UNION OF INDIA vs. M/S BRIGHT POWER PROJECTS(I) P.LTD.

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.

JUDGMENT Appeal (Lodging) No.124 of 2006 in Arbitration th Petition No.321 of 2005 dated 7 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 Page 1 2 amount payable to the contractor. The facts which are relevant for the purpose of deciding the issue, in a nutshell, are as under.

into a contract whereby the respondent had to construct certain structures, which had been more particularly described in the agreement entered into th by the parties on 20 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 th Arbitral Tribunal declared an award on 17 May, JUDGMENT 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.

case of Secretary, Irrigation Department,

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Bombay. The said arbitration petition was dismissed JUDGMENT th on 13 December, 2005.

Arbitration Petition, the appellant filed an appeal which was also dismissed by the Division Bench of the th High Court of Judicature at Bombay on 7 August, 2006. Judgment of a Division Bench of the High Court nd of Judicature at Bombay dated 2 July, 1997, delivered in the case of Union of India v. Anand Page 3 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.

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.

appearing for the respondent contractor submitted that the Division Bench of the High Court had rightly upheld the order passed by the learned JUDGMENT 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 Page 4 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, JUDGMENT 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, Page 5 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 JUDGMENT 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 Page 6 7

the said case that if there is a bar against payment of interest in the contract, the arbitrator cannot award any interest for such period. In view of the specific bar under Clause 13(3) of the contract entered into between the parties, we are of the view that the Arbitral Tribunal was not justified in Page 7 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

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Page 9 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 JUDGMENT 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. Page 10 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. JUDGMENT …………………………………………………….J (ANIL R. DAVE) …………………………………………………….J (VIKRAMAJIT SEN) …………………………………………………….J (PINAKI CHANDRA GHOSE) NEW DELHI; JULY 2, 2015. Page 11