whether the arbitrator can grant interest inspite of prohibition in the agreement - On 16.05.1988, the respondent was awarded with a contract for the work of Provision of Signaling Arrangements at "C" Class Stations on Igatpuri-Bhusawal Section and 2 "C" Stations on Bhusawal-Badnera Section of Bhusawal Division of Central Railway at the cost of Rs.18,10,400/-. On completion of the contract, the respondent raised certain disputes/claims by filing Suit No. 2822 of 1993 before the High Court and demanded for adjudication through arbitration. The High Court directed the General Manager of the Central Railway to appoint an arbitrator and refer the disputes for adjudication. Since the Arbitrator appointed could not deliberate the matter within the time limit, the respondent invoked the jurisdiction of the Umpire. The Umpire, by order dated 26.04.2005, gave award for Claim Nos. 1, 3, 6, 8, 9, 10, 11, 12 & 13 and rejected Claim Nos. 2, 5, 7 & 14 and

                                                        REPORTABLE


              IN THE SUPREME COURT OF INDIA


               CIVIL APPELLATE JURISDICTION


               CIVIL APPEAL NO. 2005  OF 2007




Union of India                                          .... Appellant (s)



            Versus



M/s Krafters Engineering & Leasing

(P) Ltd.                                           .... Respondent(s)





                         J U D G M E N T


P. Sathasivam, J.


1)    This  appeal  by  Union  of  India  arises  out  of  the  final



judgment and order dated 24.04.2006 passed by the High



Court of Judicature at Bombay in Appeal No. 219 of 2006



in   Arbitration   Petition   No.   274   of   2005   whereby   the



Division Bench of the High Court dismissed their appeal.









                                                                              1


2)     Brief facts:


(a)    On   16.05.1988,   the   respondent   was   awarded   with   a



contract   for   the   work   of   Provision   of   Signaling



Arrangements at "C" Class Stations on Igatpuri-Bhusawal



Section and 2 "C" Stations on Bhusawal-Badnera Section



of   Bhusawal   Division   of   Central   Railway   at   the   cost   of



Rs.18,10,400/-.     On   completion   of   the   contract,   the



respondent   raised   certain   disputes/claims   by   filing   Suit



No. 2822 of 1993 before the High Court and demanded for



adjudication through arbitration.  The High Court directed



the General Manager of the Central Railway to appoint an



arbitrator and refer the disputes for adjudication.     Since



the   Arbitrator   appointed   could   not   deliberate   the   matter



within   the   time   limit,   the   respondent   invoked   the



jurisdiction   of   the   Umpire.     The   Umpire,   by   order   dated



26.04.2005,   gave   award   for   Claim   Nos.   1,   3,   6,   8,   9,   10,



11,   12   &   13   and   rejected   Claim   Nos.   2,   5,   7   &   14   and





                                                                             2


mentioned that a bank guarantee towards security deposit



against claim No. 4 is to be returned.  



(b)    Challenging the award given by the Umpire for Claim



Nos.   11   &   13,   the   appellant   herein   filed   Arbitration



Petition   No.   274   of   2005   before   the   High   Court.     The



learned   Single   Judge   of   the   High   Court,   vide   order   dated



06.12.2005 dismissed their petition.



(c)    Aggrieved   by   the   order   passed   by   the   learned   single



Judge,   the   appellant   herein   filed   an   appeal   being



Arbitration   Appeal   No.   219   of   2006   before   the   Division



Bench   of   the   High   Court.     The   Division   Bench,   by



impugned   order   dated   24.04.2006,   dismissed   the   appeal.



Challenging   the   said   order,   the   Union   of   India   preferred



this appeal by way of special leave before this Court.





3)     Heard   Mr.   A.   S.   Chandhiok,   learned   Additional



Solicitor   General   for   the   Union   of   India   and   Mr.   Ramesh



Babu M.R., learned counsel for the respondent.





                                                                         3


4)    Before   the   High   Court   as   well   as   before   us,   the



appellant projected their case only with regard to interest



that   was   granted   by   the   arbitrator   and   confirmed   by   the



High Court.  Therefore, the only point for consideration in



this   appeal   is   whether   an   arbitrator   has   jurisdiction   to



grant interest despite the agreement prohibiting the same?



