TMI Blog2018 (7) TMI 2273X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 lying with the Government by way of security deposit/retention money or any other amount, refund of which was withheld by the Government - But in the present case, clause G1.09 is significantly different. It specifically provides that no interest shall be payable in respect of any money that may become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge and contractor or with respect to any delay on the part of the Engineer-in-Charge in making periodical or 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 will not assist the appellant in any manner. In the present case, clause 16 of the General Conditions of Contract only speaks of any delay in payment not making ONGC liable for interest. There is nothing in this clause which refers even obliquely to the Arbitrator s power to grant interest - Since interest is compensatory in nature and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the contract price for supply of 1200 MT of CMC. A separate order, referred to as the repeat order, was also placed for supply of 600 MT of CMC. It is undisputed that the supply was made on time and payments were received for both contracts at the rate of Rs.14,999/- per MT. 2. In October 1990, the petitioner filed a Special Civil Application before the Gujarat High Court in the course of which, by an order dated 11.10.1990, the disputes between the parties were referred to arbitration, which were with regard to the price for the supply of 1200 MT and 600 MT of CMC respectively. The original Arbitral Tribunal consisted of Justice V.S. Deshpande and Mr. S. Tibrewal. Shri Deshpande having died, Justice B.J. Divan was appointed in his place. 3. By an award dated 29.12.1993, the Arbitrators fixed the price of 1200 MT at Rs.18,500/- per MT, and Rs.20,500/- per MT insofar as 600 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 Civil Judge, by his judgment dated 30.07.1998, rejected these objections, but ultimately reduced the interest for a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 1940 Act is concerned, interest would be payable only if there is no express bar in the agreement, and agreements between the parties have to be construed strictly as interest is the grant of compensation for value of money lost, as has been held in some of the judgments. This being so, though there may be a bar inter-se the parties, yet the Arbitrator is 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 be granted, except as to the rate of interest awarded. 7. Two important five-Judge Bench judgments have laid down that, under the 1940 Act, in the absence of an express bar under the agreement, the Arbitrator has jurisdiction to award interest for all three periods, i.e., pre-reference, pendente lite as well as future interest. The judgment of this Court in Irrigation Department, State of Orissa v. G.C. Roy, (1992) 1 SCC 508, overruled Jena s case [Executive Engineer (Irrigation), Balimela v. Abhaduta Jena, (1988) 1 SCC 418] and held that arbitrators under the 1940 Act would be clothed with the jurisdiction to award pendente lite interest. Insofar as pre-reference interest is concerned, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the arbitrator is not, in any manner, stifled by this term of the contract and the arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the arbitrator was in no manner prohibited from awarding interest pendente lite. 9. In Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd., (2005) 6 SCC 462, a judgment of two learned judges arising out of the 1940 Act, 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 to award interest for each of these periods provided there is no contractual bar. 10. In M.B. Patel and Co. v. ONGC, (2008) 8 SCC 251, the clause which was said to interdict interest was clause 18 of the Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on that amount was plainly in breach of the express terms of the agreement. The order of the High Court insofar as pre-reference and pendente lite interest on the amount under Item 3 is concerned is, therefore, unsustainable. This case has later been distinguished as having arisen under the 1996 Act, under which the position qua both pre-reference and pendente lite interest is materially different. 13. In Madnani Construction Corporation (P) Ltd. v. Union of India and Ors., (2010) 1 SCC 549, two judges of this Court had to deal with the grant of pre-reference interest under the Interest Act in an award passed under the 1940 Act. Paragraphs 22 and 23 of the judgment set out the clauses which interdict payment of interest as follows: 22. Clause 16(2) of GCC is set out below: 16. (2) No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract but government securities deposited in terms of such Clause (1) of this Clause will be repayable with interest accrued thereto. 