IMPORTANT POINT
Liability for interest pendente lite does not arise from any term of the contract, or during the terms of the contract. It 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.

JUDGMENT :

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% Rs. 44,92,800/-per annum from 26.09.1988 to 22.03.2001. Further, the High Court dismissed the review application filed by the appellant.

3. The appellant – M/s Raveechee and Co. and the respondent-Union of India entered into a contract dated 02.06.1981 for quarrying, stacking and loading stone ballast, broken stone aggregate, rubble etc. from the Western Railway quarry at Udvada at an estimated cost of Rs. 55,81,000/. Thereafter, disputes arose between the parties due to which the appellant called upon the General Manager, Western Railway to appoint Arbitrators in order to settle the dispute. The Arbitration proceedings commenced on 26.09.1988 and the award was passed on 22.03.2001.

4. The Arbitral Tribunal comprising of Shri N.K. Gupta, Chief Engineer (C&S) and Shri R.K. Sinha, Director, Finance, KRCL, awarded a total of Rs. 76,43,800/-as against the claim of Rs. 1,34,87,044/-raised by the appellant. An award for the Claim Nos. 1-12 raised by the appellant was made. The present dispute relates to the amount awarded under Claim No. 12 i.e. Interest. The Arbitrators awarded the appellant interest pendente lite at 12% on the award for damages excluding security deposits amounting to Rs. 44,92,800/-from 26.09.1988 to 22.03.2001.

5. The appellant thereafter filed a Civil Miscellaneous Application No.22 of 2001 along with the award dated 22.03.2001 in the Civil Court. The award was made a rule of the Court by an order dated 29.07.2004 under Section 17 of the Arbitration Act of 1940 (hereinafter referred to as ‘the Act’) by the Civil Court. The respondent challenged the order of the Civil Court dated 29.07.2004 in appeal. The High Court partly allowed the appeal and set aside the order of Arbitrators qua Claim No.12 under which the Arbitrators had awarded Rs. 44,92,800/-as interest pendente lite. The Arbitrators awarded amounts in favour of the appellant as follows: Claim No.1 – Rs. 12 lacs, Claim No.3 – Rs. 8 lacs and Claim No. 5 – Rs. 10 lacs and interest on the total amount of damages (i.e. Rs. 12 lacs + Rs. 8 lacs + Rs. 10 lacs = Rs. 30 lacs) excluding the amount of security deposits. Thus, interest on Rs. 30 lacs from 26.09.1988 to 23.03.2001 at 12 % amounting to Rs. 44,92,800/-.

6. The appellant, aggrieved by the High Court’s judgment and order dated 23.07.2015 filed a review application before the High Court. The High Court dismissed the review application vide judgment and order dated 05.11.2015. The present SLPs are filed against the High Court judgments and orders dated 23.07.2015 & 05.11.2015 passed by the High Court.

7. The question that arises for determination before this Court is: Whether Clause 16(3) (reproduced hereafter) of the General Contract Clauses (hereinafter referred to as “GCC”) restricted the power of the arbitrator to award interest pendente lite?

8. In the present case, the Arbitral Tribunal giving effect to the purport of Clause 16(3) did not award any interest on security deposits. The clause in terms states that no interest will be payable on earnest money, security deposits or on any amounts payable to the contractor under the contract.

The Arbitrators in their award have relied on Clause 16(3) of the contract to deny interest on the security deposit. The Arbitrators held that what was intended under Clause 16(3) barred the grant of interest on earnest money, security deposit and amounts payable to the appellant, it does not in any way bar grant of interest pendente lite.

9. Clause 16(1) and 16(3), whic