conciliation Act, 1996(hereinafter referred to as “the Act”) is clear to the effect thatunless otherwise agreed by the parties, the Arbitral Tribunal canaward interest at reasonable rate for a period commencing fromthat date when the cause of action arises till the date of the award.Section 31(7) of the Act, reads as under:

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“31. (7)(a) Unless otherwise agreed by the parties, whereand insofar as an arbitral award is for the payment of money,the Arbitral Tribunal may include in the sum for which theaward is made interest, at such rate as it deems reasonable, onthe whole or any part of the money, for the whole or any partof the period between the date on which the cause of actionarose and the date on which the award is made.”

13. Section 31(7) of the Act, by using the words “unless otherwiseagreed by the parties”, categorically specifies that the arbitratoris bound by the terms of the contract so far as award of interestfrom the date of cause of action to date of the award isconcerned. Therefore, where the parties had agreed that nointerest shall be payable, the Arbitral Tribunal cannot awardinterest.

14. We may also refer to the decision of this Court in Union ofIndia v. Saraswat Trading Agency [(2009) 16 SCC 504: (2011)3 SCC (Civ) 499]. This Court has observed in the said case that ifthere is a bar against payment of interest in the contract, thearbitrator cannot award any interest for such period. In view ofthe specific bar under Clause 13(3) of the contract entered intobetween the parties, we are of the view that the Arbitral Tribunalwas not justified in awarding interest from the date of enteringupon the reference to the Arbitral Tribunal till the date of theaward.

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16. Relying upon the aforestated judgment delivered by this Court,the Arbitral Tribunal thought it proper to award interest on theamount payable to the contractor for the period commencing fromthe date on which the reference was entered upon till the date ofthe award. The Tribunal, however, failed to consider the provisionsof Section 31(7) of the Act and Clause 13(3) of the contract beforeawarding interest in the present case.

17. It is also pertinent to note that G.C. Roy case [(1992) 1 SCC508] had been decided on 12-12-1991 on the basis of the provisionsof the Arbitration Act, 1940, which was not operative at the timewhen the dispute on hand was decided by the Arbitral Tribunal.

18. Section 31(7)(a) of the Act ought to have been read andinterpreted by the Arbitral Tribunal before taking any decisionwith regard to awarding interest. The said section, which has beenreproduced hereinabove, gives more respect to the agreemententered into between the parties. If the parties to the agreementagree not to pay interest to each other, the Arbitral Tribunal hasno right to award interest pendente lite.”

19. Given the labyrinth of case law referred to hereinabove, andthe perception that some of the judgments were pulling in differentdirections, a reference was made to a three-Judge Bench. In Union ofIndia v. Ambica Construction (“First Ambica Construction Case”),(2016) 6 SCC 36, paragraph 1 reflects how the matter had been referredto a larger Bench for decision. After referring to the labyrinth of caselaw that has been referred to in this case, this Court held:

“21. This Court in Sayeed Ahmed [Sayeed Ahmed & Co. v.State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] hasalso distinguished the decision in Harish Chandra [State of U.P.v. Harish Chandra & Co., (1999) 1 SCC 63] in which Clause1.09 came up for consideration thus: (Sayeed Ahmed case[Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26 :(2009) 4 SCC (Civ) 629], SCC pp. 33-34, paras 17-19)

“17. … This Court held that the said clause did not bar awardof interest on any claim for damages or for claim for paymentfor work done. We extract below the reasoning for suchdecision: (SCC p. 67, para 10)

‘10. A mere look at the clause shows that the claim forinterest by way of damages was not to be entertained againstthe Government with respect to only a specified type ofamount, namely, any monies or balances which may be lyingwith the Government owing to any dispute, difference betweenthe Engineer-in-Charge and the contractor; ormisunderstanding between the Engineer-in-Charge and thecontractor in making periodical or final payments or in anyother respect whatsoever. The words “or in any other respectwhatsoever” also referred to the dispute pertaining to the AB

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monies or balances which may be lying with the Governmentpursuant to the agreement meaning thereby security depositor retention money or any other amount which might havebeen with the Government and refund of which might havebeen withheld by the Government. The claim for damagesor claim for payment for the work done and which wasnot paid for would not obviously cover any money whichmay be said to be lying with the Government. Consequently,on the express language of this clause, there is no prohibitionwhich could be culled out against the respondent contractorthat he could not raise the claim for interest by way of damagesbefore the arbitrator on the relevant items placed foradjudication.’

