Delhi High Court
M/S Teknow Consultants & ... vs Bharat Heavy Electricals Limited on 28 May, 2019
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* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgement Reserved: 11thSeptember 2018
Judgement Pronounced: 28th May, 2019
+ FAO(OS) 202/2017
M/S TEKNOW CONSULTANTS & ENGINEERS PVT LTD
..... Appellant
Through: Ms. Niyati Kohli, Mr. Rishi Agrawala,
Mr.Karan Luthra and Ms.Malavika
Lal, Advocates.
versus
BHARAT HEAVY ELECTRICALS LIMITED ..... Respondent
Through: Mr. Ravi Gupta, Sr. Adv. with Mr.
Pallav Kumar and Mr. Prashant
Kumar, Advocates.
CORAM:
HON'BLE MR. JUSTICE G.S.SISTANI
HON'BLE MS. JUSTICE SANGITA DHINGRA SEHGAL
G.S.SISTANI, J.
1. The appellant has filed the present appeal under Section 37 of the
Arbitration and Conciliation Act, 1996 (hereinafter referred to as the
'Act') read with Section 10 of the Delhi High Court Act, 1966 against
the judgment dated 16.03.2017 passed by the learned Single Judge
setting aside in part the Award of the Sole Arbitrator dated 30.04.2015
with regard to pendente lite interest.
2. Some necessary facts, which are required to be noticed for the disposal
of this appeal are as under:
3. The Appellant is a company incorporated under the Companies Act,
1956, registered as an SME, and is engaged in the business of
construction of switchyards and allied structure. Whereas, the
respondent is a public sector undertaking having its registered office at
New Delhi. The respondent invited tenders on 05.07.2006 for
execution and handling of civil works for M/s Neyveli Lignite
Corporation, Rajasthan. On 03.11.2006, the appellant submitted its
revised price offer and the same was accepted by the respondent on
28.11.2006.The respondent awarded the work under the tender vide
Letter of Intent dated 28.11.2006 and issued a detailed Work Order
dated 12.02.2007 to the appellant.
4. As per the Work Order, the original stipulated period of completion of
work was 27.03.2008. The appellant applied for the first extension of
time on 24.03.2008, the same was granted by the respondent till
31.01.2009 without any financial implication. Further, the second
extension was granted till 30.04.2009 on similar grounds. The third
extension was sought by the appellant till 31.08.2009. The respondent
vide communication dated 22.06.2009 wrote to the appellant asking
them to get the work started by 23.06.2009, otherwise the same would
be dealt as per the contract agreement. The appellant vide its letter
dated 28.06.2009 asked the respondent to close the contract as on
26.06.2009 and award the balance work to any other party after
releasing the appellant's overdue payment in terms of escalation and
compensation from 31.04.2008 onwards. Pursuant to which, the
respondent vide e-mail dated 30.06.2009 conveyed to the appellant
that there was no provision in the contract for short closing of the
contract. However, it was stated that the "run over charges as per the
contract shall be paid." The appellant responded vide letter dated
4.07.2009 stating that the appellant informed the respondent that it is
required to pay the over run charges as it was deputing its
representative for taking joint measurement of the site on 5.07.2009
for the purpose of the closure. The respondent on 15.07.2009 granted
the final extension to the appellant to complete the work by
31.07.2009.
5. However, the disputes arose between the parties in relation to the
timelines with respect to the completion of work, pursuant to which,
the appellant sent a notice for invocation of the arbitration to the
respondent dated 05.09.2009. The Sole Arbitrator after hearing the
matter, passed an award in favour of the appellant.
6. The respondent herein had filed a petition under Section 34 of the Act,
which was registered as OMP No.534/2015, wherein the Learned
Single Judge has set aside the Award in part, passed by the Sole
Arbitrator dated 30.04.2015 with regards to the pendente lite interest.
Learned Single Judge has upheld the claim no.6 of Rs.10,76,084/- on
account of over run charges in favour of the appellant as the
respondent vide its e-mail dated 30.06.2009 themselves stated that
while the escalation would not be payable, over run charges would in
fact be paid. Furthermore, the learned Single Judge has dismissed the
objections barring the decision rendered by the Arbitrator with respect
to Claim No.7. Claim No.7 was raised by the appellant herein for pre
suit, pendente lite and future interest @ 18 % per annum. The
Arbitrator granted interest @ 13% per annum from 01.07.2009 till the
date of the award and upto the date of payment. The Arbitrator also
held that if the payment is made beyond 90 days from the date of the
award, then the claimant shall be entitled to interest @ 18 % per
annum from the date of payment till actual realization. The objections
of the respondent herein regarding Claim no.7 were allowed.
