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SUPREME COURT OF INDIA
(From the High Court of Delhi at New Delhi)
M.R. SHAH, B.V. NAGARATHNA, JJ.
Union of India – Appellant
Versus
Manraj Enterprises – Respondent
Civil Appeal No. 6592 of 2021
Decided On : 18-11-2021
Arbitration and Conciliation Act, 1996 – Sections 34 and 37 – Appeal against arbitral award – Award of interest pendente lite – As per clause 16(2) no interest would be payable upon earnest money or security deposit or amounts payable to contractor under the contract – Though damages become payable on account of breach of conditions of agreement they nevertheless constitute amounts payable under the contract – Once contractor agrees that he shall not be entitled to interest on amounts payable under the contract, including interest upon earnest money and security deposit as mentioned in clause 16(2) of agreement/contract between parties herein, Arbitrator in arbitration proceedings being creature of contract has no power to award interest, contrary to terms of agreement/contract between parties and contrary to clause 16(2) of agreement/contract in question in this case – Expression “amounts payable to contractor under the contract” cannot be read in conjunction with “earnest money deposit” or “security deposit” by applying principle of ejusdem generis – Expression “amounts payable to contractor under contract” has to be read independently and disjunctively to earnest money deposit and security deposit as word used is “or” and not “and” between “earnest money deposit”, “security deposit” and “amounts payable to contractor under the contract” – Principle of ejusdem generis is not applicable in present case – Merely because appellant has claimed interest, does not imply that contractor shall be entitled to interest pendente lite – Even if appellant would have been awarded interest, same also was not permissible and could have been a subject matter of challenge – There cannot be an estoppel against law – Impugned judgment and order passed by Division Bench of High Court in appeal under Section 37 of 1996 Act and order passed by Single Judge in an application under Section 34 of 1996 Act and award passed by Arbitral Tribunal awarding pendente lite and future interest on amounts held to be due and payable to contractor under the contract quashed and set aside. (Paras 6.2, 6.3, 8.1, 10, 12 and 14)
Facts of the case:
Feeling aggrieved and dissatisfied with the impugned judgment and order dated 12.04.2021 passed by the High Court of Delhi in FAO(OS) No.52/2018, whereby the Division Bench of the High Court has dismissed the said appeal of the appellant and has confirmed the order passed by Single Judge upholding the award of interest by sole Arbitrator, the Union of India has preferred present appeal. Short question which is posed for the consideration of this Court is in view of the specific clause 16(2) of the GCC, whether contractor is entitled to any interest pendente lite on the amounts payable to the contractor other than upon the earnest money or security deposit.
Findings of Court:
Arbitrator in the instant case has erred in awarding pendente lite and future interest on the amount due and payable to the contractor under the contract in question and the same has been erroneously confirmed by the High Court.
Result : Appeal allowed.
JUDGMENT :
M.R. SHAH, J.
1. Feeling aggrieved and dissatisfied with the impugned judgment and order dated 12.04.2021 passed by the High Court of Delhi in F.A.O. (OS) No. 52/2018, whereby the Division Bench of the High Court has dismissed the said appeal of the appellant and has confirmed the order passed by the learned Single Judge upholding the award of interest by the sole arbitrator, the Union of India has preferred the present appeal.
2. That a contract was entered into between the appellant and the respondent with regard to three work contracts. A dispute arose between the parties and both the parties went into arbitration for the resolution of the dispute. The learned sole arbitrator vide award dated 17.01.2011 awarded an amount of Rs. 78,81,553.08. The learned arbitrator also awarded pendente-lite and future interest at the rate of 12% and 18% respectively on the entire awarded amount except for the earnest money deposit and security deposit.
2.1 That the Union of India preferred an appeal under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as the ‘1996 Act’) challenging the award made on claim no. 5 vide award dated 17.01.2011 pertaining to pre-suit, pendente-lite and future interest awarded on the balance due payment, from the due date of payment.
2.2 The learned Single Judge of the High Court dismissed the said appeal. The matter was carried further before the Division Bench by way of F.A.O. (OS) No. 52/2018 under Section 37 of the 1996 Act. By the impugned judgment and order, the Division Bench of the High Court has dismissed the said appeal and has confirmed the award made by the learned arbitrator awarding pendente-lite interest and future interest awarded on the balance due payment. Hence, the present appeal.
3. Shri K.M. Nataraj, learned Additional Solicitor General appearing on behalf of the appellant-Union of India has vehemently submitted that as agreed between the parties and as per clause 16(2) of the General Conditions of Contract (for short ‘GCC’) governing the contract between the parties, there was a bar against payment of interest. It is submitted that as agreed between the parties and as per clause 16(2), no interest shall be payable upon the earnest money or the security deposit or the amounts payable to the contractor under the contract.
3.1 It is urged that even under Section 31(7)(a) of the 1996 Act, unless otherwise agreed between the parties, the Arbitral Tribunal may include in the sum for which the award is made interest, at such rate as it deems reasonable, on the whole or any part of the money. It is submitted that if there is an expression “agreed between the parties” governing the contract that no interest shall be payable, parties are bound by such an agreement and no interest either pendente-lite or future interest on the amount due and payable under the contract shall be awarded.
3.2 It is contended that in the present case, clause 16(2) of the GCC governing the contract between the parties specifically bars payment of interest, not only on the earnest money or security deposit, but also upon any amounts payable to the contractor under the contract. It is urged that since the parties are governed by the contract and the arbitrator and the arbitration proceedings are creatures of the contract, they cannot traverse beyond what has been contemplated in the contract between the parties.
3.3 It is further submitted that the power of the arbitrator to award pendente-lite interest considering pari materia clause to clause 16(2) of the GCC has been examined by a three Judge Bench of this Court in the case of Union of India vs. Bright Power Projects (India) Pvt. Ltd. (2015) 9 SCC 695. It has been specifically observed and held in the said case that in view of the specific contract between the parties and the bar for awarding the interest, the payment of interest was not permissible even on earnest money deposit or security deposit or amounts payable to the contractor u
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