# 2 S.C.R. 810 UNION OF INDIA v. MIS. AMBlCA CONSTRUCTION

- **Citation:** [2016] 2 S.C.R. 810
- **Court:** Supreme Court of India
- **Decided:** 2016
- **Bench:** RANJAN GOGOi, Arun Mishra, Prafulla C. Pant
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/2-s-c-r-810-union-of-india-v-mis-amblca-construction-31030
- **Pages:** 27

## Headnote

Arbitration Act,19./0: ss.3, 31 - Puwer of arbitrator to award
pendente lite interest in case contract bars the same - Held: If
contract expressly bars award of interest pendente lite, the same
cannot be awarded by the Arbitrator -· Bar to award interest on
delayed payment by itself will not be readily inferred as express bar
to award interest pendente lite by the Arbitrator as ouster. of power
of Arbitrator has to be considered on various relevant aspects -
The award of pendente lite interest inter alia must depend upon the
overall intention of the agreement and what is expressly excluded.
Answering the reference, the Court
HELD: 1. Section 3 of the Act of 1940 deals with the
provisions which are implied in the arbitration agreement. The
provisions of section 3 make it clear that unless a different
intention is expressed in the arbitration agreement, the
agreement would include the provisions contained in the First
Schedule so far as they arc applicable to the reference. Provisions
in the First Schedule contain 8 paragraphs. It provides for
reference to a sole Arbitrator and in case there are even numbers
of Arbitrators, appointment of umpire is also provided. An
Arbitrator is required to pass award within 4 months from the
date of entering on the reference. In case Arbitrator fails to pass
an award within the specified time the umpire shall make the
award within 2 months. Para 6 of First Schedule provides that the
G Arbitrator or umpire shall examine the matters in difference and
the award shall be final and binding. Arbitrator or umpire has the
power for examining the witnesses and production of relevant
documents. Para 8 of Schedule I provides for costs of reference
and awards shall be in the discretion of the Arbitrator. [Para 5]
H (816-A-D]
810
UNION OF INDIA v. M/S. AMBICA CONSTRUCTION
2. "Court" has been defined in section 2(c) of the Act to
mean a civil court having jurisdiction to decide the questions
forming the subject-matter of the reference. The court can
exercise the power specified in Second Schedule of the Act.
However, Arbitrator is not a court. Arbitrator is the outcome of
agreement. He decides the disputes as per the agreement entered
into between the parties. Arbitration is an alternative forum for
resolution of disputes but an Arbitrator ipso facto does not enjoy
or possess all the powers conferred on the courts of law. Section
29 of the Act confers on the court power to award interest from
the date of decree. Section 34 of the C.P.C. confers on the court
power to award interest prior to the institution of the suit and
during pendency of the suit and post decree. Section 31(7)(a) of
the 1996 Act confers power on Arbitrator to award interest
pendente lite, "unless otherwise agreed by parties". Thus, it is
clear from the provisions contained in section 31(7)(a) that the
coniract between the parties has been given importance and is
h;nding on t.he Arbitrator. Arbitration clause is also required to
be looked into while deciding the power of the Arbitrator and in
case there is any bar contained in the contract on award of interest,
it operates on which items and in the arbitration clause what are
the powers conferred on Arbitrator and whether bar on award of
interest has been confined to certain period or it relates to
pendency of proceedings before Arbitrator. Grant of pemle11te lite
interest may depend upon several factors such as phraseology
used in the agreement, clauses conferring power relating to
arbitration, nature of claim and dispute referred to Arbitrator and
on what items power to award interest has been taken away and
for which period. (Paras 6, 7, 16, 23] (816-E; 817-A-C; 828-D-E;
836-C-D]
Board of Trustees for the Port of Calcutta v. EngineersDe-Space-Age 1995 (6) Suppl. SCR 327 : (1996) 1 SCC
516; Madnani Construction Corporation (P) Ltd. v.
Union of India and Others 2009 (16) SCR 216 : (2010)
1 SCC 549; Secretary, Irrigation Department,
Government of Orissa & Ors. v. GC. Roy 1991 (3)
Suppl. S

## Text

_Characters 0–39,357 of 63,039. This is a partial read: ask again with offset=39357 for what follows._

A
B
c
D
E
F
(2016] 2 S.C.R. 810
UNION OF INDIA
v.
MIS. AMBlCA CONSTRUCTION
(Special Leave Petition (Civil) No.11114 of2009)
MARCH 16,2016
[RANJAN GOGOi, ARUN MISHRA AND
PRAFULLA C. PANT, JJ.]
Arbitration Act,19./0: ss.3, 31 - Puwer of arbitrator to award
pendente lite interest in case contract bars the same - Held: If
contract expressly bars award of interest pendente lite, the same
cannot be awarded by the Arbitrator -· Bar to award interest on
delayed payment by itself will not be readily inferred as express bar
to award interest pendente lite by the Arbitrator as ouster. of power
of Arbitrator has to be considered on various relevant aspects -
The award of pendente lite interest inter alia must depend upon the
overall intention of the agreement and what is expressly excluded.
