UNION OF INDIA versus M/S. AMBLCA CONSTRUCTION
[2016] 2 S.C.R. 810, Supreme Court of India, 2016
Outcome: Reference answered
Segment: Ratio
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(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] 
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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. Engineers-
De-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) 
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SUPREME COURT REPORTS 
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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 
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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 
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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. 
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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, 
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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 
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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-Space-
Age ( 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 sleep-
ers 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 Arbitra-
tor. On 5.3.1991 as the petitioner M/s. Ambica Constn1ction was in se-
rious financial difficulties, it accepted the amount in full and final settle-
ment. 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 be-
fore 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 supple-
mentary agreement dated 5 .3. 1991. The appeal preferred by the peti-
tioner 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 dis-
missed 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 Arbitra-
tor 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 
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on behalf of Mis. Ambica Construction has contended that in view of 
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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 
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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 subject-
matter 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 
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[ARUN MISHRA, J.] 
orders with respect to any of such matters." 
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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 
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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. 
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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 
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fARUN MISHRA, J.l 
prohibit such grant. In other words, we are dealing with a case 
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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 
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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 
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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: 
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"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 
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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 
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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 Engineer-
in-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. (2009) 12 sec 1 thus: 
(a) Where a provision for interest is made on any debt or damages, 
in any agreement, interest shall be paid in accordance with such 
agreement. 
( b) Where payment of interest on any debt or damages is barred 
by express provision in the contract, no interest shal I be awarded. 
(c) Where there is no expre~s bar in the contract and where there 
is also no provision for payment of interest then the principles of 
Section 3 of the Interest Act will apply 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. 
(d) Payment of interest pendente lite and future interest shall not 
be governed by the provisions of the Interest Act, 1978, but by the 
provisions of Section 34 of the Code of Civil Procedure, 1908 or 
the provisions of law governing arbitration as the case may be." 
In Sayeed
Ahmed (supra), the provisions of Arbitration & 
Conciliation Act, 1996 were applicable. 
16. A 3-Judge Bench of this Court in Union of India v. Bri>I,ht 
Power Projects (India) Pvt. Ltd. (20°15) 9 SCC 695 h~s considered the 
provisions contained in section 31 (7)(a) of the Arbitration and Conciliation 
Act, 1996 and considered the words "unless otherwise agreed by parties" 
in the said section and held that the Arbitrator is bound by the terms of 
the contract so far as award of interest from the date of execution to the 
date of award is concerned. This Court considered clause 13(3) of the 
contract and came to the conclusion that once agreed that contractor 
would not claim any interest on the amount to be paid under the contract, 
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he could not have claimed the interest. The Arbitrator while awarding 
interest failed to consider the provisions of section 31 (7)(a) and binding 
nature of clause 13(3) of the terms of agreement. With respect to section 
31 (7)(a) of the Arbitration & Conciliation Act, 1996 this Court in Union 
of India v. Bright Power Projects (supra) has observed thus : 
"18. Section 31(7)(a) of the Act ought to have been read and 
interpreted by the Arbitral Tribunal before taking any decision 
with regard to awarding interest. The said section, which has been 
reproduced hereinabove, gives more respect to the agreement 
entered into between the parties. If the parties to the agreement 
agree not to pay interest to each other, the Arbitral Tribunal has 
no right to award interest pendente li!e ." 
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 
contract between the parties has been given importance and is binding 
on the 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. 
17. In Sree Kamatchi A111111a11 Constructions (supra), it was 
observed that the words "unless otherwise agreed by the parties" in 
section 31 of new Act of 1996 clarify that Arbitrator i~ bound by the 
terms of contract for award of interest pendente lite. It was also held 
thus: 
"19. Section 31 (7) of the new Act by using the words "unless 
otherwise aweed by the parties" categorically clarifies that the 
Arbitrator is bound by the terms of the contract insofar as the 
award of interest fiwn the date of cause of action to the date 
of award. Therefore, where the parties had agreed that no interest 
shall be payable, the Arbitral Tribunal cannot award interest 
between the date when the cause of action arose to the date of 
award. 
