M/S RAVEECHEE AND CO versus UNION OF INDIA
[2018] 5 S.C.R. 138, Supreme Court of India, 2018
Outcome: Appeal(s) allowed (Granted)
Segment: Ratio
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SUPREME COURT REPORTS
[2018] 5 S.C.R.
M/S RAVEECHEE AND CO.
v.
UNION OF INDIA
(Civil Appeal Nos. 5964-65 of 2018)
JULY 03, 2018
[S. A. BOBDE AND L. NAGESWARA RAO, JJ.]
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
[2018] 5 S.C.R. 138
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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][143-
D-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.
M/S RAVEECHEE AND CO. v. UNION OF INDIA
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[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.
Case Law Reference
[1991] 3 Suppl. SCR 417
referred to
Para 13
[1995] 6 Suppl.SCR 327
referred to
Para 14
[2009] 16 SCR 216
referred to
Para 14
[2009] 10 SCR 841
referred to
Para 15
[1999] 2 SCR 880
referred to
Para 16
(2017) 14 SCC 323
referred to
Para 17
CIVIL APPELLATE JURISDICTION: Civil Appeal Nos.
5964-5965 of 2018.
From the Judgment and Order dated 23.07.2015 and 05.11.2015
of the High Court of Gujarat at Ahmedabad in FA No. 189 of 2005 and
Misc. Civil Application No. 3178 of 2015 respectively
K. V. Viswanathan, Sr. Adv., Mohit Paul, Ayush Agrawal, Anugram
Niraj Ekka, Vikarant Singh Baloria, Advs. for the Appellant.
Vikramjit Banerjee, ASG, A. K. Panda, Sr. Adv., A. K. Srivastav,
Ms. Sushma Verma, Ayush Anand, Shubhandu Anand, Raj Bahadur,
Bharat Sood, Shreekant N. Terdal, Advs. for the Respondent.
The Judgment of the Court was delivered by
S. A. BOBDE, J. 1. Leave granted.
2. These Civil Appeals arise out of the final judgment and order of
Gujarat High Court dated 23.07.2015 in F.A No 189 of 2005 and the
final judgment and order dated 5.11.2015 in MCA No 3178 of 2015 in
F.A No 189 of 2005. The High Court partly allowed the appeal of the
Respondent- Union of India and quashed Order of the Arbitrators and
set aside the amount awarded  by them in respect of Claim No 12. The
Arbitrators, under Claim No. 12 awarded interest pendente lite at 12%
on the award of Rs. 30 lacs excluding security deposits amounting to
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Rs. 44,92,800/- per annum from 26.09.1988 to 22.03.2001.  Further, the
High Court dismissed the review application filed by the appellant.
3. The appellant – M/s Raveechee and Co. and the respondent-
Union of India entered into a contract dated 02.06.1981 for quarrying,
stacking and loading stone ballast, broken stone aggregate, rubble etc.
from the Western Railway quarry at Udvada at an estimated cost of Rs.
55,81,000/-.  Thereafter, disputes arose between the parties due to which
the appellant called upon the General Manager, Western Railway to
appoint Arbitrators in order to settle the dispute. The Arbitration
proceedings commenced on 26.09.1988 and the award was passed on
22.03.2001.
4. The Arbitral Tribunal comprising of Shri N.K. Gupta, Chief
Engineer (C&S) and Shri R.K. Sinha, Director, Finance, KRCL, awarded
a total of Rs. 76,43,800/- as against the claim of Rs. 1,34,87,044/- raised
by the appellant. An award for the Claim Nos. 1-12 raised by the appellant
was made. The present dispute relates to the amount awarded under
Claim No. 12 i.e.  Interest. The Arbitrators awarded the appellant interest
pendente lite at 12% on the award for damages excluding security deposits
amounting to Rs. 44,92,800/- from 26.09.1988 to 22.03.2001.
5. The appellant thereafter filed a Civil Miscellaneous Application
No.22 of 2001 along with the award dated 22.03.2001 in the Civil Court.
The award was made a rule of the Court by an order dated 29.07.2004
under Section 17
of the Arbitration Act of 1940 (hereinafter referred to
as ‘the Act’) by the Civil Court.  The respondent challenged the order of
the Civil Court dated 29.07.2004 in appeal.  The High Court partly allowed
the appeal and set aside the order of Arbitrators qua Claim No.12 under
which the Arbitrators had awarded Rs. 44,92,800/- as interest pendente
lite.  The Arbitrators awarded amounts in favour of the appellant as
follows: Claim No.1 – Rs. 12 lacs, Claim No.3 – Rs. 8 lacs and Claim
No. 5 – Rs. 10 lacs and interest on the total amount of damages (i.e. Rs.
12 lacs + Rs. 8 lacs + Rs. 10 lacs = Rs. 30 lacs) excluding the amount of
security deposits. Thus, interest on Rs. 30 lacs from 26.09.1988 to
23.03.2001 at 12 % amounting to Rs. 44,92,800/-.
6. The appellant, aggrieved by the High Court’s judgment and
order dated 23.07.2015 filed a review application before the High Court.
The High Court dismissed the review application vide judgment and order
dated 05.11.2015. The present SLPs are filed against the High Court
judgments and orders dated 23.07.2015 & 05.11.2015 passed by the
High Court.
M/S RAVEECHEE AND CO. v. UNION OF INDIA
[S. A. BOBDE, J.]
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7. The question that arises for determination before this Court is:
Whether Clause 16(3) (reproduced hereafter) of the General Contract
Clauses (hereinafter referred to as “GCC”) restricted the power of the
arbitrator to award interest pendente lite?
