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1 REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO. 2404 OF 2008

UNION OF INDIA  ... APPELLANT VERSUS

M/S. BRIGHT POWER  PROJECTS (I) P.LTD.   ... RESPONDENT

J U D G M E N T

ANIL R. DAVE, J.

1.  Being aggrieved by the judgment delivered in

Appeal  (Lodging)  No.124  of  2006  in  Arbitration

Petition  No.321  of  2005  dated  7th August,  2006,

delivered by the High Court of Judicature at Bombay,

this  appeal  has  been  filed  wherein  the  issue  is

whether the appellant is liable to pay interest to

the respondent though there was a provision in the

contract  that  no  interest  should  be  paid  on  the

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2 amount payable to the contractor. The facts which are

relevant for the purpose of deciding the issue, in a

nutshell, are as under.

2. The  appellant  and  the  respondent  had  entered

into  a  contract  whereby  the  respondent  had  to

construct  certain  structures,  which  had  been  more

particularly described in the agreement entered into

by the parties on 20th January, 1997.

3. In the course of execution of the contract, a

dispute  had  arisen  between  the  appellant  and  the

respondent contractor and as agreed by the parties,

the  dispute  had  been  referred  to  the  Arbitral

Tribunal.  After hearing the concerned parties, the

Arbitral  Tribunal  declared  an  award  on  17th May,

2005,  whereby  it  also  awarded  interest  to  the

respondent contractor on the amount awarded, from the

date of the reference till the date of the award.

4. Relying  upon  the  judgment  delivered  in  the

case  of  Secretary,  Irrigation  Department,

Government of Orissa and Ors. v. G.C. Roy (1992) 1 SCC 508, the Arbitral Tribunal awarded interest on

the amount of the award.  In the said case, this

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3 Court  had  considered  the  provisions  of

Section 29 of  the  Arbitration  Act,  1940,  which

dealt  with  payment  of  interest  pendente  lite.

After analyzing the scheme of the said Act, various

earlier  decisions  and  after  considering  the  very

same issue, namely, whether an arbitrator has power

to award interest pendente lite and, if so, on what

principles,  this  Court  had  observed  that  the

Arbitral Tribunal had power to award interest.  

5.  Being aggrieved by the Award and especially

because of interest being awarded by the Arbitral

Tribunal,  the appellant  filed Arbitration  Petition

No.321 of 2005 in the High Court of Judicature at

Bombay.  The said arbitration petition was dismissed

on 13th December, 2005.

6. Being  aggrieved  by  the  dismissal  of  the

Arbitration Petition, the appellant filed an appeal

which was also dismissed by the Division Bench of the

High  Court of  Judicature at  Bombay on  7th August,

2006.  Judgment of a Division Bench of the High Court

of  Judicature  at  Bombay  dated  2nd July,  1997,

delivered in the case of  Union of India v. Anand

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4 Builders was relied upon and except for stating the

above reason, no other reason was recorded by the

High Court while dismissing the appeal.   

7. According to the learned counsel appearing for

the  appellant,  it  was  not  open  to  the  Arbitral

Tribunal to award any interest to the contractor in

view of a specific condition incorporated in the

contract entered into between the parties that no

interest would be paid to the contractor.  

8. On  the  other  hand,  the  learned  counsel

appearing for the respondent contractor submitted

that  the  Division  Bench  of  the  High  Court  had

rightly  upheld  the  order  passed  by  the  learned

Single Judge as well as the Arbitral Tribunal.

9. On the aforesaid contentions, this Court has

to decide whether the contract between the parties

contained  an  express  bar  regarding  award  of

interest and if so, whether the Arbitral Tribunal

was justified in awarding interest for the period

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5 commencing from the date of reference till the date

of the award.

10. Clause  13  (3)  of  the  contract  entered  into

between the parties reads as under:

“13(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  repayable  with  interest accrued thereon.”   

11. Thus,  it  had  been  specifically  understood

between the parties that no interest was to be paid

on the earnest money, security deposit and the amount

payable to the contractor under the contract. So far

as  payment  of  interest  on  Government  Securities,

which had been deposited by the respondent contractor

with the appellant is concerned, it was specifically

stated that the said amount was to be returned to the

contractor along with interest accrued thereon, but

so far as payment of interest on the amount payable

to the contractor under the contract was concerned,

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6 there was a specific term that no interest was to be

paid thereon.  

12. When parties to the contract had agreed to the

fact that interest would not be awarded on the amount

payable to the contractor under the contract, in our

opinion,  they  were  bound  by  their  understanding.

Having  once  agreed  that  the  contractor  would  not

claim any interest on the amount to be paid under the

contract, he could not have claimed interest either

before a civil court or before an Arbitral Tribunal.

13. Section  31(7)  of  the  Arbitration  and

Conciliation Act, 1996 (hereinafter referred to as

‘the  Act’)  is  clear  to  the  effect  that  unless

otherwise  agreed  by  the  parties,  the  Arbitral

Tribunal can award interest at reasonable rate for a

period commencing from that date when the cause of

action arises till the date of the award.   Section

31(7) of the Act, reads as under:

“31(7) (a) Unless otherwise agreed by the parties, where and in so far as an arbitral award  is  for  the  payment  of  money,  the Arbitral Tribunal may include in the sum

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8 awarding interest from the date of entering upon the

reference to the Arbitral Tribunal till the date of

the award.   

16. The  Arbitral  Tribunal  had  mainly  relied  upon

the judgment delivered by this Court in  G C Roy  ’s case (supra).  In the said case, the situation was different.  The contract between the parties did not

contain  any  condition  that  interest  would  not  be

paid.  In para 44 of the said judgment, it has been

observed as under :

“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

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9 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.”

17. Relying  upon  the  aforestated  judgment

delivered  by  this  Court,  the  Arbitral  Tribunal

thought it proper to award interest on the amount

payable to the contractor for the period commencing

from the date on which the reference was entered

upon till the date of the award.   The Tribunal,

however,  failed  to  consider  the  provisions  of

Section 31(7) of the Act and clause 13(3) of the

contract  before  awarding  interest  in  the  present

case.  

18. It is also pertinent to note that G.C. Roy’s

case (supra) had been decided on December 12, 1991

on the basis of the provisions of the Arbitration

Act, 1940, which was not operative at the time when

the  dispute  on  hand  was  decided  by  the  Arbitral

Tribunal.

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10 19. 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 lite.

20. By relying upon the judgments which pertained

to different period when statutory provisions were

different,  the  Arbitral  Tribunal  had  awarded

interest on the amount payable to the contractor

for the period from the date when the reference was

entered upon till the date of the award and the

said  view  of  the  Arbitral  Tribunal  had  been

confirmed by the High Court.  In our opinion, the

Arbitral Tribunal and the High Court ought to have

considered the provisions of the Act and the terms

of agreement entered upon by the parties.

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11 21. In the aforestated circumstances, the Arbitral

Tribunal ought not to have awarded interest to the

respondent from the date of reference till the date

of the award.  

22. For the aforestated reasons, we set aside the

impugned judgment and the award so far as it pertains

to payment of interest pendente lite and direct that

no interest would be paid on the amount payable under

the contract to the respondent from the date of the

reference till the date of the award.

23. The  appeal  is  allowed  with  no  order  as  to

costs.

                              …………………………………………………….J                                 (ANIL R. DAVE)

                              …………………………………………………….J       (VIKRAMAJIT SEN)

                              …………………………………………………….J   (PINAKI CHANDRA GHOSE)

NEW DELHI;  JULY 2, 2015.