IMPORTANT POINTS
(1) Arbitrator’s power to grant pendente lite interest – Arbitrator’s power to grant interest would depend on contractual clause in each case and whether it expressly takes away Arbitrator’s power to grant pendente lite interest.
(2) Bar on award of interest for delayed payment would not be readily inferred as express bar to award of pendente lite interest by Arbitrator.

JUDGMENT :

(Pamidighantam Sri Narasimha, J.)

1. Leave granted.

2. It is just as necessary to follow a precedent as it is to make a precedent.

3. The short issue arising for consideration in this appeal is whether the contractual clause that bars the appellant/contractor from claiming any interest on any payment, arrears or balance due to it amounts to an express bar on the arbitrator’s power to grant pendente lite interest as per the law under the Arbitration Act, 1940¹[Hereinafter “1940 Act”]. While the arbitrator granted 15% pendente lite interest, the same was set aside by the District Judge while deciding objections against the award, and upheld by the High Court by order dated 06.01.2023, which is impugned herein. By relying on settled case-law on the grant of interest under the 1940 Act and the interpretation of contractual clauses barring payment of interest, we have allowed the present appeal and have directed payment of pendente lite interest on the arbitral sum.

4. The relevant facts are that the appellant was awarded a works contract by the respondent, and they entered into an agreement dated 06.02.1988 that contains the following clause barring the appellant from claiming interest on any payment or arrears or balance due to him at any time:

“22. Payments :-

(i) Payments will be made to the contractor within one month of the issuing of the corresponding bills. The contractor shall comply with the procedure that may be prescribed for all operations from the recording of progress measurements upto payment of bills.

(ii) All materials and work for which payment is made in part or full shall become the sole property of the Govt, but this provision shall not relieve the contractor of his responsibility for the care and protection of the materials and works at his own cost nor his liability to make good the damage if any unless and until the whole work has been deemed to have been completed and handed over to the Government.

The contractor shall not be entitled to claim any interest upon any payment, any arrears or upon any balance, which may be found due to him at any time.”

(emphasis supplied)

5. When disputes arose under the contract, the appellant invoked arbitration and filed its claim, resulting in arbitral award dated 07.03.1995 for a sum of Rs. 1,78,17,146 in its favour. The arbitrator also directed payment of 15% interest p.a. on all dues payable from 18.12.1991 (when the arbitrator entered reference) till payment or the date of decree, whichever is earlier. The respondent filed an application to set aside the award, which was decided by the District Judge’s order dated 16.08.2005 that only set aside the interest awarded by the arbitrator, and instead granted 9% simple interest on the principal sum from that date till the date of payment. The other objections against the award were rejected and the rest of the award was upheld. It was held that the arbitrator did not consider that Clause 22 of the contract is widely worded and prohibits the appellant from claiming interest at any time. Both parties preferred appeals against this order, which were dismissed by the High Court by order dated 06.01.2023, impugned herein.

6. While issuing notice on 24.04.2023 in the present special leave petition converted to a civil appeal, this Court passed the following order:

“1. Learned counsel appearing on behalf of the petitioner relies upon paragraph 24 of the decision of this Court in Reliance Cellulose Products Ltd Vs Oil and Natural Gas Corporation Limited, (2018) 9 SCC 266. He urges that Clause 22 of the agreement does not specifically exclude either the power of the arbitrator to grant pendente lite interest or rule out the claimant from claiming interest pendente lite in the course of arbitration.

2. Issue notice returnable in four weeks.”

7. We have heard Mr. Vinayak Mehrotra, learned counsel for the appellant, and Ms. Sansriti Pathak, learned Additional Advocate General for the respondent State on the issue of whether Clause 22 amou