20. We are of the view that the decisions in Engineers-De-Space-
Age (supra) and Madnani (supra) are inapplicable for yet another
UNION OF INDIA v. M/S. AMBICA CONSTRUCTION 
[ARUN MISHRA, J.] 
reason. In Engineers-De-Space-Age (supra) and Madnani 
(supra) the Arbitrator had awarded interest for the pendente lite 
period. This Court upheld the award of such interest under the old 
Act on the ground that the Arbitrator had the discretion to decide 
whether interest should be awarded or not during the pendente 
lite period and he was not bound by the contractual terms insofar 
as the interest for the pendente lite period. But in the instant case 
the Arbitral Tribunal has refused to award interest for the pendente 
lite period. Where theArbitral Tribunal has exercised its discretion 
and refused award of interest for the period pendente lite, even if 
the principles in those two cases were applicable, the award of 
the Arbitrator could not be interfered with. On this ground also 
the decisions in Engineers-De-Space-Age (supra) and Mad11a11i 
(supra) are inapplicable. Be that as it may." 
18. This Court in Unio11 of India v. Krafters Engineering & 
Leasing Pvt. Ltd. (2011) 7 SCC 279 has held that by a provision in the 
agreement, the jurisdiction of the Arbitrator to award interest can be 
excluded. This Court considered the nature of the claim vis-a-vis the 
provision contained in the relevant clause. 
19. It is apparent from various decisions referred to above that in 
GC. Roy (supra) Constitution Bench of this Coutt has laid down where 
agreement expressly provides that no interest pendente lite shall
be 
payable on amount due. The arbitrator has no power to award interest. 
In N.C. Budharaj (supra) a Constitution Bench has observed that in 
case there is nothing in the arbitration agreement to exclude jurisdiction 
of arbitrator to entertaining claim for interest, the jurisdiction of arbitrator 
to consider and award interest in respect to all periods is subject to 
section 29 of the Act. I_n Hi11dusta11 Co11structio11 Co. Ltd. (supra) this 
Court has followed decision in GC. Roy (supra) and laid down that on 
the basis of principles of section 34 arbitrator would have the power to 
award pendente lite interest also. In B.N. Agarwal/a (supra), this Court 
has again followed GC. Roy (supra) and Hi11dusta11 Co11structio11 Co. 
Ltd. (supra) with respect to power of arbitrator to award pende/1/e lite 
interest and it was held that arbitrator has power to award interest. In 
Harish Chandra (supra) this Court interpreted the clause 1.9 which 
provided that no claim for interest or damages will be entertained by the 
Government in respect to any mon·eys or balances which may be lying 
with the Government. It was held that there was no provision which 
could be culled out against the contractor not to claim interest by way of 
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damages before the arbitrator on the relevant items placed for 
adjudication. In Ferro Concrete Construction (PJ Ltd. (supra) this Court 
considered clause 4 containing a stipulation that no interest was payable 
on amount withheld under the agreement. It was held that clause 4 dealt 
with rates, material and workmanship did not bar award of interest by 
the arbitrator on claims of the contractor made in the said case. In Sayeed 
Ahmed (supra) this Court has emphasized that award of interest would 
depend upon nature of the clause in the agreement. In Bright Power 
Projects (India) Pvt. Ltd. (supra) this Court has considered the 
expression "unless otherwise agreed by parties" employed in section 
31(7)(a) of the Act of 1996 and laid down that in case contract bars 
claim of interest contractor could not have claimed interest. The provision 
of section 31 (7)(a) of the Act of 1996 is binding upon the arbitrator. In 
Sree Kamatchi Amman Constructions (supra) similar view has been 
taken. 
20. Now we come to the question of correctness of decision of this 
Court rendered by a Bench of two Judges in Engineers-De-Space-
Age (supra) which has been referred for our consideration in which this 
Court after consideration of GC. Roy's case has observed thus: 
"3 ..... It will appear from what the Constitution Bench stated to 
be the legal position, that ordinarily a person who is deprived of 
his money to which he
is legitimately entitled as ofright is entitled 
to be compensated in deprivation thereof, call it by whatever name. 
