Arbitration Act, 1940 – Interest pendente lite – Award of – Power of the arbitrator – Award of mining contract to appellant – Dispute between parties – Award of interest pendente lite on damages excluding the security deposits, from the date of commencement of the arbitral proceedings to the date of award – High Court set aside the award in so far as the order of pendente lite interest – On appeal, held: Liability to pay interest pendente lite arises because the claimant has been found entitled to the damages and has been kept out from those dues due to the pendency of the arbitration-pendente lite – Thus, the liability for interest pendente lite does not arise from any term of the contract, or during the terms of the contract, but in the course of determination by the Arbitrators of the losses or damages that are due to the claimant – When a dispute is referred to for adjudication to an arbitrator, a contract clause excluding interest upon the earnest money and security deposit, that is binding on the parties cannot be extended to bind an Arbitrator – Arbitrator has power to award interest pendente lite where justified – Thus, judgment of the High Court is set aside – Order of interest pendente lite restored.
Allowing the appeals, the Court
HELD: 1.1 The Arbitrators have awarded amounts to the claimant on account of the losses suffered by them for various reasons, mainly due to the ban on mining. These amounts are not awarded on account of any payment due under the contract but are awarded on losses determined in the course of arbitration or the ‘lis’. A claimant becomes entitled to interest not as compensation for any damage done but for being kept out of the money due to him. Obviously, in a case of unascertained damages such as this, the question of interest would arise upon the ascertainment of the damages in the course of the lis. Such damages could attract interest pendente lite for the period from the commencement of the arbitration to the award. Thus, the liability for interest pendente lite does not arise from any term of the contract, or during the terms of the contract, but in the course of determination by the Arbitrators of the losses or damages that are due to the claimant. Specifically, the liability to pay interest pendente lite arises because the claimant has been found entitled to the damages and has been kept out from those dues due to the pendency of the arbitration i.e. pendente lite. [Para 11][143D-G]
1.2 The Arbitrators rightly awarded interest pendente lite for the period from 26.09.1988 to 23.03.2001 which is the date of the award, on the amounts found due to the claimant. Undoubtedly, such a power must be considered inherent in an Arbitrator who also exercises the power to do equity, unless the agreement expressly bars an Arbitrator from awarding interest pendente lite. An agreement which bars interest is essentially an agreement that the parties will not claim interest on specified amounts. It does not bar an Arbitrator, who is never a party to the agreement from awarding it. The instant case must be decided on the general rule that an arbitrator has the power to award interest unless specifically barred from awarding it; and the bar must be clear and specific. [Para 12][143-H; 144-A-C]
1.3 When a dispute is referred to for adjudication to an arbitrator, a term of such a nature as contained in the Clause 16(3) of General Clauses Contract, that is binding on the parties cannot be extended to bind an Arbitrator. The Arbitrator has power to award interest pendente lite where justified. Therefore, the judgment of the High Court is set aside and the award passed by the Arbitral Tribunal is restored. [Para 18][146-B] Irrigation Deptt., State of Orissa v. G.C Roy [1991] 3 Suppl. SCR 417: (1992) 1 SCC 508; Board of Trustee for the Port of Calcutta v. Engineers-De-Space Age [1995] 6 Suppl. SCR 327 : (1996) 1 SCC 516; Madnani Construction Corporation Pvt. Ltd. v. Union of India and Ors. [2009] 16 SCR 216 : (2010) 1 SCC 549 ; Sayeed Ahmed & Co v. State of Uttar Pradesh and Ors. [2009] 10 SCR 841: (2009) 12 SCC 26; Superintending Engineer and Ors. v. B. Subba Reddy [1999] 2 SCR
880 : (1999) 4 SCC 423; Union of India v. Ambica Construction [2016] 2 SCR 810 : (2016) 6 SCC 36; Ambica Constructions v. Union of India (2017) 14 SCC
323 - referred to.
As published in the Supreme Court Reports, Supreme Court of India. Text from the Indian Supreme Court Judgments open data set (Dattam Labs), CC BY 4.0.
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