Case: GARG BUILDERS Vs. BHARAT HEAVY ELECTRICALS LIMITED

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. 14. Bharat Heavy Electricals Limited v. Globe Hi-Fabs Limited (2015) 5 SCC 718 is an identical case where this Court has held as under : 16. In the present case we noticed that the clause barring interest is very widely worded. It uses the words any amount due to the contractor by the employer. In our opinion, these words cannot be read as ejusdem generis along with the earlier words earnest money or security deposit. 15. In Sri Chittaranjan Maity v. Union of India (2017) 9 SCC 611 it was categorically held that if a contract prohibits award of interest for pre-award period, the arbitrator cannot award interest for the said period. 16. Therefore, if the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest. The judgment on which reliance was placed by the learned counsel for the appellant in Ambica Construction (supra) has no application to the instant case because Ambica Construction was decided under the Arbitration Act 1940 whereas the instant case falls under the 1996 Act. This has been clarified in Sri Chittaranjan Maity (supra) as under : 16. Relying on a decision of this Court in Ambica Construction v. Union of India, (2017) 14 SCC 323, the learned Senior Counsel for the appellant submits that mere bar to award interest on the amounts payable under the contract would not be sufficient to deny payment on pendente lite interest. Therefore, the arbitrator was justified in awarding the pendente lite interest. However, it is not clear from Ambica Construction (supra) as to whether it was decided under the Arbitration Act, 1940 (for short the 1940 Act) or under the 1996 Act. It has relied on a judgment of Constitution Bench in State of Orissa v. G.C. Roy, (1992) 1 SCC 508 . This judgment was with reference to the 1940 Act. In the 1940 Act, there was no provision which prohibited the arbitrator from awarding interest for the pre- reference, pendente lite or post-award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the pre-award period, the arbitrator cannot award interest for the said period. Therefore, the decision in Ambica Construction (supra) cannot be made applicable to the instant case. 17. The decision in Raveechee and Company (supra) relied on by the learned counsel for the appellant is again under the Arbitration Act 1940 which has no application to the facts of the present case. 18. Having regard to the above, we are of the view that the High Court was justified in rejecting the claim of the appellant seeking pendente lite interest on the award amount. 19. This takes us to the next question as to whether Clause 17 of the Contract is ultra vires in terms of Section 28 of the Indian Contract Act, 1872. According to Section 28, a contract is void to the extent it restricts absolutely a party from enforcing his rights by usual proceedings in ordinary courts or if it limits the time within which he may enforce his rights. Exception I to this section contains a rule that a contract by which two or more persons agree that any dispute which has arisen or which may arise between them in respect of any subject or class of subjects shall be referred to arbitration is not illegal. The question, therefore, is whether the contracts barring payment of interest extinguish the rights of the parties. Exception 1 to Section 28 reads as under : Exception 1: Saving of contract to refer to arbitration dispute that may arise. – This section shall not render illegal a contract, by which two or more persons agree that any dispute which may arise between them in respect of any subject or class of subjects shall be referred to arbitration, and that only the amount awarded in such arbitration shall be recoverable in respect of the dispute so referred. 20. Exception I to Section 28 saves contracts where the right to move the Court for appropriate relief is restricted but where the parties have agreed to resolve their dispute through arbitration. Thus, a lawful agreement to refer the matter to arbitration can be made a condition precedent before going to courts and it does not violate Section 28. No cause of action then accrues until the Arbitrator has made the award and the only amount awarded in such arbitration is recoverable in respect of the dispute so referred. Section 31(7)(a) of the 1996 Act which allows parties to waive any claim to interest including pendente lite and the power of the Arbitrator to grant interest is subject to the agreement of the parties. 21. It is pertinent to note that interest payments are governed in general by the Interest Act, 1978 in addition to the specific statutes that govern an impugned matter. Section 2 (a) of the Interest Act defines a Court which includes both a Tribunal and an Arbitrator. In turn, Section 3 allows a Court to grant interest at prevailing interest rates in various cases. The provisions of Section 3 (3) of the Interest Act, 1978 explicitly allows the parties to waive their claim to an interest by virtue of an agreement. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is barred by virtue of an express agreement. 22. Thus, when there is an express statutory permission for the parties to contract out of receiving interest and they have done so without any vitiation of free consent, it is not open for the Arbitrator to grant pendent lite interest. We are of the considered opinion that Clause 17 of the contract is not ultra vires in terms of Section 28 of the Indian Contract Act, 1872.