18. In Harish Chandra [State of U.P. v. Harish Chandra &Co., (1999) 1 SCC 63] a different version of Clause 1.09 wasconsidered. Having regard to the restrictive wording of thatclause, this Court held that it did not bar award of interest on aclaim for damages or a claim for payments for work done andwhich was not paid. This Court held that the said clause barredaward of interest only on amounts which may be lying with theGovernment by way of security deposit/retention money orany other amount, refund of which was withheld by theGovernment.

19. But in the present case, clause G1.09 is significantlydifferent. It specifically provides that no interest shall be payablein respect of any money that may become due owing to anydispute, difference or misunderstanding between the Engineer-in-Charge and contractor or with respect to any delay on thepart of the Engineer-in-Charge in making periodical or finalpayment or in respect of any other respect whatsoever. Thebar under Clause G1.09 in this case being absolute, the decisionin Harish Chandra [State of U.P. v. Harish Chandra &Co., (1999) 1 SCC 63] will not assist the appellant in anymanner.”

(emphasis in original)

In Harish Chandra [State of U.P. v. Harish Chandra &Co., (1999) 1 SCC 63], this Court has laid down that Clause1.09 did not bar award of interest for claim of damages forpayment for work done and which was not paid for would notobviously cover any money which may be said to be lying withthe Government.

22. In our opinion, it would depend upon the nature of theouster clause in each case. In case there is express stipulationwhich debars pendente lite interest, obviously, it cannot begranted by the arbitrator. The award of pendente lite interestinter alia must depend upon the overall intention of theagreement and what is expressly excluded.”

After referring to the earlier judgments, this Court held:- “28. It is apparent from various decisions referred to above thatin G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy,(1992) 1 SCC 508] the Constitution Bench of this Court has laiddown that where the agreement expressly provides that no interestpendente lite shall be payable on amount due, the arbitrator hasno power to award interest. In N.C. Budharaj [DhenkanalMinor Irrigation Division v. N.C. Budharaj, (2001) 2 SCC 721]a Constitution Bench has observed that in case there is nothing inthe arbitration agreement to exclude jurisdiction of the arbitratorto entertaining claim for interest, the jurisdiction of the arbitratorto consider and award interest in respect to all periods is subjectto Section 29 of the Act. In Hindustan Construction Co. Ltd.[Hindustan Construction Co. Ltd. v. State of J&K, (1992) 4SCC 217] this Court has followed the decision in G.C. Roy[Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC508] and laid down that on the basis of principles of Section 34the arbitrator would have the power to award pendente lite interestalso. In B.N. Agarwalla [State of Orissa v. B.N. Agarwalla,(1997) 2 SCC 469], this Court has again followed G.C. Roy[Irrigation Deptt., State of Orissa v. G.C. Roy, (1992) 1 SCC508] and Hindustan Construction Co. Ltd. [HindustanConstruction Co. Ltd. v. State of J&K, (1992) 4 SCC 217] withrespect to the power of the arbitrator to award pendente lite interest ABC

