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2016 (3) TMI 653 - SUPREME COURT

2016 (3) TMI 653 - SUPREME COURT - TMI - Power of the Arbitrator to award pendente lite interest when contract contains bar for grant of interest in a case covered by the Arbitration Act, 1940 - Held that:- Our answer to the reference is that if contract expressly bars award of interest pendente lite, the same cannot be awarded by the Arbitrator. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendent .....

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ite interest when contract contains bar for grant of interest in a case covered by the Arbitration Act, 1940 (hereinafter referred to as the Act ). A Division Bench of this Court had doubted the correctness of the decisions in Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age (1996) 1 SCC 516; and Madnani Construction Corporation (P) Ltd. v. Union of India and Others (2010) 1 SCC 549. In view of the decision of the Constitution Bench judgment in Secretary, Irrigation Departmen .....

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e (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 21.1 .....

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Act was filed before the High Court of Calcutta for referring the case to arbitration. On 2.6.1992 the High Court directed to file the arbitration agreement in the court and appointed two Arbitrators in terms of the arbitration clause. Said Arbitrators failed to publish the award and as such an application was filed for revocation of the authority of joint Arbitrators and another sole Arbitrator was appointed. The sole Arbitrator ultimately published the award on 30.12.1997. On an application fi .....

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eferred by the petitioner was dismissed by the Division Bench of the High Court on 15.10.2004 against which an SLP was filed in which leave was granted and ultimately C.A. No.6621/2005 was allowed and case was remitted vide order dated 7.11.2005 passed by this Court to the Arbitrator for assigning reasons and to pass fresh award. Thereafter, Arbitrator passed a fresh award on 11.2.2006. Again an application was filed by the Union of India under sections 30 and 33 of the Act. The Single Judge dis .....

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n Bench and the same had been partly allowed with regard to claim Nos.6 and 7. Aggrieved thereby, M/s. Ambica Construction had preferred S.L.P. [C] No.17219/2009 in this Court and Union of India has also assailed the judgment and order of the High Court in S.L.P. [C] No.11114/2009. 3. The only question for consideration is whether an Arbitrator has the power to award pendente lite interest in case contract bars the same in a case covered by Act and decisions of this Court in Engineers De-Space A .....

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ing 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 .....

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ere are even numbers of Arbitrators, appointment of umpire is also provided. An Arbitrator is required to pass award within 4 months from the date of entering on the reference. In case Arbitrator fails to pass an award within the specified time the umpire shall make the award within 2 months. Para 6 of First Schedule provides that the Arbitrator or umpire shall examine the matters in difference and the award shall be final and binding. Arbitrator or umpire has the power for examining the witness .....

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Civil Procedure, 1908 (5 of 1908), shall apply to all proceedings before the Court, and to all appeals, under this Act, and (b)The Court shall have, for the purpose of, and in relation to arbitration proceedings, the same power of making orders in respect of any of the matters set out in the Second Schedule as it has for the purpose of, and in relation to any proceedings before the Court: Provided that nothing in CI. (b) shall be taken to prejudice any power which may be vested in an Arbitrator .....

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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 .....

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e 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 the amount due, the Arbitrator has no power to award pendente lite interest. But where the agreement does not provide either for grant or denial of interest on the amount found due, the question arises whether in such an event the Arbitrator has power and authority to grant pendente lite interest. The question involved in G.C. Roy .....

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atinder Singh v. Amrao Singh & Anr., AIR 1961 SC 908; Firm Madanlal Roshanlal Mahajan v. Hukumchand Mills Ltd., Indore, AIR 1967 SC 1030; Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC 1032; Ashok Construction Company v. Union of India, (1971) 3 SCC 66; State of M.P. v. M/s. Saith and Skelton Pvt. Ltd., (1972) 1 SCC 702, various foreign courts decisions and decisions of the High Court. This Court has also referred to Halsbury s Laws of England in Paras 36 & 37 thus:- 36. .....

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or impliedly consent to depart from those rules. The normal principles on which terms are implied in an agreement have to be considered in the context that the agreement relates to an arbitration. 37. At page 303, para 580 (4th edn., Vol. 2) dealing with the award of interest, it reads: 580. Interest.- A Arbitrator or umpire has power to award interest on the amount of any debt or damages for the whole or any part of the period between the date when the cause of action arose and the date of the .....

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wer 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 compens .....

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between the parties. If so, he must have the power to decide all the disputes or differences arising between the parties. If the Arbitrator has no power to award interest pendente lite, the party claiming it would have to approach the court for that purpose, even though he may have obtained satisfaction in respect of other claims from the Arbitrator. This would lead to multiplicity of proceedings. (iii) An Arbitrator is the creature of an agreement. It is open to the parties to confer upon him .....

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and a party to the reference makes a claim for interest, the Arbitrator must have the power to award interest pendente lite. Seth Thawardas Pherumal v. Union of India, AIR 1955 SC 468 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 abso .....

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ice between the parties, such power has always been inferred. 44. Having regard to the above consideration, we think that the following is the correct principle which should be 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 .....