7. The respondent has made a reference to Clause 5.7 of the Work Order,
which reads as under:
"5.7 No interest shall be payable by BHEL on Security
Deposit or on any money due to the contractor."
8. The learned Single Judge placed reliance on Clause 5.7 and held that
the award with regards to the pendente lite is contrary to the contract
and is hit by section 28(3) of the Act. For the sake of brevity,
paragraphs 15 and 16 of the order of the learned Single Judge are
being reproduced below:
"15. However, as regards the award of pendente lite interest,
learned counsel for the Petitioner is right in his contention that
under Clause 5.7 no pendente lite interest could be granted. The
Award to the extent that it has awarded pendente lite interest is
contrary to the express terms of the contract and is hit by
Section 28(3) of the Act. The Award to this extent is opposed to
the fundamental policy of Indian law and is hereby set aside.
Only the post Award interest in the manner awarded in the
impugned Award is upheld.
16. As a result the challenge to the impugned Award as regards
over run charges is hereby rejected. The Award is interfered
with and set aside only to the extent that the grant of pre-suit
and pendente lite interest up to the date of the Award. The
Award of interest at the post-Award stage, as directed in the
impugned Award, is hereby upheld."
9. Learned counsel for the appellant submits that the learned Single
Judge in paragraph 15 of the impugned order, has erroneously held
that the Arbitrator could not have granted pendente lite interest (Claim
No.7) in view of Clause 5.7 of the Work Order dated 12.02.2007. It is
contended that the Sole Arbitrator has given a detailed award while
allowing Claim no.7 regarding pendente lite interest on the amounts
payable. Counsel categorically submits that the learned Single Judge
did not consider the scope and ambit of the said clause. He submits
that Clause 5.7 specifically deals with the security deposit to be
submitted by the appellant prior to commencement of the work.
10. It is further contended that the respondent had neither pleaded nor
raised or argued any ground pertaining to Clause 5.7 of the Work
Order during the course of the proceedings before the Sole Arbitrator.
Counsel for the appellant has relied upon a decision rendered by the
Supreme Court in the case of State of Maharashtra vs. Hindustan
Construction Company Limited reported at (2010) 4 SCC 518,
wherein it was held that the grounds, which were not taken at the first
stage, cannot be raised in subsequent proceedings. It is contended that
the learned Single Judge has overlooked the fact and reached a
conclusion that there was no enforceable contract between the parties
after 30.04.2009, the date upto which the respondent herein had given
extension vide their letter dated 19.02.2009. Counsel for the appellant
further submits that the Single Judge has failed to appreciate that the
Arbitral Tribunal has not granted interest for the period of the
currency of the contract and has only granted interest for the period
after the date of closure of the contract, i.e.30.04.2009. The contention
of the learned counsel for the appellant is, thus, that Clause 5.7 would
be inapplicable after the contract between the parties came to an end
and Clause 5.7 would not apply during the pendency of the contract
between the parties and it is during that period the appellant herein,
could not seek payment of interest on amount due and payable.
11. It is further submitted that the finding of the learned Arbitrator i.e.
there was no enforceable contract between the parties after 30.04.2009
has attained finality as challenge to the award on this ground was
dismissed by the Single Judge and the order of the Single Judge has
been upheld by the Division Bench by an order dated 25.09.2017
passed in FAO (OS) 261/2007. Counsel further highlighted that the
Single Judge has failed to appreciate that the Arbitrator has not
granted interest (including Security Deposit) for the period of the
currency of the contract and has only granted interest for the period
after the date of closure of the Contract, i.e. 30.04.2009. Counsel
further submits that the terms and conditions prescribed under the
Work Order would cease to be applicable from the date of Closure, i.e.
30.04.2009, including Clause 5.7 and post the closure, withholding of
any amounts would no longer be under the aegis of the contract and
such would rightfully be subject to payment of interest. Moreover, as
per the doctrine of contra- proferentem, the ambiguity regarding the
period of applicability of Clause 5.7 must be read in favour of the
appellant as the respondent has framed the Work Order. Reliance is
placed on Union of India Vs. Saraswat Trading Agency reported in
(2009) 16 SCC 504, wherein the Supreme Court held that in case, the
parties claim was in regard to two periods: when the agreement was
subsisting and the parties were bound by its terms, and the other when
the agreement was admittedly terminated and the party continued to
work on the request of the other. In that case, the former is covered by
the agreement while the latter fell beyond it is significant. On that
account, the two periods must receive different treatments. The
relevant paragraphs are reproduced below: -
"28. In the case in hand, the respondent's claim was in regard
to two periods; one from 3-8-1991 to 31-12-1992 when the
agreement was subsisting and the parties were bound by its
terms, and the other from 1-1-1993 to 31-8-1994 when the
agreement was admittedly terminated and the respondent was
carrying on the work on the request of the appellant. In our
view the fact that the first period was covered by the agreement
while the second fell beyond it is significant and on that score
the two periods must receive different treatments.