5)    Though the appellant has challenged the award of the



Umpire   in   respect   of   Claim   Nos.   11   and   13,   they   are



mainly   concerned   about   grant   of   interest;   hence   there   is



no   need   to   traverse   all   the   factual   details   except   the



required one which we have adverted to.  According to Mr.



A.S. Chandhiok, learned ASG, in view of clause 1.15 of the



General   Conditions   of   the   Contract   between   the   parties,



the   arbitrator   does   not   have   the   power   to   award   interest



pendente lite.  The said clause reads as under:



      "1.15  Interest on Amounts -  No interest will be payable

      upon   the   Earnest   Money   or   the   Security   Deposit   or

      amounts  payable to the Contractor  under  the Contract

      but Government Securities deposited in terms of clause

      1.14.4 will be repayable with interest accrued thereon."





                                                                            4


According   to   the   learned   ASG,   in   view   of   the   above-



mentioned   clause,   no   interest   is   payable   on   the   amount



payable   to   the   Contractor   under   the   contract.     On   the



other   hand,   Mr.   Ramesh   Babu   M.R.,   learned   counsel



appearing   for   the   respondent   submitted   that   irrespective



of   the   bar   in   the   contract   arbitrator   has   power   to   award



interest for which he strongly relied on the decision of this



Court in Board of Trustees for the Port of Calcutta vs.


Engineers-De-Space-Age,   (1996)   1   SCC   516   and


Madnani Construction Corporation Private Limited vs.


Union of India and Others, (2010) 1 SCC 549.


6)    We   have   already   extracted   the   relevant   clause



wherein   the   words   "amounts   payable   to   the   Contractor



under the contract" are of paramount importance.  If there



is   no   prohibition   in   the   arbitration   agreement   to   exclude



the   jurisdiction   of   the   arbitrator   to   entertain   a   claim   for



interest   on   the   amount   due   under   the   contract,   the



arbitrator is free to consider and award interest in respect





                                                                            5


of the period.  If there is a prohibition in the agreement to



pay the interest, in that event, the arbitrator cannot grant



the interest.  Clause 1.15 prohibits payment of interest on



the amount payable to the contractor under the contract.



7)    It   is   not   in   dispute   that   the   provisions   of   the



Arbitration   Act,   1940   alone   are   applicable   to   the   case   on



hand.  Now, let us consider various decisions of this Court



dealing with similar prohibition in the agreement for grant



of   interest.     In  Secretary,   Irrigation   Department,


Government of Orissa and Others vs. G.C. Roy, (1992) 1


SCC 508, the Constitution Bench had considered Section



29   of   the   Arbitration   Act,   1940   which   deals   with   interest



pendente   lite.    After   analyzing   the   scheme   of  the   Act  and



various   earlier   decisions,   the   Constitution   Bench



considered   the   very   same   issue,   namely,   whether   an



arbitrator has power to award interest pendente lite and, if



so,   on   what   principle.         The   relevant   paragraphs   are



extracted hereunder:-





                                                                          6


"43.  The   question   still   remains   whether   arbitrator   has   the

power   to   award   interest   pendente   lite,   and   if   so   on   what

principle.   We   must   reiterate   that   we   are   dealing   with   the

situation where the agreement does not provide for grant of

such interest nor does it prohibit such grant. In other words,

we are dealing with a case where the agreement is silent as

to   award   of   interest.   On   a   conspectus   of   aforementioned

decisions, the following principles emerge:

        (i) A person deprived of the use of money to which he

is legitimately entitled has a right to be compensated for the

deprivation,   call   it   by   any   name.   It   may   be   called   interest,

compensation   or   damages.   This   basic   consideration   is   as

valid   for   the   period   the   dispute   is   pending   before   the

arbitrator   as   it   is   for   the   period   prior   to   the   arbitrator

entering upon the reference. This is the principle of Section

34, Civil Procedure Code and there is no reason or principle

to hold otherwise in the case of arbitrator.