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and it was held that the arbitrator has the power to award interest.In Harish Chandra [State of U.P. v. Harish Chandra & Co.,(1999) 1 SCC 63] this Court interpreted Clause 1.9 which providedthat no claim for interest or damages will be entertained by theGovernment in respect to any monies or balances which may belying with the Government. It was held that there was no provisionwhich could be culled out against the contractor not to claim interestby way of damages before the arbitrator on the relevant itemsplaced for adjudication. In Ferro Concrete Construction (P) Ltd.[State of Rajasthan v. Ferro Concrete Construction (P) Ltd.,(2009) 12 SCC 1 : (2009) 4 SCC (Civ) 604] this Court consideredClause 4 containing a stipulation that no interest was payable onamount withheld under the agreement. It was held that Clause 4,which dealt with rates, material and workmanship, did not baraward of interest by the arbitrator on claims of the contractormade in the said case. In Sayeed Ahmed [Sayeed Ahmed & Co.v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] thisCourt has emphasised that award of interest would depend uponnature of the clause in the agreement. In Bright Power Projects(India) (P) Ltd. [Union of India v. Bright Power Projects(India) (P) Ltd., (2015) 9 SCC 695 : (2015) 4 SCC (Civ) 702] thisCourt has considered the expression “unless otherwise agreed byparties” employed in Section 31(7)(a) of the 1996 Act and laiddown that in case contract bars claim of interest the contractorcould not have claimed interest. The provision of Section 31(7)(a)of the 1996 Act is binding upon the arbitrator. In Sree KamatchiAmman Constructions [Sree Kamatchi Amman Constructionsv. Railways, (2010) 8 SCC 767: (2010) 3 SCC (Civ) 575] similarview has been taken.

29. Now we come to the question of correctness of decision ofthis Court rendered by a Bench of two Judges in Engineers-De-Space-Age [Port of Calcutta v. Engineers-De-Space-Age,(1996) 1 SCC 516] which has been referred for our considerationin which this Court after consideration of G.C. Roy case [IrrigationDeptt., State of Orissa v. G.C. Roy, (1992) 1 SCC 508] hasobserved thus: (Engineers-De-Space-Age case [Port ofCalcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516] , SCCpp. 519-20, paras 3-4)

“3. … It will appear from what the Constitution Bench statedto be the legal position, that ordinarily a person who is deprivedof his money to which he is legitimately entitled as of right isentitled to be compensated in deprivation thereof, call it bywhatever name. This would be in terms of the principle laiddown in Section 34 of the Code of Civil Procedure. TheirLordships pointed out that there was no reason or principle tohold otherwise in the case of an arbitrator. Pointing out thatarbitrator is an alternative forum for resolution of disputes arisingbetween the parties, it said that he must have the power todecide all disputes and differences arising between the partiesand if he were to be denied the power to award interestpendente lite, the party entitled thereto would be required to goto a court which would result in multiplicity of proceedings, asituation which the court should endeavour to avoid. Reliancewas, however, placed on the observation in sub-para (iii)wherein it is pointed out that an arbitrator is a creature of anagreement and if the agreement between the parties prohibitsthe payment of interest pendente lite the arbitrator must act inaccordance therewith. In other words, according to TheirLordships the arbitrator is expected to act and make his awardin accordance with the general law of the land but subject toan agreement, provided, the agreement is valid and legal. Lastly,it was pointed out that interest pendente lite is not a matter ofsubstantive law, like interest for the period anterior to reference.Their Lordships concluded that where the agreement betweenthe parties does not prohibit grant of interest and where a partyclaims interest and that dispute is referred to the arbitrator, heshall have the power to award interest pendente lite for thesimple reason that in such a case it is presumed that interestwas an implied term of the agreement between the parties; itis then a matter of exercise of discretion by the arbitrator. Theposition in law has, therefore, been clearly stated in the aforesaiddecision of the Constitution Bench.