23. The relevant portion of Clause 30 relating to interest is set out below: That the contractor will have no clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 18. At the outset it should be noticed that Engineers-De- Space-Age [(1996) 1 SCC 516] and Madnani [(2010) 1 SCC 549] arose under the old Arbitration Act, 1940 which did not contain a provision similar to Section 31(7) of the new Act. This Court, in Sayeed Ahmed [(2009) 12 SCC 26] held that the decisions rendered under the old Act may not be of assistance to decide the validity of grant of interest under the new Act. The logic in Engineers-De-Space-Age [(1996) 1 SCC 516] was that while the contract governed the interest from the date of cause of action to date of reference, the arbitrator had the discretion to decide the rate of interest from the date of reference to date of award and he was not bound by any prohibition regarding interest contained in the contract, insofar as pendente lite period is concerned. This Court in Sayeed Ahmed [(2009) 12 SCC 26] held that the decision in Engineers-De-Space-Age [(1996) 1 SCC 516] would not apply to cases arising under the new Act. We extract below, the relevant portion from Sayeed Ahmed [(2009) 12 SCC 26] : (SCC p. 36, paras 23-24) 23. The observation in Engineers-De-Space- Age [(1996) 1 SCC 516] that the term of the contract merel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tegorically clarifies that the arbitrator is bound by the terms of the contract insofar as the award of interest from the date of cause of action to the date of award. Therefore, where the parties had agreed that no interest shall be payable, the Arbitral Tribunal cannot award interest between the date when the cause of action arose to the date of award. [emphasis supplied] 15. In Union of India v. Krafters Engineering and Leasing (P) Ltd. (2011) 7 SCC 279, a two-Judge Bench considered as to whether clause 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 upon the earnest money or the security deposit or amounts payable to the contractor under the contract but government securities deposited in terms of Clause 1.14.4 will be repayable with interest accrued thereon. This Court, after referring to Engineers-De-Space-Age (supra) and 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 positi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 16. Clearly, the conclusion of the Court that Engineers-De-Space- Age (supra) had been overruled by Sayeed Ahmed (supra) is incorrect for two reasons: first, a Bench of two learned Judges cannot overrule a coordinate Bench of two learned Judges; and second, the Court in Sayeed Ahmed (supra) was not deciding a case arising under the 1940 Act, but was deciding a case arising under the 1996 Act. 17. In Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd., (2012) 12 SCC 10, a three-Judge Bench of this Court dealt with an award passed under the 1940 Act. The relevant clauses barring interest under the agreement in that case are set out herein below:- 14. Clauses 1.2.14 and 1.2.15 on which much arguments have been advanced by the learned counsel for both sides may now 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 damages will be entertained or payable by the Government in respect of any money or balances which may be lying with the Government owing to any disputes, differences or misunderstandings between the parties or i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lying in security deposit. On the basis of the discussions that have preceded we, therefore, take the view that the grant of pendente lite interest on the claim of Rs 10,17,461 lakhs is not justified. The award as well as the orders of the courts below are accordingly modified to the aforesaid extent. 20. However, the grant of interest for the post-award period would stand on a somewhat different footing. This very issue has been elaborately considered by this Court in B.N. Agarwalla [(1997) 2 SCC 469] in the light of the provisions of Section 29 of the Arbitration Act, 1940. Eventually this Court took the view that in a situation where the award passed by the arbitrator granting interest from the date of the award till the date of payment is not modified by the Court the effect would be as if the Court itself had granted interest from the date of the decree till the date of payment . In view of the above, the grant of interest on the amount of Rs 10,17,461 lakhs from the date of the award till the date of the decree or date of payment, whichever is earlier, is upheld. In the facts of the case we are of the view that the rate of interest should be 12% per annum as determine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g from the date on which the reference was entered upon till the date of the award. The Tribunal, however, failed to consider the provisions of Section 31(7) of the Act and Clause 13(3) of the contract before awarding interest in the present case. 17. It is also pertinent to note that G.C. Roy case [(1992) 1 SCC 508] had been decided on 12-12-1991 on the basis of the provisions of the Arbitration Act, 1940, which was not operative at the time when the dispute on hand was decided by the Arbitral Tribunal. 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 agreement agree not to pay interest to each other, the Arbitral Tribunal has no right to award interest pendente lite. [emphasis supplied] 19. Given the labyrinth of case law referred to hereinabove, and the perception that some of the judgments were pulling in different directions, a reference was made to a three-Judge Bench. In Union of India v. Ambica Construction ( F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 lying with the Government by way of security deposit/retention money or any other amount, refund of which was withheld by the Government. 