Answering the reference, the Court
HELD: 1. Section 3 of the Act of 1940 deals with the
provisions which are implied in the arbitration agreement. The
provisions of section 3 make it clear that unless a different
intention is expressed in the arbitration agreement, the
agreement would include the provisions contained in the First
Schedule so far as they arc applicable to the reference. Provisions
in the First Schedule contain 8 paragraphs. It provides for
reference to a sole Arbitrator and in case there are even numbers
of Arbitrators, appointment of umpire is also provided. An
Arbitrator is required to pass award within 4 months from the
date of entering on the reference. In case Arbitrator fails to pass
an award within the specified time the umpire shall make the
award within 2 months. Para 6 of First Schedule provides that the
G Arbitrator or umpire shall examine the matters in difference and
the award shall be final and binding. Arbitrator or umpire has the
power for examining the witnesses and production of relevant
documents. Para 8 of Schedule I provides for costs of reference
and awards shall be in the discretion of the Arbitrator. [Para 5]
H (816-A-D]
810
UNION OF INDIA v. M/S. AMBICA CONSTRUCTION
2. "Court" has been defined in section 2(c) of the Act to
mean a civil court having jurisdiction to decide the questions
forming the subject-matter of the reference. The court can
exercise the power specified in Second Schedule of the Act.
However, Arbitrator is not a court. Arbitrator is the outcome of
agreement. He decides the disputes as per the agreement entered
into between the parties. Arbitration is an alternative forum for
resolution of disputes but an Arbitrator ipso facto does not enjoy
or possess all the powers conferred on the courts of law. Section
29 of the Act confers on the court power to award interest from
the date of decree. Section 34 of the C.P.C. confers on the court
power to award interest prior to the institution of the suit and
during pendency of the suit and post decree. Section 31(7)(a) of
the 1996 Act confers power on Arbitrator to award interest
pendente lite, "unless otherwise agreed by parties". Thus, it is
clear from the provisions contained in section 31(7)(a) that the
coniract between the parties has been given importance and is
h;nding on t.he Arbitrator. Arbitration clause is also required to
be looked into while deciding the power of the Arbitrator and in
case there is any bar contained in the contract on award of interest,
it operates on which items and in the arbitration clause what are
the powers conferred on Arbitrator and whether bar on award of
interest has been confined to certain period or it relates to
pendency of proceedings before Arbitrator. Grant of pemle11te lite
interest may depend upon several factors such as phraseology
used in the agreement, clauses conferring power relating to
arbitration, nature of claim and dispute referred to Arbitrator and
on what items power to award interest has been taken away and
for which period. (Paras 6, 7, 16, 23] (816-E; 817-A-C; 828-D-E;
836-C-D]
Board of Trustees for the Port of Calcutta v. EngineersDe-Space-Age 1995 (6) Suppl. SCR 327 : (1996) 1 SCC
516; Madnani Construction Corporation (P) Ltd. v.
Union of India and Others 2009 (16) SCR 216 : (2010)
1 SCC 549; Secretary, Irrigation Department,
Government of Orissa & Ors. v. GC. Roy 1991 (3)
Suppl. SCR 417: (1992) 1 SCC 508; Executii"e
Engineer, Dhenkanal Minor Irrigation Division, Orissa
& Ors. v. NC Budharaj (DJ by L.Rs. & Ors. 2001 (1)
811
A
B
c
D
E
F
G
H
812
A
B
c
D
E
F .
G
H
SUPREME COURT REPORTS
[2016) 2 S.C.R.
SCR 264 :(2001) 2 SCC 721; Sayeed Ahmed & Co. "
State of UP. & Ors. 2009 (10) SCR 841 : (2009) 12
SCC 26; Sree Kamatchi Amman Constructions v.
Divisional Railway Manager (Works}, Pa/ghat & Ors.
2010 (10) SCR 487: (2010) 8 SCC 767; Raipur
Development Authority & Ors. v. Mis. Chokhamal
Contractors & Ors. 1989 (3) SCR 144: (1989) 2 SCC
721; Executive Engineer (Irrigation) Balimela & Ors.
" Abhaduta Jena & Ors. 1988 (1) SCR 253 : (1988)
1 SCC 418; Nachiappa Chettiar & Ors, v. Subramaniam
Chettiar AIR 1960 SC 307 :1960 SCR 209; Satinder
Singh v. Amrao Singh & Anr. AIR 1961 SC 908 : 1961
SCR 676 ; Firm Madan/al Roshanlal Mahajan v.