4. We are not dealing with a case in regard to award of interestfor the period prior to the reference. We are dealing with acase in regard to award of interest by the arbitrator postreference. The short question, therefore, is whether in view of ABCDEF

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sub-clause (g) of Clause 13 of the contract extracted earlierthe arbitrator was prohibited from granting interest under thecontract. Now the term in sub-clause (g) merely prohibits theCommissioner from entertaining any claim for interest and doesnot prohibit the arbitrator from awarding interest. The openingwords “no claim for interest will be entertained by theCommissioner” clearly establishes that the intention was toprohibit the Commissioner from granting interest on accountof delayed payment to the contractor. Clause 13 has to bestrictly construed for the simple reason that as pointed out bythe Constitution Bench, ordinarily, a person who has a legitimateclaim is entitled to payment within a reasonable time and if thepayment has been delayed beyond reasonable time he canlegitimately claim to be compensated for that delay whatevernomenclature one may give to his claim in that behalf.”

30. In Sayeed Ahmed [Sayeed Ahmed & Co. v. State of U.P.,(2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] the decision inEngineers-De-Space-Age[Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516] has been considered and it wasobserved that it cannot be used to support an outlandish argumentthat bar on the Government or department paying interest is not abar on the arbitrator awarding interest. This Court expressed doubtas to the correctness of certain observations made in Engineers-De-Space-Age [Port of Calcutta v. Engineers-De-Space-Age,(1996) 1 SCC 516] to the extent that the arbitrator could awardinterest pendente lite ignoring the express bar in the contract. Butthis Court did not consider the question further as the case inSayeed Ahmed [Sayeed Ahmed & Co. v. State of U.P., (2009)12 SCC 26 : (2009) 4 SCC (Civ) 629] arose under the Arbitrationand Conciliation Act, 1996, and there was a specific provisionunder the new Act regarding the award of interest by the arbitrator.From the discussion made in Sayeed Ahmed [Sayeed Ahmed &Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629]it is apparent that this Court has emphasised that it would dependupon the nature of clause and claim, etc. and it is required to befound on consideration of stipulation whether interest is barred, ifyes, on what amounts interest is barred under the contract.”

The Court then referred to the three-Judge Bench judgment inTehri Hydro Development Corporation Ltd. (supra) and finallyanswered the reference as follows:- “32. In para 4 in Engineers-De-Space-Age [Port of Calcutta v.Engineers-De-Space-Age, (1996) 1 SCC 516] this Court hasobserved that bar under the contract will not be applicable to thearbitrator cannot be said to be observation of general application.In our opinion, it would depend upon the stipulation in the contractin each case whether the power of the arbitrator to grant pendentelite interest is expressly taken away. If answer is “yes” then thearbitrator would have no power to award pendente lite interest.

33. The decision in Madnani Construction Corpn. [MadnaniConstruction Corpn. (P) Ltd. v. Union of India, (2010) 1 SCC549 : (2010) 1 SCC (Civ) 168] has followed the decision inEngineers-De-Space-Age [Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516]. The same is also required to bediluted to the extent that express stipulation under contract maydebar the arbitrator from awarding interest pendente lite. Grantof pendente lite interest may depend upon several factors such asphraseology used in the agreement, clauses conferring powerrelating to arbitration, nature of claim and dispute referred toarbitrator and on what items power to award interest has beentaken away and for which period.

34. Thus, our answer to the reference is that if the contractexpressly bars the award of interest pendente lite, the same cannotbe awarded by the arbitrator. We also make it clear that the bar toaward interest on delayed payment by itself will not be readilyinferred as express bar to award interest pendente lite by theArbitral Tribunal, as ouster of power of the arbitrator has to beconsidered on various relevant aspects referred to in the decisionsof this Court, it would be for the Division Bench to consider thecase on merits.”

20. The aforesaid judgment was applied by another three-JudgeBench soon thereafter in Ambica Construction v. Union of India(“Second Ambica Construction Case”), (2017) 14 SCC 323. In thiscase, the concerned clause, which is clause 2 of the Agreement, readsas follows:- ABC

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“(2) Interest on amounts.— No interest will be payable uponthe earnest money or the security deposit or amounts payable tothe contractor under the contract, but government securitiesdeposited in terms of sub-clause (1) of this clause will be repayablewith interest accrued thereon.”

