Interest: Interest pendente lite – Award of interest by arbitrator contrary to clause 16(2) of the General Conditions of Contract – Correctness of – Dispute related to work contract – Arbitrator awarded pendente lite and future interest at the rate of 12% and 18% respectively on the entire awarded amount except for the earnest money deposit and security deposit – Said order upheld by the High Court – On appeal, held: Once the contractor agrees that he shall not be entitled to interest on the amounts payable under the contract, including the interest upon the earnest money and the security deposit as mentioned in clause 16(2) of the agreement/contract between the parties, the arbitrator in the arbitration proceedings has no power to award interest, contrary to the terms of the agreement/contract between the parties and contrary to clause 16(2) – Expression “amounts payable to the contractor under the contract” cannot be read in conjunction with “earnest money deposit” or “security deposit” – It has to be read independently and disjunctively to earnest money deposit and security deposit as the word used is “or” and not “and” between “earnest money deposit”, “security deposit” and “amounts payable to the contractor under the contract” – Thus, the principle of ejusdem generis is not applicable – Furthermore, even if the Government would have been awarded interest, the same also was not permissible and could have been a subject matter of challenge – There cannot be an estoppel against law – Arbitrator erred in awarding pendente lite and future interest on the amount due and payable to the contractor under the contract and the same was erroneously confirmed by the High Court, thus, the order passed by both the High Courts and the award passed by the arbitral tribunal set aside – Arbitration and Conciliation Act, 1996 – ss. 34, 37.
Allowing the appeal, the Court
HELD: 1.1 The submission raised on behalf of the respondent that de hors the bar under clause 16(2) of the General Conditions of Contract, the Arbitral Tribunal independently and on equitable ground and/or to do justice can award interest pendente lite or future interest has no substance and cannot be accepted. Once the contractor agrees that he shall not be entitled to interest on the amounts payable under the contract, including the interest upon the earnest money and the security deposit as mentioned in clause 16(2) of the agreement/contract between the parties herein, the arbitrator in the arbitration proceedings being the creature of the contract has no power to award interest, contrary to the terms of the agreement/contract between the parties and contrary to clause 16(2) of the agreement/contract in question. [Para 8.1][427-D-F]
1.2 The respondent submitted that clause 16 has to be read as a whole and on doing so, it can be said that clause 16 pertains specifically to earnest money and security deposit and that the same can in no way be read in a manner to imply a bar on pendente lite interest. It is required to be noted that clause 16(1) is with respect to earnest money/security deposit. However, clause 16(2) is specifically with respect to interest payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract. The words used in clause 16(2) is “or”. Therefore, the expression “amounts payable to the contractor under the contract” cannot be read in conjunction with “earnest money deposit” or “security deposit” by applying the principle of ejusdem generis. The expression “amounts payable to the contractor under the contract” has to be read independently and disjunctively to earnest money deposit and security deposit as the word used is “or” and not “and” between “earnest money deposit”, “security deposit” and “amounts payable to the contractor under the contract”. Therefore, the principle of ejusdem generis is not applicable in the instant case. [Para 10][427-F-H; 428-A-B]
1.3 In view of clause 16(2) of the GCC, the arbitrator could not have awarded the interest, pendente lite or future interest on the amount due and payable to the contractor under the contract in the instant case. [Para 11][430-H; 431-A]
1.4 It is required to be noted that the concession if any by the counsel which is contrary to the law laid down by this Court shall not be binding on the parties. Further, merely because the appellant has claimed interest, does not imply that the contractor shall be entitled to interest pendente lite. Even if the appellant would have been awarded interest, the same also was not permissible and could have been a subject matter of challenge. In short, there cannot be an estoppel against law. [Para 12][431B-D]
1.5 The Arbitrator erred in awarding pendente lite and future interest on the amount due and payable to the contractor under the contract in question and the same has been erroneously confirmed by the High Court. [Para 13][431-D-E]
1.6 The impugned judgment and order passed by the Division Bench of the High Court in an appeal under Section 37 of the 1996 Act and the order passed by the Single Judge in an application under Section 34 of the 1996 Act and the award passed by the Arbitral Tribunal awarding pendente lite and future interest on the amounts held to be due and payable to the contractor under the contract are quashed and set aside. In view of specific bar contained in clause 16(2) of the GCC, the contractor shall not be entitled to any interest pendente lite or future interest on the amounts due and payable to it under the contract. [Para 14][431E-F]
Union of India v. M/s Pradeep Vinod Construction Co. Civil Appeal No. 2099 of 2007 decided on 03.08.2017 – held inapplicable.
Union of India v. Bright Power Projects (India) (P) Ltd. (2015) 9 SCC 695 : [2015] 6 SCR 488; Jaiprakash Associates Ltd. v. Tehri Hydro Development Corporation (India) Ltd. (2019) 17 SCC 786 : [2019] 2 SCR 41 – relied on.
Garg Builders v. Bharat Heavy Electricals Limited (2021) SCC OnLine SC 855 : 2021 (11) SCALE 693;
Secretary, Irrigation Department, State of Orissa v. G. C. Roy (1992) 1 SCC 508 : [1991] 3 Suppl. SCR 417; Raveechee and Company v. Union of India (2018)
7 SCC 664 : [2018] 5 SCR 138; Kailash v. Nanhku (2005) 4 SCC 480 : [2005] 3 SCR 289; State of
Karnataka v. Shree Rameshwara Rice Mills (1987) 2 SCC 160 : [1987] 2 SCR 398; Ambica Construction 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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