Latest - TMI e-Newsletter
New User/ Regiser
2021 (10) TMI 250 - Indian Laws
Scope of the Arbitration - Denial of pendente lite interest on the award amount - Clause 17 of the Contract is ultra vires in terms of Section 28 of the Indian Contract Act, 1872 or not? - HELD THAT:- 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 - if the contract prohibits prereference and pendente lite interest, the arbitrator cannot award interest for the said period. In the present case, clause barring interest is very clear and categorical. It uses the expression “any moneys due to the contractor” by the employer which includes the amount awarded by the arbitrator.
Therefore, if the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest - 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.
Clause 17 of the contract is not ultra vires in terms of Section 28 of the Indian Contract Act, 1872 - Appeal dismissed.