This Court found that the aforesaid clause was no bar, afterreferring to paragraph 34 of the First Ambica Construction Case(supra):

“6. The only contention advanced at the hands of the learnedcounsel for the appellant, was based on the judgment of this Courtin Union of India v. Ambica Construction [Union of India v.Ambica Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ)36], wherein, having examined the legal position declared by thisCourt by a Constitution Bench in Irrigation Deptt., State of Orissav. G.C. Roy [Irrigation Deptt., State of Orissa v. G.C. Roy,(1992) 1 SCC 508], it was held as under: (Ambica Constructioncase [Union of India v. Ambica Construction, (2016) 6 SCC36 : (2016) 3 SCC (Civ) 36] , SCC p. 59, para 34)

“34. Thus, our answer to the reference is that if the contractexpressly bars the award of interest pendente lite, the samecannot be awarded by the arbitrator. We also make it clearthat the bar to award interest on delayed payment by itself willnot be readily inferred as express bar to award interest pendentelite by the Arbitral Tribunal, as ouster of power of the arbitratorhas to be considered on various relevant aspects referred to inthe decisions of this Court, it would be for the Division Benchto consider the case on merits.”

A perusal of the conclusions drawn by this Court in the abovejudgment, rendered by a three-Judge Division Bench, leavesno room for any doubt, that the bar to award interest on theamounts payable under the contract, would not be sufficient todeny payment of pendente lite interest. In the above view ofthe matter, we are satisfied, that the clause relied upon by thelearned counsel for the Union of India, to substantiate hiscontention, that pendente lite interest could not be awarded to the appellant, was not a valid consideration, for the propositionbeing canvassed. We are therefore satisfied, that the arbitrator,while passing his award dated 28-6-1999, was fully justified ingranting interest pendente lite to the appellant.”

21. To complete the litany of case law, we must now refer to arecent judgment delivered on 03.07.2018 by yet another Division Benchof this Court in M/s Raveechee v. Union of India (Civil Appeal Nos.5964-5965 of 2018). Clause 16.3, with which this judgment wasconcerned, was identical in terms with the clause which barred interestin the Second Ambica Construction Case (supra). This judgmentreferred to and followed judgments in Engineers-De-Space-Age(supra), Madnani Construction (supra) and the three-Judge Bench inthe Second Ambica Construction Case (supra) to hold that such aclause would not be considered to be a bar to the payment of pendentelite interest.

22. A conspectus of the decisions that have been referred to abovewould show that under the 1940 Act, an arbitrator has power to grantpre-reference interest under the Interest Act, 1978 as well as pendentelite and future interest. However, he is constricted only by the fact thatan agreement between the parties may contain an express bar to theaward of pre-reference and/or pendente lite interest. Since interest iscompensatory in nature and is parasitic upon a principal sum not havingbeen paid in time, this Court has frowned upon clauses that bar thepayment of interest. It has therefore evolved the test of strict constructionof such clauses, and has gone on to state that unless there is a clear andexpress bar to the payment of interest that can be awarded by an arbitrator,clauses which do not refer to claims before the Arbitrators or disputesbetween parties and clearly bar payment of interest, cannot stand in theway of an arbitrator awarding pre-reference or pendente lite interest.Thus, when one contrasts a clause such as the clause in the SecondAmbica Construction Case (supra) with the clause in Tehri HydroDevelopment Corporation Ltd. (supra), it becomes clear that unlessa contractor agrees that no claim for interest will either be entertainedor payable by the other party owing to dispute, difference, ormisunderstandings between the parties or in respect of delay on the partof the engineer or in any other respect whatsoever, leading the Court tofind an express bar against payment of interest, a clause which merely A

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Astates that no interest will be payable upon amounts payable to thecontractor under the contract would not be sufficient to bar an arbitratorfrom awarding pendente lite interest under the 1940 Act. As has beenheld in the First Ambica Construction Case (supra), the grant ofpendente lite interest depends upon the phraseology used in the agreement,clauses conferring power relating to arbitration, the nature of claim andBdispute referred to the Arbitrator, and on what items the power to awardinterest has been taken away and for which period. We hasten to addthat the position as has been explained in some of the judgments aboveunder Section 31(7) of the 1996 Act, is wholly different, inasmuch asSection 31(7) of the 1996 Act sanctifies agreements between the partiesCand states that the moment the agreement says otherwise, no interestbecomes payable right from the date of the cause of action until theaward is delivered.

