Case: Ambica Construction Vs. Union of India (UOI)

The arbitrator by bis award dated 28.06.1999, besides awarding a sum of Rs. 9,20,694/- to the claimant, held the claimant also entitled to interest pendente lite, at the rate of 15% per annum. The operative part of the award passed by the arbitrator depicting the above position is extracted below:I therefore award a sum of Rs. 9,20, 694.00 in favour of the claimant and against the Respondent. The claimant will also be entitled to interest pendente lite at the rate of 15% per annum and interest on award until recovery at the rate of 15% pere Union of India, namely, the Respondent before this Court, assailed the award passed by the arbitrator in the High Court of Calcutta, by preferring A.P. No. 39 of 1999. A learned single Judge of the High Court, by an order dated 3.8.2001, affirmed the award passed by the arbitrator on 28.6.1999, including the pendente lite interest, extended to the claimant. The relevant portion of the order of the learned single Judge is extracted below:"Apart from that there is no allegation of misconduct against the Arbitrator. There is no impropriety in the matter of procedure or norms of hearing before the Arbitrator. There is hardly any reason for the court to pass an order allowing the application. This application for setting aside the award is dismissed.. The award dated 28.6.1999, and the order passed by the learned single Judge dated 3.8.2001 were then assailed by the Union of India, before a Division Bench of the High Court, by preferring A.P.O.T. No. 678 of 2001. While disposing of the above intra-court appeal, the High Court accepted the prayer made by the Union of India, and set aside the determination of the arbitrator in awarding interest pendente lite, by observing as under:In respect of award of interest as payment of interest is excluded under Clause 16(2) of the agreement and as no reason was assigned by the learned Arbitrator for awarding interest till then, in our opinion, interest could not be awarded and the award is modified by excluding interest therefromIn above view of the findings the award stands modified by excluding the award of interest and the appeal is allowed to that extent only3. The impugned order passed by the High Court dated 17.06.2005, limited to the determination with reference to pendente lite interest, has been assailed by the Appellant, through the instant civil appeal. During the course of hearing, it was not disputed, that the contractual obligation between the parties expressly provided, that interest could not be claimed, either on earnest money or on the security deposit, and even on amounts payable to the claimant. The relevant clause affirming the above position is extracted hereinbelow:"(2) Interest on amounts. No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but Government Securities deposited in terms of Sub-clause (1) of this clause will repayable with interest accruede aforesaid clause has been relied upon by the learned Counsel representing the Union of India to contend, that when interest was not payable even on the principal amount, there was no question of the same being payable during the period the matter remained pending for adjudication. It is therefore apparent, that the learned Counsel for the Respondent, relied upon the contractual obligation contained in the clause, extracted hereinabove, to counter the claim of pendente lite interest and to support the impugned order passed by the High Court.

Court's reasoning:
A perusal of the conclusions drawn by this Court in the above judgment, rendered by a three Judge Division Bench, leaves no room for any doubt, that the bar to award interest on the amounts payable under the contract, would not be sufficient to deny payment of pendente lite interest. In the above view of the matter, we are satisfied, that the clause relied upon by the learned Counsel for the Union of India, to substantiate his contention, that pendente lite interest could not be awarded to the Appellant, was not a valid consideration, for the proposition being canvassed.