Hukumchand Mills Ltd., Indore, AIR 1967 SC 1030 :
1967 SCR 105; Union of India " Bungo Steel Furniture
Pvt. Ltd. AIR 1967 SC 1032 : 1967 SCR 3_24; Ashok
Construction Company v. Union of India (1971) 3 SCC
66; State of MP" Mis. Saith and Skelton Pvt. Ltd. 1972
(3) SCR 233 :(1972) l SCC 702; Hindustan
Construction Co. Ltd.
v. State of Jammu & Kashmir
1992 (1) Suppl. SCR 297: (1992) 4 SCC 217; State of
Orissa v. B.N. Agarwal/a, 1997 (1) SCR 704: (1997)
2 SCC 469; State of UP. v. Harish Chandra & Co.
1998 (2) Suppl. SCR 660 : (1999) 1 sec 63;
Superintending Engineer v. B. Subba Reddy 1999 (2)
SCR 880 : (1999) 4 SCC 423; State of Rajasthan &
Anr. v. Ferro Concrete Construction (P) Ltd. 2009 (10)
SCR 31 :(2009) 12 SCC 1; Union of India v. Bright
Power Projects (India) Pvt. Ltd. 2015 (6) SCR 488 :
(2015) 9 SCC 695; Union of India v. Krafters
Engineering & Leasing Pvt. Ltd. 2011 (8) SCR196 :
(2011) 7 SCC 279; Tehri Hydro
Development
Corporation Limited and Another v. Jai Prakash
Associates Limited 2012 (8) SCR 813 : (2012) 12 SCC
10 - referred to.
Case Law Reference
1995 (6) Suppl. SCR 327
2009 (16) SCR 216
1991 (3) Suppl. SCR 417
referred to
referred to
referred to
Para 1
Para 1
Para 1
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION
813
2001 (1) SCR 264
referred to
Para 1
A
2009 (10) SCR S41
referred to
Para 1
2010 (10) SCR 4S7
referred to
Para 1
19S9 (3) SCR 144
referred to
Paras
19SS (f) SCR 253
referred to
Paras
1960 SCR 209
referred to
Paras
B
1961 SCR 676
referred to
Paras
1967 SCR 105
referred to
Paras
1967 SCR 324
referred to
Paras
(1971) 3 sec 66
referred to
Paras
c
1972 (3) SCR 233
referred to
Paras
1992 (1) Suppl. SCR 297
referred to
Para 10
1997 (1) SCR 704
referred to
Para 11
199S (2) Suppl. SCR 660
referred to
Para 13
.1?99 (2) SCR SSO
referred to
Para 15
D
;?0\19 (10) SCR 31
referred to
Para 15
7\115 (6) SCR 4SS
referred to
Para 16
2!111 (S) SCR 196
referred to
Para lS
2012 (S ) SCR S13
referred to
Para 22
E
CIVIL APPELLATE JURISDICTION: Special Leaye to Appeal
(Civil) No. 11114 of2009.
From the Judgment and Order dated 31.03.2008 passed"by the
High Court at Calcutta in A.P.O. No. 5 of 2008.
WITH
F
SLP (C) No. 17219 of2009.
A.K. Panda, Sr. Adv., Ajay Singh~ Ranjeet Kumar, S.N. Terdal
(For Ms. Sushma Suri) Advs. with him for the Appellant.
Raj Kumar Mehta, Abhishek Upadhyay, Ms. Himanshi Andley,
G
Advs. for the Respondent.
The Judgment of the Court was delivered by
ARUN MISHRA, J. I.The issue involved in the reference is in
regard to the power of the Arbitrator to award pendente lite interest
H
814
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
(2016] 2 S.C.R.
when contract contains bar for grant of interest in a case covered by the
.Arbitration Act, 1940 (hereinafter referred to as "the Act"). A Division
Bench of this Court had doubted the correctness of the decisions in
Board of Trustees for the Port of Ca/cul/a v. Engineers-De-SpaceAge ( 1996) I SCC 516; and Madnani Construction Corporation (PJ
Ltd. v. U11ion of India and Others (20 I 0) I SCC 549. In view of the
decision of the Constitution Bench judgment in Secrelary, Irrigution
Department, Government of Grisso & Ors. v. G.C. Roy ( 1992) I SCC
508 and Execulive Engi11ee1: Dlzenkanal Minor Irrigation Division,
Grisso & Ors. v. N.C. Budlwraj (DJ by L.Rs. & Ors. (200 I) 2 SCC
721 which held that the Arbitrator had the jurisdiction and authority to
award interest for pre-reference period, pe11de11te file and future period
if there was no express bar in the contract regarding award of interest.
A doubt was expressed about the correctness of the decision in
Engineers-De-Space Age (supra) in Sayeed Ahmed & Co. v. State of
UP. & Ors. (2009) 12 SCC 26 and Sree Kamatchi Amman
Constructio11s v. Divisional Railway A1anager (Works), Pa/ghat &
Ors. (20 I 0) 8 SCC 767. Hence the matter had been referred to a larger
Bench for decision.
2. Jhe case has a chequered history. The tender of M/s. Am bi ca
Construction for fabrication of tie bars from M.S. Flats in CST-9 sleepers was accepted on 8.9.1989. Final agreement was executed on
30.11.1989. The work was completed on 21.11.1990. With respect to
payments, certain differences and disputes arose between the parties.
Thus Mis. Ambica Construction prayed for appointment of an Arbitrator. On 5.3.1991 as the petitioner M/s. Ambica Constn1ction was in serious financial difficulties, it accepted the amount in full and final settlement. Later on, the Union of India informed the petitioner on 11.3.1991
that the matter was under consideration. However the Arbitrator was
not appointed. An application under section 20 of the Act was filed before the High Court of Calcutta for referring the case to arbitration. On
2.6.1992 the High Court directed to file the arbitration agreement in the
court and appointed two Arbitrators in terms of the arbitration clause.