        (ii)   An  arbitrator   is  an  alternative  form   (sic  forum)  for

resolution   of   disputes   arising   between   the   parties.   If   so,   he

must have the power to decide all the disputes or differences

arising between the parties. If the arbitrator has no power to

award   interest   pendente   lite,   the   party   claiming   it   would

have to approach the court for that purpose, even though he

may   have   obtained   satisfaction   in   respect   of   other   claims

from   the   arbitrator.   This   would   lead   to   multiplicity   of

proceedings.

        (iii) An arbitrator is the creature of an agreement. It is

open   to   the   parties   to   confer   upon   him   such   powers   and

prescribe such procedure for him to follow, as they think fit,

so   long   as   they   are   not   opposed   to   law.   (The   proviso   to

Section   41   and   Section   3   of   Arbitration   Act   illustrate   this

point).   All   the   same,   the   agreement   must   be   in   conformity

with  law. The arbitrator  must also act and make his award

in   accordance   with   the   general   law   of   the   land   and   the

agreement.

        (iv) Over the years, the English and Indian courts have

acted on the assumption that where the agreement does not

prohibit  and  a   party   to   the   reference   makes   a   claim   for

interest,   the   arbitrator   must   have   the   power   to   award

interest   pendente   lite.  Thawardas  has   not   been   followed   in

the later  decisions of  this  Court.  It has  been  explained   and

distinguished   on   the   basis   that   in   that   case   there   was   no

claim for interest but only a claim for unliquidated damages.

It   has   been   said   repeatedly   that   observations   in   the   said

judgment were not intended to lay down any such absolute




                                                                                     7


      or universal rule as they appear to, on first impression. Until

      Jena   case  almost   all   the   courts   in   the   country   had   upheld

      the   power   of   the   arbitrator   to   award   interest   pendente   lite.

      Continuity and certainty is a highly desirable feature of law.

                (v) Interest pendente lite is not a matter of substantive

      law,   like   interest   for   the   period   anterior   to   reference   (pre-

      reference   period).   For   doing   complete   justice   between   the

      parties, such power has always been inferred.



      44.  Having regard to the above consideration, we think that

      the   following   is   the   correct   principle   which   should   be

      followed in this behalf:

                Where   the   agreement   between   the   parties   does   not

      prohibit  grant   of  interest  and  where   a  party  claims  interest

      and that dispute (along with the claim for principal amount

      or independently) is referred to the arbitrator, he shall have

      the   power   to   award   interest   pendente   lite.   This   is   for   the

      reason that in such a case it must be presumed that interest

      was   an   implied   term   of   the   agreement   between   the   parties

      and therefore when the parties refer all their disputes -- or

      refer the dispute as to interest as such -- to the arbitrator,

      he   shall   have   the   power   to   award   interest.   This   does   not

      mean   that   in   every   case   the   arbitrator   should   necessarily

      award   interest   pendente   lite.   It   is   a   matter   within   his

      discretion   to   be   exercised   in   the   light   of   all   the   facts   and

      circumstances   of   the   case,   keeping   the   ends   of   justice   in

      view."




8)    In      Executive   Engineer,   Dhenkanal   Minor


Irrigation   Division,   Orissa   and   Others                                   vs.      N.C


Budharaj (deceased) by LRs and Others, (2001) 2 SCC


721,   another   Constitution   Bench   considered   payment   of



interest for pre-reference period in respect of cases arising



when   Interest   Act,   1839   was   in   force.     The   following



conclusion in para 26 is relevant which reads thus:



                                                                                             8


      "26.   For   all   the   reasons   stated   above,   we   answer   the

      reference   by   holding   that   the   arbitrator   appointed   with   or

      without   the   intervention   of   the   court,   has   jurisdiction   to

      award interest, on the sums found due and payable, for the

      pre-reference   period,        in   the   absence   of   any   specific

      stipulation   or   prohibition   in   the   contract   to   claim   or   grant

      any such interest. The decision in Jena case taking a contra

      view   does   not   lay   down   the   correct   position   and   stands

      overruled,   prospectively,   which   means   that   this   decision

      shall not entitle any party nor shall it empower any court to

      reopen   proceedings   which   have   already   become   final,   and

      apply only to any pending proceedings. No costs."