(Emphasis Added)
29. Clause 31 of the agreement provided as follows:
"31. No interest or damage for delay in payment - No interest
or damage shall be paid to the Contractor for delay in payment
of the bill or any other amount due to the contractor for any
reason whatsoever. The Railway Administration will, however,
make every endeavour for payment of the bills or other amount
due to the contractor within a reasonable time."
The Division Bench of the High Court took the view that Clause
31 of the agreement operated as a bar only between the parties
but it would not affect the authority of the arbitrator to grant
interest for the pre reference period and pendente lite.
.....
33.In the case in hand Clause 31 of the agreement is materially
different. It bars payment of any interest or damage to the
contractor for any reason whatsoever. We are, therefore,
clearly of the view that no pre-reference or pendente lite interest
was payable to the respondent on the amount under Item No. 3
and the arbitrator's award allowing pre-reference and pendente
lite interest on that amount was plainly in breach of the express
term of the agreement. The order of the High Court insofar as
pre-reference and pendente lite interest on the amount under
Item No. 3 is concerned is, therefore, unsustainable.
34. The position with regard to the claim under Item No. 4 is
quite different. That relates to the period after the termination of
the agreement and hence, the bar of Clause 31 would not apply
to it in the same way as it would apply to Item No. 3. We,
therefore, find no infirmity in grant of pre- reference and
pendente lite interest on the amount under Item No. 4.
35. In light of the discussions made above, the respondent shall
be entitled to interest only on the sum of Rs. 10, 79,456.80, the
amount determined under Item No. 4, at the rate of 16% per
annum for the period 1-11-1994 to 9-9-2000. The final amount
under the award shall be accordingly worked out. The
consolidated amount of the award after being re-calculated
shall carry, as provided in the award, interest at the rate of 18%
from the date of the award till the date of payment. In working
out the amount of interest for the post-award period, the
period(s) for which the operation of the award was stayed by
the court would be excluded."
12. Counsel for the appellant submits that Clause 5.7 of the Work Order in
no manner prohibits or imposes any restriction on the power of the
Arbitral Tribunal to award pendente lite interest. Counsel has further
drawn the attention of the court to section 29 of the Arbitration
Act,1940 and section 7 of the Arbitration Act, 1996. It is contented
that irrespective of the fact whether the dispute pertains to the
pendente lite interest under 1940 act or 1996 act, it is not disputed that
the Arbitrator has power to award pendente lite interest until and
unless the same is prohibited by the agreement between the parties and
the court has to consider the relevant clause in each case.
13. Counsel for the appellant submits that the Supreme Court in a three
Bench decision rendered in the case of Union of India vs. Ambica
Constructions reported in (2016) 6 SCC 36 has considered catena of
judgments pertaining to the pendente lite interest. Although the case
was under the 1940 Act but the Court has considered various decision
under the 1996 Act [Sayeed Ahmed & Co. vs. State of UP, (2009) 12
SCC 26; Sree Kamatchi Amman Constructions vs. Railways, (2010)
8 SCC 767; Union of India vs. Krafters Engg.& Leasing (P) Ltd.,
(2011) 7 SCC 279; Union of India vs. Bright Power Projects (India)
(P) Ltd., (2015) 9 SCC 695; and, BHEL vs. Tata Projects Ltd.,(2015)
5 SCC 682] held as under:
"22. In our opinion, it would depend upon the nature of the
ouster clause in each case. In case there is express stipulation
which debars pendente lite interest, obviously, it cannot be
granted by the arbitrator. The award of pendente lite interest
inter alia must depend upon the overall intention of the
agreement and what is expressly excluded.
....
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 be for the
Division Bench to consider the case on merits."
14. The appellant has also relied on the judgment of the Hon'ble
Supreme Court in the case of Ambika Construction vs. Union of
India reported in (2017) 14 SCC 323, wherein the Hon'ble
Supreme Court while interpreting a virtually identical clause
relying on the aforesaid judgment of Ambica Construction(2016)
(supra) has held as under:
"5.........The relevant clause affirming the above position is
extracted hereinbelow:
"(2) 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 sub-clause (1) of this clause will be
repayable with interest accrued thereon."