Said Arbitrators failed to publish the award and as such an application
was filed for revocation of the authority of joint Arbitrators and another
sole Arbitrator was appointed. The sole Arbitrator ultimately published
the award on 30.12.1997. On an application filed by the Union oflndia,
the High Court vide order dated 9.4.1998 remitted the award to the
Arbitrator to give an item-wise break-up. On 12.5.1998 the sole Arbitra-
UNION OF INDIA v. MiS. AMBJCA CONSTRUCTION
[ARUN MISHRA, J.]
tor published the item-wise award. Again the Union oflndia questioned
the same before the High Court. The award was set aside on the ground
that the Arbitrator had not given an intelligible award in terms of clause
64(3)(a)(iii) of the agreement and had not taken into effect the supplementary agreement dated 5 .3. 1991. The appeal preferred by the petitioner was dismissed by the Division Bench of the High Court on
15.10.2004 against which an SLP was filed in which leave was granted
and ultimately C.A. No.6621i2005 was allowed and case was remitted
vide order dated 7.11.2005 passed by this Court to the Arbitrator for
assigning reasons and to pass fresh award. Thereafter, Arbitrator passed
a fresh award on 11.2.2006. Again an application was filed by the Union
of India under sections 30 and 33 of the Act. The Single Judge dismissed the application vide order dated 26.6.2007. Union oflndia filed
an application for recall. The order dated 26.6.2007 was recalled. Yide
order dated 22.8.2007 learned Single Judge set aside the award with
regard to interest for pre-reference period and directed that interest
would be allowed on the principal sum of Rs.9,82,660i- at the rate of
10% per annum from 1.9.1992 the date from which the original Arbitrator entered upon the reference. An appeal was preferred before the
Division Bench and the same had been paiily allowed with regard to
claim Nos.6 and 7. Aggrieved thereby, Mis. Ambica Construction had
preferred S.L.P. [CJ No.17219i2009 in this Court and Union of India
has also assailed the judgment and order of the High Court in S.L.P. [CJ
No.11114i2009.
3. The only question for consideration is whether an Arbitrator has
the power to award pendente lite interest in case contract bars the
same in a case covered by Act and decisions of this Court in Engineers
De-Space Age (supra) and Madnani Co11structio11 Corporation (I')
Ltd. (supra) have been correctly decided.
4. !twas submitted on behalfofthe Union oflndia thattheArbitrator
is bound by the terms of the contract and cannot award interest in case
the contract bars the same. On the other hand, learned counsel appearing
815
A
B
c
D
E
F
on behalf of Mis. Ambica Construction has contended that in view of
G
the decision in E11gi11eers-De-Space Age (supra) followed in Madnani
Constructio11 Corporation {P) Ltd. (supra) notwithstanding the terms
in the contract agreement barring the award of interest would cover the
pre-reference period and not pendente lite interest.
5. There are certain provisions which are statutorily implied in
H
816
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016) 2 S.C.R.
arbitration agreement unless excluded in the agreement. Section 3 of
the Act of 1940 deals with the provisions which are implied in the
arbitration agreement. Section 3 is extracted below :
"3. Provisions implied in arbitration agreement.-An
arbitration agreement, unless a different intention is expressed
therein, shall be deemed to include the provisions set out in the
First Schedule in so far as they are applicable to the reference."
The provisions of section 3 make it clear that unless a different
intention is expressed in the arbitration agreement, the agreement would
include the provisions contained in the First Schedule so far as they are
applicable to the reference. Provisions in the First Schedule contain 8
paragraphs. It provides for reference to a sole Arbitrator and in case
there are even numbers of Arbitrators, appointment of umpire is also
provided. An Arbitrator is required to pass award within 4 months fr~m
the date of entering on the reference. Jn case Arbitrator fai Is to pass an
award within the specified time the umpire shall make the award within
2 months. Para 6 of First Schedule provides that the Arbitrator or umpire
shall examine the matters in difference and the award shall be final and
binding. Arbitrator or umpire has the power for examining the witnesses
and production of relevant documents. Para 8 of Schedule I provides for
costs ofreference and awards shall be in the discretion of the Arbitrator.
6. "Court" has been defined in section 2(c) of the Act to mean a
civil court havingjurisdiction to decide the questions fonningthe subjectmatter of the reference. Section 41 of the Act is extracted hereunder:
"41. Procedure and powers of Court. -Subject to the provisions
of this Act and of rules made thereunder :
(a) The provisions of the Code of Civil Procedure, I 908 (5 of
I 908), shall apply to all proceedings before the Court, and to
all appeals, under this Act, and
(b) The Court shall have, for the purpose of, and in relation to
arbitration proceedings, the same power of making orders in
respect of any of the matters set out in the Second Schedule
as it has for the purpose of, and in relation to any proceedings
before the Court:
Provided that nothing in CI. (b) shall be taken to prejudice any
power which may be vested in an Arbitrator or umpire for making
UNION OF !NOIA v. ~/S. AMBICA CONSTRUCTION
817
[ARUN MISHRA, J.]
orders with respect to any of such matters."