This would be in terms of the principle laid down in Section 34 of 
the Code of Civil Procedure. Their Lordships pointed out that 
there was no reason or principle to hold otherwise in the case of 
an Arbitrator. Pointing out that Arbitrator is an alternative forum 
for resolution of disputes arising between the parties, it said that 
he must have the power to decide all disputes and differences 
arising between the parties and ifhe were to be denied the power 
to award interest pendente lite, the party entitled thereto would 
be required to go to a court which would result in multiplicity of 
proceedings, a situation which the court should endeavour to avoid. 
Reliance was, however, placed on the observation in sub-para 
(iii) wherein it is pointed out that an Arbitrator is a creature of an 
agreement and if the agreement between the parties prohibits the 
payment of interest pe11de11te lite the Arbitrator must act in 
accordance therewith. In other words, according to their Lordships 
the Arbitrator is expected to act and make his award in accordance
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 
[ARUN MISHRA, J.] 
with the general law of the land but subject to an agreement, 
provided, the agreement is valid and legal. Lastly, it was pointed 
out that interest pendente lite is not a matter of substantive law, 
like interest for the period anterior to reference. Their Lordships 
concluded that where the agreement between the parties does 
not prohibit grant of interest and where a party claims interest 
and that dispute is referred to the Arbitrator, he shall have the 
power to award interest pendenle lite for the simple reason that 
in such a case it is presumed that interest was an implied term of 
the agreement between the parties; it is then a matter of exercise 
of discretion by the Arbitrator. The position in law has, therefore, 
been clearly stated in the aforesaid decision of the Constitution 
Bench". 
4. We are not dealing with a case in regard to award of interest 
for the period prior to the reference. We are dealing with a case 
in regard to award of interest by the Arbitrator post reference. 
The short question, therefore, is whether in view of sub-clause 
(g) of clause 13 of the contract extracted earlier the Arbitrator 
was prohibited from granting interest under the contract. Now 
the term in sub-clause (g) merely prohibits the Commissioner from 
entertaining any claim for interest and does not prohibit the 
Arbitrator from awarding interest. The opening words "no claim 
for interest will be entertained by
the Commissioner" clearly 
establishes that the intention was to prohibit the Commissioner 
from granting interest on account of delayed payment to the 
contractor. Clause has to be strictly construed for the simple reason 
that as pointed out by the Constitution Bench, ordinarily, a person 
who has a legitimate claim is entitled to payment within a reasonable 
time and ifthe payment has been delayed beyond reasonable time 
he can legitimately claim to be compensated for that delay 
whatever nomenclature one may give to his claim in that behalf." 
21. In Sayeed Ahmed (supra) the decision in Engineers-De-Space-
Age (supra) has been considered and it was observed that it cannot be 
used to support an outlandish argument that bar on the Government or 
department paying interest is not a baron the Arbitrator awarding interest. 
This Court expressed doubt as to the correctness of certain observations 
made in Engineers-De-Space-Age (supra) to the extent that the 
Arbitrator could award interest pendente lite ignoring the express bar 
in the contract. But this Court did not consider the question further as 
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the case in Sayeed Ahmed (supra) arose under the Arbitration and 
Conciliation Act of 1996, and there was a specific provision undernew 
Act regarding award of interest by the Arbitrator. From the discussion 
made in Sayeed Ahmed (supra) it is apparent that this Court has 
emphasized that it would depend upon the nature of clause and claim 
etc. and it is required to be found on consideration of stipulation whether 
interest is barred, if yes, on what amounts interest is barred under the 
contract. 
22. A three-Judge Bench of this Court in Tehri Hrdro Development 
Corporation Limited and Another v. Jai Prakash Associates Limited, 
(2012) 12 SCC I 0, has considered the question which has been referred 
in the instant case and it has been laid down in the context of clauses 
1.2.14 and 1.2.15 imposed a clear baron eitherentertainment or payment 
of interest in any situation of non-payment or delayed payment of either 
the amounts due for work done or lying in security deposit. Thus, the 
arbitrator had no power to grant pendente lite interest. This Court has 
D also doubted the correctness of the decisions in Engineers-De-Space 
Age (supra) and Madnani Construction Corporation (P) Ltd. (supra). 