The aforesaid clause has been relied upon by the learned
counsel representing the Union of India to contend, that when
interest was not payable even on the principal amount, there
was no question of the same being payable during the period the
matter remained pending for adjudication. It is therefore
apparent, that the learned counsel for the respondent, relied
upon the contractual obligation contained in the clause,
extracted hereinabove, to counter the claim of pendente lite
interest and to support the impugned order passed by the High
Court.
6. The only contention advanced at the hands of the learned
counsel for the appellant, was based on the judgment of this
Court in 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 this Court by a Constitution Bench in Irrigation
Deptt., State of Orissa v. G.C. Roy [Irrigation Deptt., State of
Orissa v. G.C. Roy, (1992) 1 SCC 508] , it was held as under:
(Ambica Construction case [Union of India v. Ambica
Construction, (2016) 6 SCC 36 : (2016) 3 SCC (Civ) 36] , SCC
p. 59, para 34)
"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 be
for the Division Bench to consider the case on merits."
A perusal of the conclusions drawn by this Court in the above
judgment, rendered by a three-Judge Division Bench, leaves
no room for any doubt, that the bar to award interest on the
amounts payable under the contract, would not be sufficient
to deny payment of pendente lite interest. In the above view of
the matter, we are satisfied, that the clause relied upon by the
learned counsel for the Union of India, to substantiate his
contention, that pendente lite interest 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."
(Emphasis Added)
15. It is the stand of the Counsel for the appellant that in view of the
aforesaid decision, the findings of the learned Single Judge to the
extent it set aside the award of pendente lite interest i.e. from 1.2.2011
to 30.04.2015, deserves to be set aside. Additionally, learned counsel
further submitted that the respondent did not raise any contention
before the Arbitral Tribunal in respect of Clause 5.7 of Work Order
and simply denied the grant of interest, which prohibits the respondent
from raising any such plea at the stage of proceedings under section 34
of the Act and as per the principle of estoppel, Learned Single Judge
ought not to have considered the said plea. Accordingly, counsel for
appellant concluded that paragraph 15 of the impugned judgment
passed by the learned Single Judge is liable to be set aside.
16. Mr. Ravi Gupta, Learned Senior Counsel appearing for the
respondent, however, submits that the law with regard to grant of
interest pertaining to contracts, which create an express bar is no
longer res integra. He submits that in view of Clause 5.7, there is an
express bar for grant of interest and thus, the Learned Single Judge has
rightly relied upon the aforesaid clause and allowed the objections so
filed and rejected claim No.7.
17. Mr Gupta, Senior Counsel for the respondent has placed reliance on
Section 31 (7) (a) of the Arbitration Act, 1996, which provides for
payment of interest, by an Arbitrator, which reads as under: -
"Unless otherwise agreed by the parties, where and in so far as
an arbitral award is for the payment of money, the arbitral
tribunal may include in the sum for which the award is made
interest, at such rate as it deems reasonable, on the whole or
any part of the money, for the whole or any part of the period
between the date on which the cause of action arose and the
date on which the award is made."
18. Learned Senior Counsel for the respondent has strongly urged before
us that in the 1940 Act, there was no provision, which prohibited the
Arbitrator from awarding interest for the pre-reference, pendente lite
of post award period, whereas in the 1996 Act, a specific provision has
been incorporated whereby, if the agreement prohibits award of
interest for the pre- award period (i.e. pre-reference and pendente lite
period), the Arbitrator cannot award interest for the said period.
Counsel further emphasized on the text of the statute, by using the
words "unless otherwise agreed by the parties", which categorically
specifies that the arbitrator is bound by the terms of the contract so far
as award of interest from the date of cause of action to date of the
award is concerned. Thus, where the parties had agreed that no interest
shall be payable, the Arbitral Tribunal cannot award interest. If there
is a bar against payment of interest in the contract, the arbitrator
cannot award any interest for such period.
19. Mr. Gupta has placed reliance on Sayeed Ahmed (supra), where the
Supreme Court noted that the 1940 Act did not contain any provision
relating to the power of the Arbitrator to award interest. However,
now a specific provision has been created under Section 31 (7)(a) of
the 1996 Act. As per this section, if the agreement bars payment of
interest, the Arbitrator cannot award interest from the date of cause of
action till the date of award. The court has observed that in regard to
the provision in the 1996 Act, the difference between the pre-reference
period and the pendente lite interest has disappeared insofar as award
of interest by the Arbitrator is concerned Section 31 (7)(a) recognizes
only two periods, i.e. pre-award and post-award period.