A
The court can exercise the power specified in Second Schedule of
the Act. However, Arbitrator is not a court. Arbitrator is the outcome of
agreement. He decides the disputes as per the agreement entered into
between the parties.Arbitration is an alternative forum for resolution of
disputes but an Arbitrator ipso facto does not enjoy or possess all the
B
powers conferred on the courts of law.
7. Section 29 of the Act confers on the court power to award interest
from the date of decree. Section 34 of the C.P.C. confers on the court
power to award interest prior to the institution of the suit and during
pendency of the suit and post decree.
8. A Constitution Bench of this Court in GC. Roy (supra) has
considered the question of power of the Arbitrator to award pendente
lite interest and it has been laid down that if the arbitration agreement or
the contract itself provides for interest, Arbitrator would have the
jurisdiction to award the interest. Similarly, where the agreement
expressly provides that no interest pendente lite shall be payable'on the
amount due, the Arbitrator has no power to award pendente lite interest.
In GC. Roy (supra) this Court has held thus:
"xxx If the arbitration agreement or the contract itself provides
for award of interest on the amount found due from one party to
the other, no question regarding the absence of Arbitrator's
jurisdiction to award the interest could arise as in that case the
Arbitrator has power to award interest pendent lite as well.
Similarly, where the agreement expressly provides that no interest
pendente lite shall be payable on the amount due, the Arbitrator
has no power to award pendente lite interest. But where the
agreement does not provide either for grant or denial of interest
on the amount found due, the question arises whether in such an
event the Arbitrator has power and authority to grant pendente
lite interest."
The question involved in GC. Roy (supra) was with respect to the
award of interest for the period commencing from the date of Arbitrator
entering upon the reference till the date of making the award. In GC.
Roy (supra), this Court has considered decisions in Raipur Development
Authority & Ors. v: Mis. Chokhamal Contractors & Ors., (1989) 2
SCC 721; Executive Engineer (Irrigation) Balimela & Ors. v.
c
D
E
F
G
H
818
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 2 S.C.R.
Abhaduta Jena & Ors .. (1988) 1 SCC ./18; Nachiappa Chettiw· &
Ors, v. Subramaniam Chettia~ AIR 1960 SC 307; Satinder Singh v.
Amrao Singh & Am:, AIR 1961 SC 908; Firm Madan/a/ Roshanla/
Mahajan v. Hukumchand Mills Ltd.. illdore, AIR 1967 SC 1030;
Union of India v. Bungo Steel Furniture Pvt. Ltd., AIR 1967 SC
1032; Asl10k Construction Company v. Union of India, (1971) 3
SCC 66; State of MP v. Mis. Saith and Skelton Pvt. Ltd., (1972) 1
SCC 702, various foreign coutts decisions and decisions of the High
Court. This Court has also referred to Halsbury's Laws of England in
Paras 36 & 3 7 thus:-
"36. "534. Express and implied clauses.- In general, the parties
to an arbitration agreement may include in it such clauses as they
think fit. By statute, however, certain terms are implied in an
arbitration agreement unless a contrary intention is expressed or
implied therein. Moreover, it is normally an implied term of an
arbitration agreement that the Arbitrator must decide the dispute
in accordance with the ordinary law. This includes the basic rules
as to procedure, although parties can expressly or impliedly consent
to depart from those rules. The normal principles on which terms
are implied in an agreement have to be considered in th~ context
that the agreement relates to an arbitration."
37. At page 303, para 580 (4th edn., Vol. 2) dealing with the
award of interest, it reads:
"580. /111erest.- A Arbitrator or umpire has power to award
interest on the amount of any debt or damages for the whole or
any part of the period between the date when the cause of action
arose and the date of the award."
Ultimately, in GC. Roy (supra), this Comt has answered the question
whether Arbitrator has the power to award interest pendent lite. Their
Lordships have reiterated that they have dealt with the situation where
the agreement does not provide for grant of such interest nor does it
prohibit such grant when the agreement is silent as to award of interest.
This Court has laid down various principles in para 43 of the report thus:
"43. The question still remains whether Arbitrator has the power
to award interest pende111e lite, and if so on what principle. We
must reiterate that we are dealing with the situation where the
agreement does not provide for grant of such interest nor does it
UNION OF INDIA v. MIS. AMBlCA CONSTRUCTION
819
fARUN MISHRA, J.l
prohibit such grant. In other words, we are dealing with a case
A
where the agreement is silent as to award of interest. On a
conspectus of aforementioned decisions, the following principles
emerge:
(i)A person deprived of the use of money to which he is legitimately
entitled has a right to be compensated for the deprivation, call it
by any name. It may be called interest, compensation or damages.
This basic consideration is as valid for the period the dispute is
pending before the Arbitrator as it is for the period prior to the
Arbitrator entering upon the reference. This is the principle of
Section 34, Civil Procedure Code and there is no reason or principle
to hold otherwise in the case of Arbitrator.
(ii) An Arbitrator is an alternative form (sic forum) for resolution
of disputes arising between the parties. If so, he must have the
power to decide all the disputes or differences arising between
the parties. If the Arbitrator has no power to award interest
pendente lite, the party claiming it would have to approach the
court for that purpose, even though he may have obtained
satisfaction in respect of other claims from the Arbitrator. This
would lead to multiplicity of proceedings.