19. But in the present case, clause G1.09 is significantly different. It specifically provides that no interest shall be payable in respect of any money that may become due owing to any dispute, difference or misunderstanding between the Engineer-in-Charge and contractor or with respect to any delay on the part of the Engineer-in-Charge in making periodical or 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 [State of U.P. v. Harish Chandra Co., (1999) 1 SCC 63] will not assist the appellant in any manner. (emphasis in original) In Harish Chandra [State of U.P. v. Harish Chandra Co., (1999) 1 SCC 63], 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 whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arbitrator on the relevant items placed 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 considered Clause 4 containing a stipulation that no interest was payable on amount withheld under the agreement. It was held that Clause 4, which 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 [Sayeed Ahmed Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ) 629] this Court has emphasised that award of interest would depend upon nature 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] this Court has considered the expression unless otherwise agreed by parties employed in Section 31(7)(a) of the 1996 Act and laid down that in case contract bars claim of interest the contractor could not have claimed interest. The provision of Section 31(7)(a) of the 1996 Act is binding upon the arbitrator. In Sree Kamatchi Amman Constructions [S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ll have the power to award interest pendente lite for the simple reason that in such a case it is presumed that interest was an implied term of the agreement between 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 the arbitrator was prohibited from granting interest under the contract. Now the term in sub-clause (g) merely prohibits the Commissioner from entertaining any claim for interest and does not prohibit the arbitrator from awarding interest. The opening words no claim for interest will be entertained by the Commissioner clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. Clause 13 has to be strictly construed for the simple reason that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 33. The decision in Madnani Construction Corpn. [Madnani Construction Corpn. (P) Ltd. v. Union of India, (2010) 1 SCC 549 : (2010) 1 SCC (Civ) 168] has followed the decision in Engineers-De-Space-Age [Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516]. The same is also required to be diluted to the extent that express stipulation under contract may debar the arbitrator from awarding interest pendente lite. Grant of pendente lite interest may depend upon several factors such as phraseology used in the agreement, clauses conferring power relating to arbitration, nature of claim and dispute referred to arbitrator and on what items power to award interest has been taken away and for which period. 34. Thus, our answer to the reference is that if the contract expressly bars the 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 pendente lite by the Arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... est could not be awarded to the appellant, was not a valid consideration, for the proposition being canvassed. We are therefore satisfied, that the arbitrator, while passing his award dated 28- 6-1999, was fully justified in granting interest pendente lite to the appellant. 21. To complete the litany of case law, we must now refer to a recent judgment delivered on 03.07.2018 by yet another Division Bench of this Court in M/s Raveechee v. Union of India (Civil Appeal Nos. 5964- 5965 of 2018). Clause 16.3, with which this judgment was concerned, was identical in terms with the clause which barred interest in the Second Ambica Construction Case (supra). This judgment referred to and followed judgments in Engineers-De-Space-Age (supra), Madnani Construction (supra) and the three-Judge Bench in the Second Ambica Construction Case (supra) to hold that such a clause would not be considered to be a bar to the payment of pendente lite interest. 22. A conspectus of the decisions that have been referred to above would show that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act, 1978 as well as pendente lite and future interest. However, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st. There is nothing in this clause which refers even obliquely to the Arbitrator s power to grant interest. This Court finds that the aforesaid clause is narrower than the clause considered by the three- Judge Bench in the Second Ambica Construction Case (supra) which states that no interest will be payable on amounts payable to the contractor under the contract. Clause 16 in the present case confines itself only to delay in payment and not to any other amounts payable to the contractor under the contract. Also, unlike the clause in Tehri Hydro Development Corporation Ltd. (supra), clause 16 does not contain language which is so wide in nature that it would interdict an arbitrator from granting pendente lite interest. It will be remembered that the clause in Tehri Hydro Development Corporation Ltd. (supra) spoke of no claim for interest being entertained or payable in respect of any money which may be lying with the Government owing to disputes, difference or misunderstanding between the parties and not merely in respect of delay or omission; Further, the clause in Tehri Hydro Development Corporation Ltd. (supra) goes much further and makes it clear that no claim for interest is p ..... X X X X Extracts X X X X X X X X Extracts X X X X
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