20. Mr. Gupta further relies on Sree Kamatchi (supra), where the court
dealt with the case, wherein Clause 16 of the GCC of Railways had
required interpretation, by holding that where the parties had agreed
that the interest shall not be payable, the Arbitral Tribunal cannot
award interest between the date on which the cause of action arose to
the date of the award. The relevant paragraphs are reproduced below: -
"9. Clause 16(2) of the General Conditions of contract
governing the contract between the parties bars payment of
interest and the same is extracted 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 deposit in terms of
Sub-clause (1) of this Clause will be repayable (with) interest
accrued thereon."
(emphasis supplied)
10.The two claims on which amounts are awarded are with
reference to claim No. (4) relating to erroneous billing and
claim No. (6) relating to security deposit. Clause 16(2) in terms
specifically bars payment of interest on security deposit. Insofar
as claim No. (4) is concerned, the question is whether the
amount awarded is an "amount payable to the contractor under
the contract.
....
12. This Court had occasion to consider the jurisdiction and
authority of the arbitrator to award interest under the
Arbitration Act, 1940 and under the new Act in Sayeed Ahmed
& Co. v. State of U.P. 2009 (12) SCC 26. Relying upon the
earlier decisions of this Court in Irrigation Department,
Government of Orissa v. G.C. 1992 (1) SCC 508, Executive
Engineer, Dhenkanal Minor Irrigation Division v. N C
Budharaj 2001 (2) SCC 721 and Bhagawati Oxygen Ltd. v.
Hindustan Copper Ltd. 2005 (6) SCC 462 and State of
Rajasthan v. Ferro Concrete Construction (P) Ltd 2009 (12)
SCC 1, this Court held that the arbitrator had the jurisdiction
and authority to award interest for three distinct periods
namely, the pre-reference period (which referred to the period
between date of cause of action to date of reference), pendente
lite (which referred to the period between date of reference to
date of award) and future period (which referred to the period
between the date of award to date of payment) if there was no
express bar in the contract regarding award of interest.
.....
14.We may also refer to the decision of this Court in Union of
India v. Saraswat Trading Agency 2009 (16) SCC 504 this
Court reiterated that if there is a bar against payment of interest
in the contract, the arbitrator cannot award any interest for the
pre-reference period or pendente lite. In view of the specific bar
under Clause 16(2), we are of the view that the arbitral tribunal
was justified in refusing interest from the date of cause of action
to date of awards."
21. Learned Senior Counsel for the respondent also placed reliance on
Bright Power Projects (supra), where a three- Judge Bench of the
Supreme Court , after referring to the provisions of Section 31(7)(a) of
the 1996 Act, held that when the terms of the agreement had
prohibited the award of interest, the Arbitrator could not award
interest for the pendente lite period. The relevant paragraphs are stated
below:-
"9. Clause 13(3) of the contract entered into between the
parties reads as under:
"13. (3) No interest will be payable upon the earnest
money and the security deposit or amounts payable to the
contractor under the contract, but government securities
deposited in terms of sub-clause (1) of this clause will be
repayable with interest accrued thereon.
10. Thus, it had been specifically understood between the
parties that no interest was to be paid on the earnest money,
security deposit and the amount payable to the contractor under
the contract. So far as payment of interest on Government
Securities, which had been deposited by the Respondent
contractor with the Appellant is concerned, it was specifically
stated that the said amount was to be returned to the contractor
along with interest accrued thereon, but so far as payment of
interest on the amount payable to the contractor under the
contract was concerned, there was a specific term that no
interest was to be paid thereon.
11. When parties to the contract had agreed to the fact that
interest would not be awarded on the amount payable to the
contractor under the contract, in our opinion, they were bound
by their understanding. Having once agreed that the contractor
would not claim any interest on the amount to be paid under the
contract, he could not have claimed interest either before a civil
court or before an Arbitral Tribunal."
22. The Senior Counsel further placed reliance on Bharat Heavy
Electricals Limited vs. Globe Hi-Fabs Limited, reported at (2015) 5
SCC 718, the court here dealt with an identical case wherein Clause
3.3 (ix) of the General Conditions of Contract (GCC) provides that
"No interest shall be payable by the Employer on Earnest Money,
Security Deposit or on any money due to the Contractor by the
Employer." Which is similar to Clause 5.7 of the Work Order,
prohibiting grant of interest, which is also applicable in the facts of the
present case. Paragraph 16 of the judgment read as under:
"16. In the present case we noticed that the clause barring
interest is very widely worded. It uses the words "any amount
due to the contractor by the employer". In our opinion, these
words cannot be read as ejusdem generis along with the earlier
words "earnest money" or "security deposit".
