IMPORTANT POINTS
(1) If contract contains a specific clause which expressly bars payment of interest, then it is not open for Arbitrator to grant pendente lite interest.
(2) Lawful agreement to refer the matter to arbitration can be made a condition precedent before going to courts and it does not violate Section 28 of Contract Act, 1872.

JUDGMENT :

S. ABDUL NAZEER, J.

Leave granted.

2. This appeal is directed against the Order of the Division Bench of the High Court of Delhi dated 19.09.2017 in FAO(OS) (COMM)No.120/2017 whereby it has upheld the judgment of the learned Single Judge in OMP (COMM) No.28 of 2017 dated 10.03.2017, resulting in denial of pendente lite interest on the award amount to the appellant.

3. The respondent floated a tender for construction of boundary wall at its 2x750 MW Pragati III Combined Cycle Power at Bawana, Delhi (hereinafter referred to as ‘the project’). The appellant submitted its bid for the project which was accepted by the respondent. Pursuant to which, the respondent issued a Letter of Intent (LOI) to the appellant dated 09.09.2008. Subsequently, on 24.10.2008 the parties entered into a contract which, inter alia, contained the interest barring clause which is reproduced hereunder:

“Clause 17: No interest shall be payable by BHEL on Earnest Money Deposit, Security Deposit or on any moneys due to the contractor.”

4. The disputes arose between the parties with respect to the aforesaid contract and subsequently the appellant filed a petition under Section 11 of the Arbitration and Conciliation Act, 1996 (for short, “the 1996 Act”) before the Delhi High Court wherein the Court vide Order dated 16.09.2011 appointed Hon’ble Mr. Justice M.A. Khan (Retd.) as the sole Arbitrator to adjudicate the disputes. The appellant in the claim petition, apart from claiming various amounts under different heads, inter alia claimed pre-reference, pendente lite and future interest at the rate of 24% on the value of the award. Learned Arbitrator after hearing the contentions of both the parties concluded that there is no prohibition in the contract dated 24.10.2008 and LOI dated 09.09.2010 about payment of interest for the presuit, pendente lite and future period. Therefore, he awarded pendente lite and future interest at the rate of 10% p.a. to the appellant on the award amount from the date of filing of the claim petition i.e. 02.12.2011 till the date of realization of the award amount.

5. The respondent challenged the said award under Section 34 of the 1996 Act before the Delhi High Court in O.M.P. (COMM.) 28/2017 on various grounds, inter alia, on the ground that the learned Arbitrator being creature of the arbitration agreement travelled beyond the terms of the contract in awarding pendente lite interest on the award amount as the same was expressly barred in terms of the contract. The learned Single Judge vide his final judgment and order dated 10.03.2017 held as under:

“The Arbitrator fell in error in holding that the aforesaid clause only prescribed pre-reference interest and not pendente lite interest. As stated earlier, in terms of Section 31(7)(a) of the Act, the power of the arbitral tribunal to award pre award interest is contingent to the parties not agreeing to the contrary. Pre-award interest includes both pre-reference interest as well as pendente lite interest. Thus, the conclusion of the Arbitrator that award of pendente lite interest was not prescribed by clause 17 of the Agreement is not sustainable.

Accordingly, the impugned award to the extent of award of pendente lite interest is set aside. The petition is disposed of. No orders as to costs.”

6. As noticed above, the Division Bench of the High Court has upheld the judgment and order of the Learned Single Judge in the impugned order.

7. On 03.07.2018, this Court issued notice observing as under:

“Learned counsel for the petitioner has placed reliance on an order of this Court in Ambica Construction v. Union of India, (2017) 14 SCC 323.”

8. We have heard learned counsel for the parties and perused the materials on record. Mr. Sanjay Bansal, learned counsel for the appellant, contended that the learned Arbitrator had taken a plausible view, in terms of the Clause 17 of the Contract and held that the said clause does not bar the payment of interest for pendente lite period. This argument