Power of an Arbitrator to award an interest while litigation awaits is restricted when the parties have agreed to contrary: Supreme Court of India

The law relating to the award of pendente lite interest by Arbitrator under the Arbitration and Conciliation Act, 1996 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 pre-­reference and pendente lite interest when the parties themselves have agreed to the contrary as held by the Hon’ble Supreme Court through Justice S. Abdul Nazeer in the case of Garg Builders Vs. Bharat Heavy Electricals Ltd. [CIVIL APPEAL NO.6216 OF 2021] (Arising out of S.L.P. (C.) No. 16320 of 2018).

The brief facts of the case are that the respondent floated a tender for the construction of a boundary wall at its Combined Cycle Power Project at Bawana, Delhi. The appellant submitted its bid for the project which was accepted by the respondent.  Subsequently, on 24.10.2008 the parties entered into a contract which, inter alia, contained the interest barring clause. The disputes arose between the parties with respect to the aforesaid contract and subsequently, the appellant filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 before the Delhi High Court wherein the Court-appointed Hon’ble Mr. Justice M.A. Khan (Retd.) as the sole Arbitrator to adjudicate the disputes.

Learned Arbitrator after hearing the contentions of both and awarded pendente lite and future interest at the rate of 10% p.a. to the appellant on the award amount from the date of filing of the claim petition i.e. 02.12.2011 till the date of realization of the award amount. The respondent challenged the said award under Section 34 of the 1996 Act before the   Delhi   High   Court on the ground that the learned   Arbitrator being a creature of the arbitration agreement traveled beyond the terms of the contract. The learned Single Judge vide his final judgment and order dated 10.03.2017 set aside the impugned order and this judgment was upheld by the Division Bench of the High Court.

Before the Hon’ble Supreme Court, Mr. Sanjay Bansal, learned counsel for the appellant, contended that the learned   Arbitrator had taken a plausible view, in terms of Clause 17 of the Contract and held that the said clause does not bar the payment of interest for pendente lite period. This argument relied on the judgments of this court in Ambica Construction v. Union of India and Raveechee and Company v. Union of India. On the other hand, Mr. Pallav Kumar, learned counsel for the respondent, submitted that Section 31(7)(a) of the 1996 Act gives 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.

After hearing both the parties, the hon’ble court, while relying on the judgments in the case of Sayeed Ahmed and Company v. State of Uttar Pradesh & Ors, Bharat Heavy Electricals Limited v. Globe Hi­Fabs Limited and  Sri   Chittaranjan   Maity   v.   Union of   India, stated that “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”.

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Judgment Reviewed by – Aryan Bajaj

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