This court has considered the aforesaid clauses and various decisions in 
Tehri Hydro Development Corporation (supra) in which one of us 
Ranjan Gogoi,J. spoke for the Court. This Court has laid down thus:-
E 
"14. This will lead
the court to a consideration of what is the 
principal bone of contention between the parties in the present 
case, namely, the issue with regard to payment of interest. Clauses 
1.2.14 and 1.2.15 on which much arguments have been advanced 
by Learned Counsel for both sides inay now be extracted below: · 
F 
PART - II 
CONDITIONS OF CONTRACT 
1.2.14. No claim for delayed payment due to dispute, etc. -
The contractor agrees that no claim for interest of damages will 
be entertained or payable by the Government in respect of any 
G 
money or balances which may be lying with the Government owing 
to any disputes, differences or misunderstandings between the 
parties or in respect of any delay or omission on the part of the 
engineer-in-charge in making immediate or final payments or in 
any other respect whatsoever. 
H 
·-1.2.15. Interest on money due to the comractor. - No omission
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 
;,;": 833 
[ARUN MISHRA, J.] 
on the part of the engineer-in-charge to pay the amount due upon 
·measurement or otherwise shall vitiate or make void the contract, 
nor shall the contractor be entitled to interest upon any guarantee 
or payments in arrears nor upon any balance which may on the 
final settlement of his accounts be due to him. 
A reading of the aforesaid two clauses of the contract agreement 
between the parties clearly reveal that despite some ovei"lapping 
of the circumstances contemplated by the two clauses, no interest 
is payable to the contractor for delay in payment, either, interim or 
final, for the works done or on any amount lying in deposit by way 
of guarantee. The aforesaid contemplated consequence would 
be applicable both to a situation where withholding of payment is 
on account of some dispute or difference between the parties or 
even otherwise. 
15. Of the several decisions of this Court referred to by the learned 
counsel for the appellant the judgments of the Constitution Bench 
of this Court in Irrigation Deptt., Gow. of Orissa v. GC. Roy, 
(1992) 1 SCC 508 and Dhenkanal Minor Irrigation Division v. 
N. C. Budharaj, (200 I) 2 SCC 721 will require specific notice. 
The true ratio laid down in the aforesaid. two judgments have 
been elaborately considered in a more recent pronouncement of 
this Court in the case of Union </!India v. Krajters Engg. and 
Leasing (P) Ltd., (2011) 7 SCC 279. In
Krajters Engineers's 
case (supra) the ratio of the decision in GC. Roy's case (supra) 
was identified to mean that if the agreement between the parties 
does not prohibit grant of interest and the claim of a party to 
interest is referred to the arbitrator, the arbitrator would have the 
power to award the interest. This is on the basis that in such a 
case of silence (where the agreement is silent) it must be presumed 
that interest was an implied term of the agreeme·nt and, therefore, 
whether such a claim is tenable can be examined by the arbitrator 
in the reference made to him. The aforesaid view, specifically, is 
with regard to pendente lite interest. Jn the subsequent decision 
of the Constitution Bench inN.C. Budharaj's case (supra) a similar 
view has been taken with regard to interest for the pre-reference 
period. 
16. In Krajters Engineers' case (supr;;,), the somewhat discordant 
note struck by the decisions of this Court in Port of Calcutta v. 
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Engineers-De-Space-Age (supra) and Madnani Construction 
Corporation Private Limited v. Union of India and Ors. 
(supra), were also taken note of. Thereafter, it was also noticed 
that the decision in Engineers-De-Space-Ages case (supra) was 
considered in Sayeed Ahmed & Co. v. State of U.P. (supra) and 
the decision in Madnani Construction case (supra) was 
considered in Sree Kamatchi Amman Constructions v. Railways 
(2010) 8 SCC 767. In Sayeed Ahmeds case (supra) (SCC para 
24) it was held that in the light of the decision of the Constitution 
Bench in GC. Roys case (1992) 1 SCC 508 and N.C. Budharaj 
case (200 I) 2 SCC 721 it is doubtful whether the observations in 
Engineers-de-Space-Age's case (supra) to the effect that the 
Arbitrator could award interest pendente lite, ignoring the express 
bar in the contract, is good law. Jn Sree Kamatchi Amman 
Construction's case (Supra) while considering MadnaniS case 
(supra) this Court noted that the decision in Madnani case (supra) 
follows the decision in Engineers-de-Space-Age's case (supra). 
