REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL Nos. 5964-5965 OF 2018  [Arising out of SLP  (CIVIL) Nos. 3310-3311 of 2016]

M/s Raveechee and Co.                               ...Appellant(s)  

Versus

Union of India                       ...Respondent(s)

J U D G M E N T  

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

1

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 2

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.  

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?  

3

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.”

4

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

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’.  

5

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 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

6

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

1 (1992) 1 SCC 508  2 (1996) 1 SCC 516 3 (2010) 1 SCC 549  

7

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  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.

4 (2009) 12 SCC 26  5 (1999) 4 SCC 423 6 (2016) 6 SCC 36  

8

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

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 7 (2017) 14 SCC 323  

9

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.  

….………………………………..J. [ S.A. BOBDE ]

….………………………………..J.  [ L. NAGESWARA RAO ]

NEW DELHI  JULY 03, 2018

10