(iii) An Arbitrator is the creature of an agreement. It is open to
the parties to confer upon him such powers and prescribe such
procedure for him to follow, as they think fit, so long as they are
not opposed to law. (The proviso to Section 41 and Section 3 of
Arbitration Act illustrate this point). All the same, the agreement
must be in conformity with law. The Arbitrator must also act and
make his award in accordance with the general law of the land
and the agreement.
(iv) Over the years, the English and Indian cou1ts have acted on
the assumption that where the agreement does not prohibit and a
paity to the reference makes a claim for interest, the Arbitrator
must have the power to award interest pendente lite. Seth
Thawardas· Pherwnal v. Union of India, AIR 1955 SC 468 has
not been followed in the later decisions of this Court. It has been
explained and distinguished on the basis that in that case there
was no claim for interest but only a claim for unliquidated damages.
ft has been said re·; •eatcdly that observations in the said judgment
B
c
D
E
F
G
H
820
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 2 S.C.R.
were not intended to lay down any such absolute or universal rule
as they appear to, on first impression. Until Executive Engineer
(Irrigation) Ba/imela & Ors. v. Abhaduta Jena.& Ors., (1988)
I SCC 418 almost all the courts in the country had upheld the
power of the Arbitrator to award interest pendeme lite. Continuity
and certainty is a highly desirable feature of law.
(v) Interest pendeme lite is not a matter of substantive law, like
interest for the period anterior to reference (pre-reference period).
For doing complete justice between the parties, such power has
always been inferred."
"44. Having regard to the above consideration. we think that the
following is the correct principle which should be followed in this
behalf:
Where the agreement between the parties does not prohibit grant
of interest and where a party claims interest and that dispute
(along with the claim for principal amount or independently) is
referred to the Arbitrator, he shall have the power to award interest
pendente lite. This is for the reason that in such a case it must be
presumed that interest was an implied term of the agreement
between the parties and therefore when the parties refer all their
disputes -
or refer the dispute as to interest as such -
to the
Arbitrator, he shall have the power to award interest. This does
not mean that in every case the Arbitrator should necessarily award
interest pendente lite. It is a matter within his discretion to be
exercised in the light of all the facts and circumstances of the
case, keeping the ends of justice in view."
The Constitution Bench of this Court has laid down that where the
agreement between the parties does not prohibit grant of interest and
where the party claims interest and that dispute is referred to the
Arbitrator, he shall have the power to award interest pendent lite. The
law declared has been held applicable prospectively.
9. Another Constitution Bench of this Court in N.C. Budharaj
(supra), considered the question of award of interest by the Arbitrator
for the pre-reference period. In that connection, discussion has been
made and it has been observed as long as there is nothing in the arbitration
agreement to exclude the jurisdiction of the Arbitrator entertaining claim
for interest on the amount due under the contract or any provision to
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION
[ARUN MISHRA, J.]
claim interest on the amount due, the jurisdiction of the Arbitrator to
award interest for pre-reference perio:I under section 29 of the Arbitration
Act, 1940 has to be upheld. 111 m<1jority opinion, this Court has held thus:
"25. If that be the position, courts which oflate encourage litigants
to opt for and avail of the alternative method of resolution of
disputes, would be penalising or placing those who avail of the
same in a serious disadvantage. Both logic and reason should
counsel courts to lean more in favour of the Arbitrator holding to
possess all the powers as are necessary to do complete and full
justice between the parties in the same manner in which the civil
court seized of the same dispute could have done. By agreeing to
settle all the disputes and claims arising out of or relating to the
contract between the parties through arbitration instead of having
recourse to civil court to vindicate their rights the party concerned
cannot be considered to have frittered away and given up any
claim which otherwise it could have succe~sfully asserted before
courts and obtained relief. By agreeing to have settlement of
disputes through arbirration, the party concerned must be
understood to have only opted for a different forum ofadjudication
with less cumbersome procedure, delay and expense and not to
abandon all or any of its substantive rights under the various laws
in force, according to which only even the Arbitrator is obliged to
adjudicate the clajms referred to him. As long as there is nothing
in the arbitration agreement to exclude the jurisdiction of the
Arbitrator to entertain a claim for interest on the amounts due
under the contract, or any prohibition to claim interest on the
amounts due and become payable t.nder the contract, the
furisdiction of the Arbitrator to consider and award interest in
respect of all periods subject only to Section 29 of the Arbitration
Act, 1940 al).d that too the powers of the court thereunder, has to
be upheld. The submission. that the Arbitrator cannot have
jurisdiction to award interest for the period prior to the date of his
appointment or entering into reference which alone confers upon
him power, is too stale and technical to be countenanced in our
hands, for the simple reason that in every case the appointment of
an Arbitrator or even resort to court to vindicate rights could be
only after disputes have cropped up between the parties and
• continue to·su!isist unresolved, and that ifthe Arbitrator has the
power to deal with and decide disputes v.hich cropped up at a
821
A
B
c
D
E
F
G
H
822
A
B
c
D
E
F
G
1-1
SUPREME COURT REPORTS
(2016] 2 S.C.R.
point of time and for the period prior to the appointment of an
Arbitrator, it is beyond comprehension as to why and for what
reason and with what justification the Arbitrator should be denied
only the power to award interest for the pre-reference period
when such interest becomes payable and has to be awarded as
an accessory or incidental to the sum awarded as due and payable,
taking into account the deprivation of the use of such sum to the
person lawfully entitled to the same.