23. He further relies on B.H.E.L vs. Tata Projects Ltd., reported in (2015)
5 SCC 682, dealing with an identical issue wherein Clause 1.15.5 of
the agreement, which provides that "no interest shall be payable by
BHEL on earnest money/security deposit or any money due to the
contractor by BHEL" had required interpretation. Relevant paragraphs
of the same have been reproduced below:
"3. On the other hand, the learned Senior Counsel for the
respondent has submitted that the award in respect of crane hire
charges is based on an overall view of the entire material
available before the Arbitral Tribunal and, therefore, although
the Tribunal finally concluded that "there is nothing on record
of the Arbitral Tribunal to substantiate the 'understanding'
between the parties regarding swapping of crane usage days
between Units II and III as has been pleaded by the claimant",
it only allowed Rs 8.25 lakhs in favour of the appellant's claim
for such charges. According to him, for the very same reason,
taking a holistic view of the whole matter, the Division Bench in
the impugned order [Tata Projects Ltd. v. BHEL, Appeal from
Order No. 60 of 2013, decided on 12-6-2013 (Cal)] took the
same view. On behalf of the respondent, the grant of pre-award
interest could not be successfully defended in view of Clause
1.15.5 of the agreement which provides that "no interest shall
be payable by BHEL on earnest money/security deposit or any
money due to the contractor by BHEL". The ambit and scope of
the aforesaid clause was the subject-matter in Civil Appeal No.
7423 of 2005 between the appellant and M/s Globe HI-Fabs
Ltd. decided on 12-11-2009 [BHEL v. Globe HI-Fabs Ltd.,
(2015) 5 SCC 718] wherein this Court accepted and held that in
view of such a provision in the agreement, interest is payable
only from the date of the award. The aforesaid legal position
ought to have been accepted by the Division Bench of the High
Court in view of law settled by judgments of this Court
in Sayeed Ahmed & Co. v. State of U.P. [(2009) 12 SCC 26 :
(2009) 4 SCC (Civ) 629] and several other cases
including Union of India v. Concrete Products & Construction
Co. [(2014) 4 SCC 416 : (2014) 2 SCC (Civ) 551]
4. On the issue of award of interest, the learned Senior
Counsel for the respondent tried to persuade us to enhance the
post-award interest granted by the Arbitral Tribunal @ 10.5%
to 18% p.a. in the light of provisions in Section 31(7)(b) of the
Act. We are unable to accept this contention because the
Arbitral Tribunal has already granted post-award interest @
10.5%. Only if the award had not made such a direction, the
statutory rate of interest @ 18% p.a. would have been payable
from the date of the award to the date of payment as per
statutory provision noted above.
5. In the light of the aforesaid discussion, we are constrained to
hold that the order under appeal ought not to have approved
grant of any pre-award interest."
24. Mr. Gupta lastly relies on Chittaranjan Maity vs. Union of India,
reported in (2017) 9 SCC 611, which distinguished the judgment of
the Supreme Court in Ambica Construction(2017) (supra), held as
under:-
"15. Admittedly, GCC governing the contract between the
parties, contains a clause which bars the payment of interest,
which is as under:
"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
deposit in terms of sub-clause (1) of this clause will be
repayable (with) interest accrued thereon."
16. Relying on a decision of this Court in Ambica
Construction v. Union of India[Ambica Construction v. Union
of India, (2017) 14 SCC 323] , the learned Senior Counsel for
the appellant submits that mere bar to award interest on the
amounts payable under the contract would not be sufficient to
deny payment on pendente lite interest. Therefore, the arbitrator
was justified in awarding the pendente lite interest. However, it
is not clear from Ambica Construction [Ambica
Construction v. Union of India, (2017) 14 SCC 323] as to
whether it was decided under the Arbitration Act, 1940 (for
short "the 1940 Act") or under the 1996 Act. It has relied on a
judgment of Constitution Bench in State of Orissa v. G.C.
Roy [State of Orissa v. G.C. Roy, (1992) 1 SCC 508] . This
judgment was with reference to the 1940 Act. In the 1940 Act,
there was no provision which prohibited the arbitrator from
awarding interest for the pre-reference, pendente lite or post-
award period, whereas the 1996 Act contains a specific
provision which says that if the agreement prohibits award of
interest for the pre-award period, the arbitrator cannot award
interest for the said period. Therefore, the decision in Ambica
Construction [Ambica Construction v. Union of India, (2017) 14
SCC 323] cannot be made applicable to the instant case.