17. From the above discussions, it is crystal clear that insofar as 
pendente lite interest is concerned, the observations contained in 
Para 43 and 44 of the judgment in GC. Roy case (supra) will 
hold the field. Though the gist of the said principle has been noticed 
earlier it would still be appropriate to set out para 44 of the judgment 
in GC. Roy's case (supra)
which is in the following terms: 
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 
pendenle lite. It is a matter within his discretion to be exercised 
in the light of all the facts and circumstances of the case, keeping
UNION OF INDIA v. MIS. AMBICA CONSTRUCTION 
[ARUN MISHRA, J.l 
the ends of justice in view. 
18. The provisions of the U.P. Civil Laws (Reforms and 
Amendment) Act amending the First Schedule to the Arbitration 
Act, 1940 does not assist the respondent contractor in any manner 
to sustain the claim ofaward of interest pendente lite, inasmuch, 
as Para 7-A of the First Schedule, as amended, is only an enaliling 
provision which will have no application to a situation where there 
is an express bar to the entertainment or payment of interest on 
the delayed payment either of an amount due for the work done 
. or of an amount lying in deposit as security. The decision in·B.N. 
Agarwalla case (supra) on which reliance has been placed by 
the learned counsel for the respondent, once again, does not assist 
the claim of the respondent ·to interesi pende/1/e lite inasmuch as 
in B.N. Aganmlla case (supra) the views of the Constitution 
Bench in GC. Roy case (supra) with regard to interest pende/1/e 
lite could not have been and, in fact, were not even remotely 
doubted. The observation of the Bench in B.N. Aganrnlla case 
that in GC. Roy case (supra) the decision in Depll. of Irrigation 
v. Abhaduta Jena (1988) 1 SCC 418 was not overruled was only 
in the context of the issue of award of interest for the pre-
reference period. The decision in Asian Techs Limited case 
(supra) also relied on by the respondent takes note of the decision 
in Engineers-De-Space-Age case (supra) to come
to the 
conclusion the prohibition on payment of interest contained in 
Clause 11 of the agreement between the parties was qua the 
department and did not bar the arbitrator from entertaining the 
claim. It has already been noticed that the correctness of the 
propositions laid down in Engineers-De-Space-Age case (supra) 
have been doubted in the subsequent decisions of this Court, 
reference to which has already been made. 
19. Clauses 1.2.14 and 1.2.15, already extracted and analysed, 
imposed a clear bar on either entertainment or payment of interest 
in any situation of non-payment or delayed payment of either the 
amounts due for work done or lying in security deposit. On the 
basis of the discussions that have preceded we, therefore, take 
the view that the grant of pendente lite interest on the claim of 
Rs. 10, 17,461/- is not justified. The award as well as the orders of 
the courts below are accordingly modified to the aforesaid extent." 
835 
A 
c 
D 
E 
F 
G 
H .
836 
A 
B 
c 
D 
E 
SUPREME COURT REPORTS 
[2016] 2 S.C.R. 
In para 4 in Engineers-De-Space-Age (supra) this Court has 
observed that bar under the contract will not be applicable to Arbitrator 
·cannot be said to be observation of general application. In our opinion, it 
would depend upon the stipulation in the contract in each case whether 
power of Arbitrator to grant pendente lite interest is expressly taken 
away. If answer is 'yes' then Arbitrator would have no power to award 
pendente lite interest. 
23. The decision in Madnani Construction Corporation (supra) 
has followed decision in Engineers-De-Space-Age (supra). Same is 
also required to be diluted to the extent that express stipulation under 
contract may debar the Arbitrator from awarding interest pendente lite. 
Grant of pendente 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 
~riod. 
24. 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. 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 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. 
Devika Gujral 
Reference ans\rered.