8. In the present case, the Arbitral Tribunal giving effect to the
purport of Clause 16(3) did not award any interest on security deposits.
The clause in terms states that no interest will be payable on earnest
money, security deposits or on any amounts payable to the contractor
under the contract.
The Arbitrators in their award have relied on Clause 16(3) of
the contract to deny interest on the security deposit.  The Arbitrators
held that what was intended under Clause 16(3) barred the grant of
interest on earnest money, security deposit and amounts payable to the
appellant, it does not in any way bar grant of interest pendente lite.
9. Clause 16(1) and 16(3), which are relevant, read as follows:
“16(1):- The earnest money deposited by the contractor with
his tender will be retained by the Railways as part of security
for the due and faithful fulfillment of the contract by the
contractor. The balance to make up the security deposit, the
rates for which are given below, may be deposited by the
contractor in cash or in the form of Government Securities
or may be recovered by percentage deduction from the
contractor’s ‘on account’ bills.
Provide also that in case of
defaulting contractor the Railway
may retain any amount due for payment to the contractor on
the pending ‘on account bills’ so that the amounts so retained
may not exceed 10% of the total value of the contract.
“16(3):- No interest will be payable upon the earnest money
and 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 payable with
interest accrued thereon.”
10. On behalf of the Union of India, it is contended that the
Arbitrators by reason of Clause 16(3) could not have awarded interest
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pendente lite. This contention is incorrect. Ex facie the clause does not
deal with interest pendente lite.  In terms, the clause only bars interest
upon earnest money and security deposits or amounts payable to the
contractor under the contract. The above mentioned amounts are amounts
which in a sense belong to the contractor. They are amounts voluntarily
deposited with the other contracting party in order to be refunded or
forfeited depending on performance of the contract. As such they are
not amounts of which the contractor is deprived the use of against his
wishes, so as to attract interest.
It is not the case of the Government before us that interest has
been awarded to the contractor under any of the three heads. Neither
does any question of interest payable on Government security arise in
the present case. The contention put forth by the Government is that the
above clause in the agreement bars the Arbitrators from awarding interest
pendete lite.  On a plain reading we find that there is no such bar.
11. In fact, 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.
12. We are, therefore, of the view that 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
M/S RAVEECHEE AND CO. v. UNION OF INDIA
[S. A. BOBDE, J.]
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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.
We are not called upon, in this case, to decide whether parties
can agree that they will not claim interest pendente lite even in respect
of unascertained damages determined in the course of arbitration.  The
present 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.
13. In Irrigation Deptt., State of Orissa v. G.C Roy1 this Court
thoroughly considered the question of power of the arbitrator to award
interest pendente lite and held that when the agreement between the
parties does not prohibit grant of interest and where the party claims
interest and that dispute has been referred to an arbitrator, then the
arbitrator does have the power to award interest pendente lite.
14. Subsequently, this Court in the cases of Board of Trustee for
the Port of Calcutta v. Engineers-De-Space Age2 and Madnani
Construction Corporation Pvt. Ltd. v. Union of India and Ors.3 held
that according to the view taken in the case of Irrigation Deptt., State
of Orissa
(supra), the arbitrator does have the power to award interest
pendente lite.  The Court observed that it essentially depends upon the
ouster in each clause, which means that unless there is an express bar
that provides that the arbitrator cannot award interest pendente lite, the
grant of interest pendente lite will predominantly be based on the
arbitrator’s discretion to award the same.
15. In Sayeed Ahmed & Co v. State of Uttar Pradesh and Ors.4,
this Court referred to the decision in Superintending Engineer and
Ors. v. B. Subba Reddy5 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
 1 (1992) 1 SCC 508
 2 (1996) 1 SCC 516
 3 (2010) 1 SCC 549
 4 (2009) 12 SCC 26
 5 (1999) 4 SCC 423
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held that interest for pre-reference period can be awarded
only if there 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.”
16. A three Judge Bench of this Court in the case of Union of
India v. Ambica Construction6 held that the power of an arbitrator to
grant pendente lite interest will 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. The Court observed:
 “34. Thus our answer to the reference is that if contract
expressly bars award of interest pendente lite, the same cannot
be awarded by the Arbitrator. And 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.”
17. Further, this Court considered an identical clause in the contract
in the case of Ambica Constructions v.
Union of India7, wherein it
observed that the Clause of the GCC did not bar the arbitrator from
awarding interest pendente lite and affirmed the award passed by the
arbitrator.  The three Judge Bench of this Court held that the contention
raised by the Union of India based on the Clause of the GCC that the
arbitrator could not award interest pendente lite was not a valid contention
and the arbitrator was completely justified in granting interest pendente
lite.
Relying on the three Judge Bench judgment in Union of India v.
Ambica Construction (supra) and in Irrigation Deptt., State of Orissa
(supra), this Court held that the bar to award interest on the amounts
 6  (2016) 6 SCC 36
 7  (2017) 14 SCC 323
M/S RAVEECHEE AND CO. v. UNION OF INDIA
[S. A. BOBDE, J.]

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payable under the contract would not be sufficient to deny the payment
of interest pendente lite.
18. Thus 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
GCC, that is binding on the parties cannot be extended to bind an
Arbitrator. The Arbitrator has the power to award interest pendente lite
where justified.  We, therefore, set aside the judgment of the High Court
and restore the award passed by the Arbitral Tribunal in respect of Claim
No. 12.
19. Appeals are allowed accordingly.
Nidhi Jain
Appeals allowed.