26. For all the reasons stated above, we answer the reference by
holding that the Arbitrator appointed with or without the
intervention of the court, has jurisdiction to award interest, on the
sums found due and payable, for the pre-reference period, in the
absence of any specific stipulation or prohibition in the contract to
claim or grant any such interest. The decision in Je11a case taking
a contraview does not lay down the correct position and stands
overruled, prospectively, which means that this decision shall not
entitle any party nor shall it empower any court to reopen
proceedings which have already become final, and apply only to
any pending proceedings. No costs."
It has also been observed that GC. Roy's case (supra) cannot be
said to have overruled Executive E11gineer (Irrigation) Balimela's case
(supra) insofar as it dealt with the power of Arbitrator to award interest
for the pre-reference period.
I 0. A 3 Judges Bench of this Court in Hi11dusta11 Cons/ruction
Co. Ltd. v. State of Ja111111u & Kashmir (1992) ./ SCC 217 has laid
down that the Arbitrator has the power to award pe11dente file interest
on the basis of principle of Section 34 of the Code of Civil Procedure
though same is not applicable. However, the observation has to be
considered in case there is no express bar in the agreement for awarding
pendente lite interest as it has simply followed what has been laid down
in GC. Roy (supra). This Court has laid down thus:
"5. The question of interest can be easily disposed of as it is
covered by recent decisions of this Court. It is sufficient to refer
to the latest decision of a five Judge bench of this Court in
Secretary, lrrigatio11 Departme/lf, Govt. of Orissa & Ors. v.
GC. Roy. Though the said decision deals with the power of the
Arbitrator to award interest pell(/e111e lite, the principle of the
decision makes it clear that the Arbitrator is competent to award
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION
[ARUN MISHRA, J.]
interest for the period commencing with the date of award to the
date of decree or date of realisation, whichever is earlier. This is
also quite logical for, while award of interest for the period prior
to an Arbitrator entering upon the reference is a matter of
substantive law. 1' "' grant of interest for the post-award period is
a matter of procedure. Section 34 of Code of Civil Procedure
provides both for awarding of interest pendente lite as well as
for the post-decree period and the principle of Section 34 has
been held applicable to proceedings before the Arbitrator, though
the section as such may not apply. In this connection, the decision
in Union of India v. Bungo Steel Furniture (PJ Ltd. AIR 1967
SC 1032 may be seen as also the decision in Gujarat Water
Supply & Sewerage Board v. Unique Erectors (Gujarat) P.
Ltd. /9891 532 SCC which upholds the said power though on
a somewhat different reasoning. We, therefore, think that the
award on Item No. 8 should have been upheld."
I I.In Sayeed Ahmed (supra) various decisions of this Court have
been referred. In State of Orissa 1( B.N. Agarwal/a, (1997) 2 SCC
469, this Court has laid down thus:
"18. In vie\v of the aforesaid decisions there can now be no doubt
with regard to the jurisdiction of the Arbitrator to grant interest.
The principles which can now be said to be well-settled are that
the Arbitrator has the jurisdiction to award pre-reference interest
in cases which arose after the Interest Act, 1978 had become
applicable. With regard to those cases pertaining to the period
prior to the applicability of the Interest Act, I 978, in the absence
of any substantive law, contract or usage, the Arbitrator has no
jurisdiction to award interest. For the period during which the
arbitration proceedings were pending in view of the decision in
GC. Roy case and Hindustan Constrnction Ltd. case, the
Arbitrator has the power to award interest. The power of the
Arbitrator to award interest for the post-award period also exists
and this aspect has been considered in the discussion relating to
Civil Appea!No. 9234of1994 in the later part of this judgment."
12. The decision in B.N. Agarwal/a (supra) has been considered
and distinguished 'by this Court in Sayeed Ahmed (supra) thus:
823
A
B
c
D
E
F
G
"20. The appellant next relied upon the judgment of this Court in
State of Orissa v. B.N. Aga111•a/la (1997) 2 SCC 469. In that
H
824
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 2 S.C.R.
case, this Court held that the Arbitrator has jurisdiction to award:
(i) interest for pre-reference period, (ii) interest for pendente lite,
and (iii) future interest. This Court also held that the following
part of Clause (4) of the contract dealing with "Rates, materials
and workmanship" did not bar award of interest by the Arbitrator
on the claims of the contractor: (SCC p. 478, para 22)
No interest is payable on amount withheld under the item of
the agreement.
Interpreting the said clause (which provided that interest was not
payable on the amount which was withheld), this Court held that
it referred only to the amount withheld by the employer State
towards retention money for the defect liability period. This Court
in fact clarified the position that ifthe terms of contract expressly
stipulated that no interest would be payable, then the Arbitrator
would not get the jurisdiction to award interest. As Clause G 1.09
in the present case contains an express bar and is different from
the clause considered in B.N. Aganl'alla (supra) the said decision
is also of no assistance."