17. The learned Additional Solicitor General appearing for the
respondent submits that the position of law for cases covered
under the 1996 Act i.e. if agreement prohibits award of interest
then the grant of pre-award interest is impermissible for the
arbitrator, has been reiterated by this Court in various
judgments.
18. In Sayeed Ahmed and Co. v. State of U.P. [Sayeed Ahmed
and Co. v. State of U.P., (2009) 12 SCC 26 : (2009) 4 SCC (Civ)
629] , this Court noted that the 1940 Act did not contain any
provision relating to the power of the arbitrator to award
interest. However, now a specific provision has been created
under Section 31(7)(a) of the 1996 Act. As per this section, if the
agreement bars payment of interest, the arbitrator cannot
award interest from the date of cause of action till the date of
award. The Court has observed that in regard to the provision
in the 1996 Act, the difference between pre-reference period and
the pendente lite interest has disappeared insofar as award of
interest by the arbitrator is concerned. Section 31(7)(a)
recognises only two periods i.e. pre-award and post-award
period.
19. In Sree Kamatchi Amman Constructions v. Railways [Sree
Kamatchi Amman Constructions v. Railways, (2010) 8 SCC 767
: (2010) 3 SCC (Civ) 575] , this Court was dealing with an
identical case wherein Clause 16 of the GCC of Railways had
required interpretation. This is the same Clause 16(2) of GCC
prohibiting grant of interest which is also applicable in the facts
of the present case. The Court held that where the parties had
agreed that the interest shall not be payable, the Arbitral
Tribunal cannot award interest between the date on which the
cause of action arose to the date of the award.
20. In Union of India v. 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] , a three-Judge
Bench of this Court, after referring to the provisions of Section
31(7)(a) of the 1996 Act, held that when the terms of the
agreement had prohibited award of interest, the arbitrator
could not award interest for the pendente lite period. It has been
held thus: (SCC p. 698, paras 10-11)
"10. Thus, it had been specifically understood between the
parties that no interest was to be paid on the earnest
money, security deposit and the amount payable to the
contractor under the contract. So far as payment of interest
on government securities, which had been deposited by the
respondent contractor with the appellant is concerned, it
was specifically stated that the said amount was to be
returned to the contractor along with interest accrued
thereon, but so far as payment of interest on the amount
payable to the contractor under the contract was
concerned, there was a specific term that no interest was to
be paid thereon.
11. When parties to the contract had agreed to the fact that
interest would not be awarded on the amount payable to
the contractor under the contract, in our opinion, they
were bound by their understanding. Having once agreed
that the contractor would not claim any interest on the
amount to be paid under the contract, he could not have
claimed interest either before a civil court or before an
Arbitral Tribunal."
Therefore, it is clear that the appellant is not entitled for any
interest on the amount awarded by the Arbitral Tribunal.
21. The Arbitral Tribunal had determined the amount payable to
the appellant in a sum of Rs 11,13,136 and interest of Rs
12,44,546. A sum of Rs 38,82,150 was deposited by the
respondent which includes the award amount, interest for the
pre-reference period, pendente lite and post-award interest. We
have held that the appellant is not entitled for any interest. The
appellant has already withdrawn 50% of the amount deposited
by the respondent, which is in excess of the award amount
exclusive of interest. Having regard to the facts and
circumstances of the case, we deem it proper to direct the
respondent not to recover the excess amount withdrawn by the
appellant. Ordered accordingly."
25. Mr. Gupta concluded while submitting that in view of the explicit
provision in the contract barring payment of interest, as well as in
terms of the provisions contained in Section 31 (7)(a) of the 1996 Act
and the well settled legal position in this regard, the appellant is not
entitled to the interest for the pre-award period.
26. We have heard learned counsel for the parties, perused the impugned
order passed by the learned Single Judge and have also gone through
the judgments and documents placed on record.
27. The learned Single Judge has rightly modified the award on the issue
of award of pendente lite interest under the garb of Clause 5.7. The
bare reading of Clause 5.7 makes it clear that no pendente lite interest
could be granted, otherwise the same would be in contravention to the
provision of section 28 (3) of the Act. Thus, Award with respect to the
post-award interest is rightly upheld and accordingly the appellant has
been rightly denied Claim No.7 with respect to pendente lite interest.