23. In the present case, clause 16 of the General Conditions ofContract only speaks of any delay in payment not making ONGC liableDfor interest. There is nothing in this clause which refers even obliquelyto the Arbitrator’s power to grant interest. This Court finds that theaforesaid clause is narrower than the clause considered by the three-Judge Bench in the Second Ambica Construction Case (supra) whichstates that no interest will be payable on amounts payable to the contractorunder the contract. Clause 16 in the present case confines itself only toEdelay in payment and not to any other amounts payable to the contractorunder the contract. Also, unlike the clause in Tehri Hydro DevelopmentCorporation Ltd. (supra), clause 16 does not contain language whichis so wide in nature that it would interdict an arbitrator from grantingpendente lite interest. It will be remembered that the clause in TehriFHydro Development Corporation Ltd. (supra) spoke of no claim forinterest being entertained or payable in respect of any money whichmay be lying with the Government owing to disputes, difference ormisunderstanding between the parties and not merely in respect of delayor omission; Further, the clause in Tehri Hydro Development Corporation Ltd. (supra) goes much further and makes it clear that noGclaim for interest is payable “in any other respect whatsoever.” It is,thus, clear that clause 16 cannot possibly interdict the payment ofpendente lite interest on the facts of the present case.

24. We now come to Shri Viswanathan’s argument that, in anycase, on the facts of the present case, clause 16 is not at all attractedH

inasmuch as factually there was no delay in payment as a sum ofRs.14,999/- per MT had, in fact, been paid for both 1200 MT and 600MT, but that the balance only became payable on and from the date ofthe award. Shri Viswanathan is right, as it is nobody’s case that therewas delay in payment on the facts of this case. It is only after Reliancewent in a Writ Petition before the High Court that it became clear that ahigher price would be payable, which was left to the Arbitrator todetermine vide the High Court’s judgment referring the issue of price toan arbitrator, which was accepted by ONGC. In this view of the matter,it is clear that no delay on account of the higher price ever took place asit became payable only on and from the date of the award, Rs.14,999/-per MT having been paid on time earlier. This being the case, it is clearthat even if clause 16 were to have application, both pre-reference andpendente lite interest are not barred.

25. Coming to Shri Viswanathan’s appeal, we think that the onlyreason given for reducing interest from 18% to 10% being that ONGCis a Public Sector Undertaking, would not suffice to set aside what waswithin the Arbitrator’s discretion. There is no finding that this discretionhas been exercised perversely, given the interest rates at the time of theaward. We thus uphold the grant of interest at the rate of 18% as pre-reference and pendente lite interest. Considering the fact that ONGChas deposited the difference in the principal sums payable, and pre-reference, pendent lite and future interest, all at the rate of 10% being asum of Rs.1,09,34,323/- till 21.01.1999, and a sum of Rs.46,86,138/- on30.04.2003, we make it clear that recovery of interest till the twoaforementioned dates will be at the rate of 18%. Thus, for pre-reference,pendent lite and future interest, ONGC is to pay the differential amountof interest of 8% till 21.01.1999 and 30.04.2003 within a period of eightweeks from today. In the interest of justice, we clarify that on and from21.01.1999, till payment, future interest is to be paid at 6% per annum onthe balance differential sum of interest, being the difference between10% and 18%, and similarly, on the balance differential sum of interestbetween 10% and 18% on and from 30.04.2003 till payment. Accordingly,the appeal of ONGC is dismissed and the appeal of Reliance is allowedin terms of this judgment.

Nidhi Jain

Appeals disposed of.

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