                                                         (Emphasis supplied).



9)    In   the   earlier   paras,   we   have   referred   to   the   stand



taken   by   the   learned   counsel   for   the   respondent   and



reliance   based   on   the   decision   reported   in  Board   of


Trustees   for   the   Port   of   Calcutta   (supra).      It   is   true


that   in   that   decision,   this   Court   has   held   that   arbitrator



has   jurisdiction   to   interpret   the   clauses   of   the   contract



and   to   decide   whether   interest  pendente   lite  could   be



awarded   by   him.     The   short   question   that   arose   in   that



case   was   that   the   arbitrator   had   awarded   interest



pendente lite notwithstanding the prohibition contained in



the   contract   against   the   payment   of   interest   on   delayed



payments.   Ultimately, the two-Judge Bench of this Court



has   concluded   that   irrespective   of   the   terms   of   the




                                                                                         9


contract, the arbitrator was well within his jurisdiction in



awarding   interest  pendente   lite.     It   is   useful   to   point   out



that   the   ratio   in   that   decision   was   considered   by   this



Court   in  Sayeed   Ahmed   and   Company  vs.  State   of


Uttar   Pradesh   and   Others,   (2009)   12   SCC   26.     While


considering   the   very   same   issue,   particularly,   specific



clause in the agreement prohibiting interest  pendente lite,



this Court considered the very same decision i.e. Board of


Trustees   for   the   Port   of   Calcutta   (supra).                                         After



adverting to the clause in the  Board of Trustees for the


Port   of   Calcutta   (supra)  and   the   Constitution   Bench   in


G.C. Roy's case (supra), this Court concluded as under:



      "23.  The   observation   in  Engineers-De-Space-Age  that   the

      term         of         the         contract         merely         prohibits         the

      department/employer from paying interest to the contractor

      for   delayed   payment   but   once   the   matter   goes   to   the

      arbitrator,   the   discretion   of   the   arbitrator   is   not   in   any

      manner   stifled   by   the   terms   of   the   contract   and   the

      arbitrator  will be entitled to consider and grant  the interest

      pendente   lite,   cannot   be   used   to   support   an   outlandish

      argument that bar on the Government or department paying

      interest   is   not   a   bar   on   the   arbitrator   awarding   interest.

      Whether   the   provision   in   the   contract   bars   the   employer

      from   entertaining   any   claim   for   interest   or   bars   the

      contractor from making any claim for interest, it amounts to

      a clear prohibition regarding interest. The provision need not

      contain another bar prohibiting the arbitrator from awarding





                                                                                                    10


       interest.   The   observations   made   in   the   context   of   interest

       pendente lite cannot be used out of contract.



       24. The learned counsel for the appellant next contended on

       the   basis   of   the   above   observations   in  Engineers-De-Space-

       Age, that even if Clause G1.09 is held to bar interest in the

       pre-reference   period,   it   should   be   held   not   to   apply   to   the

       pendente   lite   period,   that   is,   from   14-3-1997   to  31-7-2001.

       He contended that the award of interest during the pendency

       of   the   reference   was   within   the   discretion   of   the   arbitrator

       and therefore, the award of interest for that period could not

       have been interfered  with by the High  Court.  In view  of the

       Constitution Bench decisions in G.C. Roy and N.C. Budharaj

       rendered   before   and   after   the   decision   in  Engineers-De-

       Space-Age,      it   is   doubtful   whether   the   observation   in

       Engineers-De-Space-Age           in   a   case   arising   under   the

       Arbitration Act, 1940 that the arbitrator could award interest

       pendente   lite,   ignoring   the   express   bar   in   the   contract,   is

       good law. But that need not be considered further as this is

       a case under the new Act where there is a specific provision

       regarding award of interest by the arbitrator."



10)    Considering the specific prohibition in the agreement



as   discussed   and   interpreted   by   the   Constitution   Bench,



we are in respectful agreement with the view expressed in


Sayeed   Ahmed   and   Company   (supra)  and   we   cannot


possibly agree with the observation in Board of Trustees


for the Port of Calcutta (supra)  in a case arising under


the  Arbitration Act,  1940 that  the  arbitrator  could award



interest  pendente   lite  ignoring   the   express   bar   in   the



contract.





