M/s Ferro Concrete Construction (India) Pvt. Ltd. vs The State of Rajasthan

Court

Supreme Court of India

Date

2 April 2025

Case No.

Civil Appeal No. 4723 of 2025

Result

Allowed

Bench

Pamidighantam Sri Narasimha, Joymalya Bagchi

Citation

[2025] 4 S.C.R. 529 : 2025 INSC 429

Acts & Sections

Arbitration Act, 1940 Arbitration and Conciliation Act, 1996

Issue for consideration

Whether the contractual clause that bars the appellant/contractor from claiming any interest on any payment, arrears or balance due to it amounts to an express bar on the arbitrator’s power to grant pendente lite interest as per the law under the Arbitration Act, 1940.

Headnote

Arbitration Act, 1940 – Appellant was awarded a works contract by the respondent – A Clause 22 of the agreement barred the appellant from claiming interest on any payment or arrears or balance due to him – Disputes arose between the parties – Arbitration invoked – Arbitral award came out in favour of appellant – Arbitrator granted 15% pendente lite interest – However, the District Judge granted 9% simple interest on the Principal sum – Same was upheld by the High Court – Correctness:

Held: Both the decisions in Reliance Cellulose and the First Ambica case emphasise the need for an express contractual bar on the payment of pendente lite interest to create a bar on the arbitrator from awarding interest – They also emphasise that a bar on the arbitrator’s power would depend on the phraseology of the contractual clause in that case – In the instant case, the Clause 22 prohibits the appellant (contractor) from claiming interest on any payment, arrears or balance, which may be found due to him at any time – Applying the above-stated law, this Court finds that this clause does not expressly bar the award of pendente lite interest in the event of disputes, differences, or misunderstandings between the parties, or on delayed payment, or in any other respect whatsoever – Under the 1940 Act, this Court has not readily inferred a bar on the arbitrator from clauses that merely bar the contractor from claiming interest, and the same will apply to this case as well – In view thereof, the judgment of the High Court is set aside – However, considering that the arbitrator entered reference in 1991 and the award was made in 1995, along with the passage of time in litigation as well as the amounts already paid by the respondent including post-award interest @ 9%, this Court deems it appropriate to grant 9% pendente lite interest, instead of 15% as granted by the arbitral tribunal, from 18.12.1991 till 07.03.1995 (date of the arbitral award). [Paras 14, 15, 16] Arbitration Act, 1940 – Arbitration and Conciliation Act, 1996 – Position of law on the grant of interest – Discussed.

Judgment Pamidighantam Sri Narasimha, J. 1. Leave granted. 2. It is just as necessary to follow a precedent as it is to make a precedent. 3. The short issue arising for consideration in this appeal is whether the contractual clause that bars the appellant/contractor from claiming any interest on any payment, arrears or balance due to it amounts to an express bar on the arbitrator’s power to grant pendente lite interest as per the law under the Arbitration Act, 19401. While the arbitrator granted 15% pendente lite interest, the same was set aside by the District Judge while deciding objecti

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