M/S TEKNOW CONSULTANTS & ENGINEERS PVT LTD v. BHARAT HEAVY ELECTRICALS LIMITED

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:

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: -

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:-

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:-

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