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g 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. Another Constitution Bench of this Court in N.C. Budharaj (supra), considered the question of award of interest by the Arbitrator for the .....

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thus: 25. If that be the position, courts which of late encourage litigants to opt for and avail of the alternative method of resolution of disputes, would be penalising or placing those who avail of the same in a serious disadvantage. Both logic and reason should counsel courts to lean more in favour of the Arbitrator holding to possess all the powers as are necessary to do complete and full justice between the parties in the same manner in which the civil court seized of the same dispute coul .....

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nly opted for a different forum of adjudication with less cumbersome procedure, delay and expense and not to abandon all or any of its substantive rights under the various laws in force, according to which only even the Arbitrator is obliged to adjudicate the claims referred to him. As long as there is nothing in the arbitration agreement to exclude the jurisdiction of the Arbitrator to entertain a claim for interest on the amounts due under the contract, or any prohibition to claim interest on .....

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tenanced 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 t .....

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nterest, on the sums found due and payable, for the pre-reference period, in the absence of any specific stipulation or prohibition in the contract to claim or grant any such interest. The decision in Jena case taking a contraview does not lay down the correct position and stands overruled, prospectively, which means that this decision shall not entitle any party nor shall it empower any court to reopen proceedings which have already become final, and apply only to any pending proceedings. No co .....

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Civil Procedure though same is not applicable. However, the observation has to be considered in case there is no express bar in the agreement for awarding pendente lite interest as it has simply followed what has been laid down in G.C. Roy (supra). This Court has laid down thus: 5. The question of interest can be easily disposed of as it is covered by recent decisions of this Court. It is sufficient to refer to the latest decision of a five Judge bench of this Court in Secretary, Irrigation Depa .....

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antive law, the grant of interest for the post-award period is a matter of procedure. Section 34 of Code of Civil Procedure provides both for awarding of interest pendente lite as well as for the post-decree period and the principle of Section 34 has been held applicable to proceedings before the Arbitrator, though the section as such may not apply. In this connection, 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 Wa .....

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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 p .....

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appellant next relied upon the judgment of this Court in State of Orissa v. B.N. Agarwalla (1997) 2 SCC 469. In that case, this Court held that the Arbitrator has jurisdiction to award: (i) interest for pre-reference period, (ii) interest for pendente lite, and (iii) future interest. This Court also held that the following part of Clause (4) of the contract dealing with Rates, materials and workmanship did not bar award of interest by the Arbitrator on the claims of the contractor: (SCC p. 478, .....

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jurisdiction to award interest. As Clause G1.09 in the present case contains an express bar and is different from the clause considered in B.N. Agarwalla (supra) the said decision is also of no assistance. In B.N. Agarwalla (supra) this Court has observed that Clause 4 of the contract dealing with Rates, materials and workmanship did not bar award of interest by the Arbitrator on the claims of the contractor. The stipulation was no interest was payable on amount withheld under the agreement. 13 .....

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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 .....

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nt, namely, any moneys or balances which may be lying with the Government owing to any dispute, difference between the Engineer-in-Charge and the contractor; or misunderstanding between the Engineer-in-Charge and the contractor in making periodical or final payments or in any other respect whatsoever. The words or in any other respect whatsoever also referred to the dispute pertaining to the moneys or balances which may be lying with the Government pursuant to the agreement meaning thereby secur .....

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aim for interest by way of damages before the Arbitrator on the relevant items placed for adjudication. (emphasis supplied) 18. In Harish Chandra (1999) 1 SCC 63 a different version of Clause 1.09 was considered. Having regard to the restrictive wording of that clause, this Court held that it did not bar award of interest on a claim for damages or a claim for payments for work done and which was not paid. This Court held that the said clause barred award of interest only on amounts which may be .....

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final payment or in respect of any other respect whatsoever. The bar under Clause G1.09 in this case being absolute, the decision in Harish Chandra (supra) will not assist the appellant in any manner. In Harish Chandra (supra), this Court has laid down that clause 1.09 did not bar award of interest for claim of damages for payment for work done and which was not paid for would not obviously cover any money which may be said to be lying with the Government. 14. In our opinion, it would depend up .....

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ng 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 p .....

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re payment of interest on any debt or damages is barred by express provision in the contract, no interest shall be awarded. (c) Where there is no express bar in the contract and where there is also no provision for payment of interest then the principles of Section 3 of the Interest Act will apply and consequently interest will be payable: (i) where the proceedings relate to a debt (ascertained sum) payable by virtue of a written instrument at a certain time, then from the date when the debt is .....

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Civil Procedure, 1908 or the provisions of law governing arbitration as the case may be. In Sayeed Ahmed (supra), the provisions of Arbitration & Conciliation Act, 1996 were applicable. 16. A 3-Judge Bench of this Court in Union of India v. Bright Power Projects (India) Pvt. Ltd. (2015) 9 SCC 695 has considered the provisions contained in section 31(7)(a) of the Arbitration and Conciliation Act, 1996 and considered the words unless otherwise agreed by parties in the said section and held th .....