28. Furthermore, a bare reading of Section 31(7)(a) of the Arbitration Act
1996 explicitly shows that the Arbitrator has the power to award
reasonable interest provided, the same is backed by a valid contract.
On the contrary, if an agreement bars the payment of interest, the
arbitrator cannot award the same from the date of cause of action till
the date of award. The said section has to be read along with the
contract which would show the intent of the parties. Clause 5.7 of the
agreement explicitly states that the respondent will not be liable to pay
any interest either on Security Deposit or on any money due to the
contractor.
29. The position of the law stands crystallized for the cases covered under
the 1996 Act, i.e. if agreement prohibits award of interest then the
grant of pre-award interest is impermissible for the Arbitrator. The
Supreme Court in State of Rajasthan v. Ferro Concrete
Construction, reported in (2009) 12 SCC 1, held as under:-
"34....
a) where a provision has been made in any contract, for interest
on any debt or damages, interest shall be paid in accordance
with the such contract.
(b)where payment of interest on any debt or damages is
expressly barred by 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 Interest Act will apply in regard to the
pre-suit or pre- reference period 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 payable to the date of institution
of the proceedings;
(ii) where the proceedings is for recovery of damages or for
recovery of a debt which is not payable at a certain time, then
from the date mentioned in a written notice given by the person
making a claim to the person liable for the claim that interest
will be claimed, to date of institution of proceedings.
(d) payment of interest pendente lite (date of institution of
proceedings to date of decree) and future interest (from the date
of decree to date of payment) shall not be governed by the
provisions of Interest Act, 1978 but by the provisions of section
34 of Code of Civil Procedure 1908 or the provisions of the law
governing Arbitration as the case may be."
30.Moreover, the Courts time and again in catena of judgments have
decided the issue, that the parties would be entitled to interest on the
discretion of the arbitrator unless barred by the contract. In a recent
decision of Jaiprakash Associates Ltd. Vs. Tehri Hydro
Development Corporation India Ltd. (THDC) reported at 2019
SCC OnLine SC 143, the Supreme Court has categorically held that
a Tribunal's power to award pendente lite interest would depend on
the terms of the agreement between the parties. It further held that if
the agreement prevented the award of such interest, there would be
no scope to contend that the tribunal had the jurisdiction to do so.
The finding of the court is in accordance with section 31(7) of the
1996 Act (which specifically stipulates the same) and also upholds
the previous decisions of the Supreme Court. In paragraph 15 of the
decision, the court further demarcated the difference between 1940
Act and 1996 Act, the same has been reproduced below:
"15.In a recent judgment in the case of Reliance Cellulose
Products Limited v. Oil and Natural Gas Corporation
Limited 9, the entire case law on the subject is revisited and
legal position re- emphasised. That was also a case which
arose under the 1940 Act. The Court held that under the 1940
Act, an arbitrator has power to grant pre-reference interest
under the Interest Act as well as pendente lite and future
interest, however, he is constricted only by the fact that an
agreement between the parties may contain an express bar to
the award of pre-reference and/or pendente lite interest.
Further, the Court has evolved the test of strict construction of
such clauses, and unless there is a clear and express bar to the
payment of interest that can be awarded by an arbitrator,
clauses which do not refer to claims before the arbitrators or
disputes between parties and clearly bar payment of interest,
cannot stand in the way of an arbitrator awarding pre-reference
or pendente lite interest. Further, unless 9 (2018) 9 SCC 266 a
contractor agrees that no claim for interest will either be
entertained or payable by the other party owing to dispute,
difference, or misunderstandings between the parties or in
respect of delay on the part of the engineer or in any other
respect whatsoever, leading the Court to find an express bar
against payment of interest, a clause which merely states that
no interest will be payable upon amounts payable to the
contractor under the contract would not be sufficient to bar an
arbitrator from awarding pendente lite interest. Further, the
grant of pendente lite interest depends upon the phraseology
used in the agreement, clauses conferring power relating to
arbitration, the nature of claim and dispute referred to the
arbitrator, and on what items the power to award interest has
been taken away and for which period. Also, the position
under Section 31(7) of the 1996 Act, is wholly different,
inasmuch as Section 31(7) of the 1996 Act sanctifies
agreements between the parties and states that the moment the
agreement says otherwise, no interest becomes payable right
from the date of the cause of action until the award is
delivered."
31. Having regard to the settled position of law and clause 5.7 of the
contract. We find no infirmity with the decision of the learned
Single Judge.
32. Accordingly, the appeal is dismissed.
G.S.SISTANI, J.
SANGITA DHINGRA SEHGAL, J.
MAY 28 2019//rb