Decision (1 = appeal accepted, 0 = rejected): 0

Explanation:
0[ds]10. We have carefully considered the submissions of the learned counsel for both the parties made at the Bar. The law relating to award of pendente lite interest by Arbitrator under the 1996 Act is no longer res integra.11. It is clear from the above provision that if the contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award interest for the said period. In the present case, clause barring interest is very clear and categorical. It uses the expression any moneys due to the contractor by the employer which includes the amount awarded by the arbitrator.12. In Sayeed Ahmed and Company v. State of Uttar Pradesh & Ors. (2009) 12 SCC 26  this Court has held that a provision has been made under Section 31(7)(a) of the 1996 Act in relation to the power of the arbitrator to award interest. As per this section, if the contract bars payment of interest, the arbitrator cannot award interest from the date of cause of action till the date of award.14. Bharat Heavy Electricals Limited v. Globe Hi-Fabs Limited (2015) 5 SCC 718  is an identical case where this Court has held as under :16. In the present case we noticed that the clause barring interest is very widely worded. It uses the words any amount due to the contractor by the employer. In our opinion, these words cannot be read as ejusdem generis along with the earlier words earnest money or security deposit.16. Therefore, if the contract contains a specific clause which expressly bars payment of interest, then it is not open for the arbitrator to grant pendente lite interest. The judgment on which reliance was placed by the learned counsel for the appellant in Ambica Construction (supra) has no application to the instant case because Ambica Construction was decided under the Arbitration Act 1940 whereas the instant case falls under the 1996 Act. This has been clarified in Sri Chittaranjan Maity (supra) as under :16. Relying on a decision of this Court in Ambica Construction v. Union of India, (2017) 14 SCC 323,  the learned Senior Counsel for the appellant submits that mere bar to award interest on the amounts payable under the contract would not be sufficient to deny payment on pendente lite interest. Therefore, the arbitrator was justified in awarding the pendente lite interest. However, it is not clear from Ambica Construction (supra) as to whether it was decided under the Arbitration Act, 1940 (for short the 1940 Act) or under the 1996 Act. It has relied on a judgment of Constitution Bench in State of Orissa v. G.C. Roy, (1992) 1 SCC 508 . This judgment was with reference to the 1940 Act. In the 1940 Act, there was no provision which prohibited the arbitrator from awarding interest for the pre- reference, pendente lite or post-award period, whereas the 1996 Act contains a specific provision which says that if the agreement prohibits award of interest for the pre-award period, the arbitrator cannot award interest for the said period. Therefore, the decision in Ambica Construction (supra) cannot be made applicable to the instant case.17. The decision in Raveechee and Company (supra) relied on by the learned counsel for the appellant is again under the Arbitration Act 1940 which has no application to the facts of the present case.18. Having regard to the above, we are of the view that the High Court was justified in rejecting the claim of the appellant seeking pendente lite interest on the award amount.20. Exception I to Section 28 saves contracts where the right to move the Court for appropriate relief is restricted but where the parties have agreed to resolve their dispute through arbitration. Thus, a lawful agreement to refer the matter to arbitration can be made a condition precedent before going to courts and it does not violate Section 28. No cause of action then accrues until the Arbitrator has made the award and the only amount awarded in such arbitration is recoverable in respect of the dispute so referred. Section 31(7)(a) of the 1996 Act which allows parties to waive any claim to interest including pendente lite and the power of the Arbitrator to grant interest is subject to the agreement of the parties.21. It is pertinent to note that interest payments are governed in general by the Interest Act, 1978 in addition to the specific statutes that govern an impugned matter. Section 2 (a) of the Interest Act defines a Court which includes both a Tribunal and an Arbitrator. In turn, Section 3 allows a Court to grant interest at prevailing interest rates in various cases. The provisions of Section 3 (3) of the Interest Act, 1978 explicitly allows the parties to waive their claim to an interest by virtue of an agreement. Section 3(3)(a)(ii) states that the Interest Act will not apply to situations where the payment of interest is barred by virtue of an express agreement.22. Thus, when there is an express statutory permission for the parties to contract out of receiving interest and they have done so without any vitiation of free consent, it is not open for the Arbitrator to grant pendent lite interest. We are of the considered opinion that Clause 17 of the contract is not ultra vires in terms of Section 28 of the Indian Contract Act, 1872.