                                                                                           11


11)    In  Union   of   India  vs.  Saraswat   Trading   Agency


and Others, (2009) 16 SCC 504, though it was under the


Arbitration   and   Conciliation   Act,   1996,   this   Court   has



considered elaborately about the legal position in regard to



interest   after   adverting   to   all   the   earlier   decisions   and



basing reliance on clause 31 of the agreement held:



   "33.  In   the   case   in   hand   Clause   31   of   the   agreement   is

   materially different.  It bars payment of any interest or damage

   to the contractor for any reason whatsoever. We are, therefore,

   clearly of the view that no pre-reference or pendente lite interest

   was payable to the respondent on the amount under Item 3 and

   the arbitrator's   award  allowing  pre-reference  and pendente  lite

   interest   on   that   amount   was   plainly   in   breach   of   the   express

   terms of the agreement. The order of the High Court insofar as

   pre-reference   and   pendente   lite   interest   on   the   amount   under

   Item 3 is concerned is, therefore, unsustainable."



12)    At   the   end   of   the   argument,   learned   counsel   for   the



respondent   heavily   relied   on   the   recent   decision   of   this



Court   in  Madnani   Construction   Corporation   Private


Limited   (supra)  which   arose   under   the   Arbitration   Act,


1940.     There   also,   Clause   30   of   SCC   and   Clause   52   of



GCC   prohibits   payment   of   interest.     Though   the   Bench



relied on all the earlier decisions and considered the very



same   clause   as   to   which   we   are   now   discussing,   upheld




                                                                                        12


the   order   awarding   interest   by   the   arbitrator  de   hors  to



specific   bar   in   the   agreement.     It   is   relevant   to   point   out



that the decision of  Madnani Construction Corporation


Private   Limited   (supra)  was   cited   before   another   Bench


of   this   Court   in  Sree   Kamatchi   Amman   Constructions



vs.  Divisional Railway Manager (Works), Palghat and


Others,  (2010)   8   SCC   767,   wherein   the   decision   in


Madnani   Construction   Corporation   Private   Limited


(supra)  was   very   much   discussed   and   considered.     After


adverting   to   all   the   earlier   decisions   including   the



Constitution   Bench   judgments,   this   Court   has   analyzed



the effect of Madnani Construction Corporation Private


Limited   (supra).     The   following   discussion   and   ultimate


conclusion are relevant:



      "17.  In  Madnani  the   arbitrator   had   awarded   interest

      pendente   lite,   that   is,   from   the   date   of   appointment   of

      arbitrator   to   the   date   of   award.   The   High   Court   had

      interfered   with   the   same   on   the   ground   that   there   was   a

      specific   prohibition   in   the   contract   regarding   awarding   of

      interest.   This   Court   following   the   decision   in  Engineers-De-

      Space-Age  reversed   the   said   rejection   and   held   as   follows:

      (Madnani case, SCC pp. 560-61, para 39)





                                                                                      13


        "39.   In   the   instant   case   also   the   relevant   clauses,

which have been quoted above, namely, Clause 16(2) of GCC

and Clause 30 of SCC do not contain any prohibition on the

arbitrator   to   grant   interest.   Therefore,   the   High   Court   was

not   right   in   interfering   with   the   arbitrator's   award   on   the

matter  of  interest  on the basis  of  the  aforesaid   clauses.  We

therefore,   on   a   strict   construction   of   those   clauses   and

relying on the ratio in Engineers find that the said clauses do

not impose any bar on the arbitrator in granting interest."