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f the terms of agreement. With respect to section 31(7)(a) of the Arbitration & Conciliation Act, 1996 this Court 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 agre .....

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bitrator 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 Arbitrator. 17. In Sree Kamatchi Amman Constructions (supra), it was observed that the words unless otherwise agreed by the parties in section 31 of new Act of 1996 clarify that Arbitrator is .....

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use of action arose to the date of award. 20. We are of the view that the decisions in Engineers-De- Space-Age (supra) and Madnani (supra) are inapplicable for yet another reason. In Engineers-De-Space-Age (supra) and Madnani (supra) the Arbitrator had awarded interest for the pendente lite period. This Court upheld the award of such interest under the old Act on the ground that the Arbitrator had the discretion to decide whether interest should be awarded or not during the pendente lite period .....

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(supra) and Madnani (supra) are inapplicable. Be that as it may. 18. This Court in Union of India v. Krafters Engineering & Leasing Pvt. Ltd. (2011) 7 SCC 279 has held that by a provision in the agreement, the jurisdiction of the Arbitrator to award interest can be excluded. This Court considered the nature of the claim vis-à-vis the provision contained in the relevant clause. 19. It is apparent from various decisions referred to above that in G.C. Roy (supra) Constitution Bench of th .....

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nstruction 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 inter .....

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interest was payable on amount withheld under the agreement. It was held that clause 4 dealt with rates, material and workmanship did not bar award of interest by the arbitrator on claims of the contractor made in the said case. In Sayeed Ahmed (supra) this Court has emphasized that award of interest would depend upon nature of the clause in the agreement. In Bright Power Projects (India) Pvt. Ltd. (supra) this Court has considered the expression unless otherwise agreed by parties employed in se .....

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rt after consideration of G.C. Roy s case has observed thus : 3….. It will appear from what the Constitution Bench stated to be the legal position, that ordinarily a person who is deprived of his money to which he is legitimately entitled as of right is entitled to be compensated in deprivation thereof, call it by whatever name. This would be in terms of the principle laid down in Section 34 of the Code of Civil Procedure. Their Lordships pointed out that there was no reason or principle .....

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eliance was, however, placed on the observation in sub-para (iii) wherein it is pointed out that an Arbitrator is a creature of an agreement and if the agreement between the parties prohibits the payment of interest pendente lite the Arbitrator must act in accordance therewith. In other words, according 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. Las .....

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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 earlier .....

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for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. 21. In Sayeed Ahmed (supra) the decision in Engineers-De-Space-Age (supra) has been considered and it was observed that it cannot be used to support an o .....

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there was a specific provision under new Act regarding award of interest by the Arbitrator. From the discussion made in Sayeed Ahmed (supra) it is apparent that this Court has emphasized that it would depend upon the nature of clause and claim etc. and it is required to be found on consideration of stipulation whether interest is barred, if yes, on what amounts interest is barred under the contract. 22. A three-Judge Bench of this Court in Tehri Hydro Development Corporation Limited and Another .....

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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. Clause .....

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elay or omission on the part of the engineer-in-charge in making immediate or final payments or in any other respect whatsoever. 1.2.15. Interest on money due to the contractor. - No omission on the part of the engineer-in-charge to pay the amount due upon measurement or otherwise shall vitiate or make void the contract, nor shall the contractor be entitled to interest upon any guarantee or payments in arrears nor upon any balance which may on the final settlement of his accounts be due to him. .....

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etween the parties or even otherwise. 15. Of the several decisions of this Court referred to by the learned counsel for the appellant the judgments of the Constitution Bench of this Court in Irrigation Deptt., Govt. of Orissa v. G.C. Roy, (1992) 1 SCC 508 and Dhenkanal Minor Irrigation Division v. N.C. Budharaj, (2001) 2 SCC 721 will require specific notice. The true ratio laid down in the aforesaid two judgments have been elaborately considered in a more recent pronouncement of this Court in th .....

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be presumed that interest was an implied term of the agreement and, therefore, whether such a claim is tenable can be examined by the arbitrator in the reference made to him. The aforesaid view, specifically, is with regard to pendente lite interest. In the subsequent decision of the Constitution Bench in N.C. Budharaj's case (supra) a similar view has been taken with regard to interest for the prereference period. 16. In Krafters Engineers' case (supra), the somewhat discordant note st .....

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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 c .....

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(supra) which is in the following terms: 44. Having regard to the above consideration, we think that the following is the correct principle which should be 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 .....

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e in view. 18. The provisions of the U.P. Civil Laws (Reforms and Amendment) Act amending the First Schedule to the Arbitration Act, 1940 does not assist the respondent contractor in any manner to sustain the claim of award of interest pendente lite, inasmuch, as Para 7-A of the First Schedule, as amended, is only an enabling provision which will have no application to a situation where there is an express bar to the entertainment or payment of interest on the delayed payment either of an amount .....

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he Bench in B.N. Agarwalla case that in G.C. Roy case (supra) the decision 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 .....

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