In B.N. Aganmlla (supra) this Court has observed that Clause 4
of the contract dealing with "Rates, materials and workmanship" did not
bar award of interest by the Arbitrator on the claims of the contractor.
The stipulation was no interest was payable on amount withheld under
the agreement.
13. In Sayeed Ahmed (supra), this Court has referred the decision
in State of U.P. v. Harish Chandra & Co. (1999) I SCC 63, in which
this Court has interpreted the stipulation contained in clause 1.9 of the
agreement which came up for consideration before a 3 Judges Bench of
this Court. Clause 1.9 is extracted hereunder:
"1.9 No claim for delayed payment due to dispute etc.-No
claim for interest or damages will be entertained by the
Government with respect to any moneys or balances which may
be lying with the Government owing to any dispute, difference; or
misunderstanding between the Engineer-in-Charge in marking
periodical or final payments or in any other respect whatsoever."
This Court has interpreted the clause 1.9 and held that there is no
provision which could be culled out against tl1e respondent-contractor
that he could not raise claim of interest by way of damages before the
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION
825
fARUN MISHRA, J.]
Arbitrator on the relevant items placed for adjudication.
A
This Court in Sayeed Ahmed (supra) has also distinguished the
decision in Harish Chandra (supra) in which clause .1.09 came up for
consideration thus:
"17. xx xx x This Court held that the said clause did not bar
award of interest on any claim for damages or for claim for
payment for work done. We extract below the reasoning for such
decision: (SCC p. 67, para I 0)
"JO. A mere look at the clause shows that the claim for interest
by way of damages was not to be entertained against the
Government with respect to only a specified type of amount,
namely, any moneys or balances which may be lying with the
Government owing to any dispute, difference between the
Engineer-in-Charge and the contractor; or misunderstanding
between the Engineer-in-Charge and the contractor in making
periodical or final payments or in any other respect whatsoever.
The words 'or in any other respect whatsoever' also referred
to the dispute pertaining to the moneys or balances which may
be lying with the Government pursuant to the agreement
meaning thereby security deposit or retention money or any
other amount which might have been with the Government
and refund of which might have been withheld by the
Government. The claim for damages or claim for payment
·for the work done and which was not paid for would not
obviously cover ony money which may be said to be lying
with the Government. Consequently, on the express language
of this clause, there is no prohibition which could be culled out
against the respondent contractor that he could not raise the
claim for interest by way of damages before the Arbitrator on
the relevant items placed for adjudication."
(emphasis supplied)
18. In Harish Chandra ( 1999) I SCC 63 a different version
of Clause 1.09 was considered. Having regard to the restrictive
. wording of that clause, this Court held that it did not bar award
of interest on a claim for damages or a claim for payments for
.. work done aiid which was not paid. This Court held that the
said cliiuse barred award of interest only on amounts which
B
c
D
E
F
G
H
826
A
B
c
D
E
F
G
H
SUPREME COURT REPORTS
[2016] 2 S.C.R.
may be lying with the Government by way of security deposit/
retention money or any other amount, refund of which was
withheld by the Government.
19. But in the present case, Clause G 1.09 is significantly
different. It specifically provides that no interest shall be payable
in respect of any money that may become due owing to any
dispute, difference or misunderstanding between the Engineerin-Charge and contractor or with respect to any delay on the
part of the Engineer-in-Charge in making periodical or final
payment or in respect of any other respect whatsoever. The
bar under Clause G 1.09 in this case being absolute, the decision
in Harish Chandra (supra) will not assist the appellant in any
manner."
In Harish Chandra (supra), this Court has laid down that clause
1.09 did not bar award of interest for claim of damages for payment for
work done and which was not paid for would not obviously cover any
money which may be said to be lying with the Government.
14. 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 Arbitrator. The
award of pendente lite interest inter a/ia must depend upon the overall
intention of the agreement and what is expressly excluded.
15. In Sayeed Ahmed (supra), this Court has referred the decision
in Superintending Engineer v. B. Subba Reddy ( 1999) 4 SCC 423
and observed thus :
"11. Two more decisions dealing with cases arising under the
Arbitration Act, 1940 require to be noticed. In Superintending
Engineer v. B. Subba Reddy ( 1999) 4 SCC 423 this Court held
that interest for pre-reference period can be awarded only ifthere
was an agreement to that effect or if it was allowable under the
Interest Act, 1978. Therefore, claim for interest for pre-reference
period, which is barred as per the agreement or under the Interest
Act, 1978 could not be allowed. This Court however held that the
Arbitrator can award interest pendente lite and future interest."
In Sayeed Ahmed (supra) this Court has also referred the decision
in State of Rajasthan & Anr. v. Ferro Concrete Construction (PJ Ltd.
(2009) 12 sec 1 thus :
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION
fARUN MISHRA, J.l
"12. The principles relating to interest were summarised by this
Court in State of Rajasthan v. Ferro Concrete Construction
(P) Ltd.