18.  At   the   outset   it   should   be   noticed   that  Engineers-De-

Space-Age and  Madnani arose under the old Arbitration Act,

1940   which   did   not   contain   a   provision   similar   to   Section

31(7) of the new Act. This Court, in Sayeed Ahmed held that

the   decisions   rendered   under   the   old   Act   may   not   be   of

assistance   to   decide   the   validity   of   grant   of   interest   under

the   new   Act.   The   logic   in  Engineers-De-Space-Age  was   that

while   the   contract   governed   the   interest   from   the   date   of

cause   of   action   to   date   of   reference,   the   arbitrator   had   the

discretion   to   decide   the   rate   of   interest   from   the   date   of

reference   to   date   of   award   and   he   was   not   bound   by   any

prohibition   regarding   interest   contained   in   the   contract,

insofar   as   pendente   lite   period   is   concerned.   This   Court   in

Sayeed Ahmed held that the decision in Engineers-De-Space-

Age would not apply to cases arising under the new Act. We

extract   below,   the   relevant   portion   from  Sayeed   Ahmed:

(SCC p. 36, paras 23-24)

        "23.   The   observation   in  Engineers-De-Space-Age  that

the   term   of   the   contract   merely   prohibits   the

department/employer from paying interest to the contractor

for   delayed   payment   but   once   the   matter   goes   to   the

arbitrator,   the   discretion   of   the   arbitrator   is   not   in   any

manner   stifled   by   the   terms   of   the   contract   and   the

arbitrator  will be entitled to consider and grant  the interest

pendente   lite,   cannot   be   used   to   support   an   outlandish

argument that bar on the Government or department paying

interest   is   not   a   bar   on   the   arbitrator   awarding   interest.

Whether   the   provision   in   the   contract   bars   the   employer

from   entertaining   any   claim   for   interest   or   bars   the

contractor from making any claim for interest, it amounts to

a clear prohibition regarding interest. The provision need not

contain another bar prohibiting the arbitrator from awarding

interest.   The   observations   made   in   the   context   of   interest

pendente lite cannot be used out of contract.





                                                                                     14


       24.   The   learned   counsel   for   the   appellant   next

contended   on   the   basis   of   the   above   observations   in

Engineers-De-Space-Age, that even if Clause G 1.09 is held to

bar interest in the pre-reference period, it should be held not

to apply to the pendente lite period, that is, from 14-3-1997

to   31-7-2001.   He   contended   that   the   award   of   interest

during   the   pendency   of   the   reference   was   within   the

discretion   of   the   arbitrator   and   therefore,   the   award   of

interest   for   that  period   could   not   have   been   interfered   with

by   the   High   Court.   In   view   of   the   Constitution   Bench

decisions in G.C. Roy and N.C. Budharaj rendered before and

after   the   decision   in  Engineers-De-Space-Age,   it   is   doubtful

whether the observation in Engineers-De-Space-Age in a case

arising   under   the   Arbitration   Act,   1940   that   the   arbitrator

could award interest pendente lite, ignoring the express bar

in the contract, is good law. But that need not be considered

further as this is a case under the new Act where there is a

specific   provision   regarding   award   of   interest   by   the

arbitrator."

The same reasoning applies to the decision in  Madnani  also

as that also relates to a case under the old Act and did not

independently consider the issue but merely relied upon the

decision in Engineers-De-Space-Age.



19.  Section 37(1) of the new Act by using the words "unless

otherwise   agreed   by   the   parties"   categorically   clarifies   that

the arbitrator is bound by the terms of the contract insofar

as the award of interest from the date of cause of action to the

date of award. Therefore, where the parties had agreed that

no   interest   shall   be   payable,   the   Arbitral   Tribunal   cannot

award   interest   between   the   date   when   the   cause   of   action

arose to the date of award.



20.  We   are   of   the   view   that   the   decisions   in  Engineers-De-

Space-Age  and  Madnani  are   inapplicable   for   yet   another

reason.   In      Engineers-De-Space-Age           and      Madnani       the

arbitrator had awarded interest for the pendente lite period.

This Court upheld the award of such interest under the old

Act   on   the   ground   that   the   arbitrator   had  the   discretion   to

decide whether interest should be awarded or not during the

pendente   lite   period   and   he   was   not   bound   by   the

contractual terms insofar as the interest for the pendente lite

period.   But   in   the   instant   case   the   Arbitral   Tribunal   has

refused to award interest for the pendente lite period. Where

the Arbitral Tribunal has exercised its discretion and refused




                                                                                   15


       award   of   interest   for   the   period   pendente   lite,   even   if   the

       principles   in   those   two   cases   were   applicable,   the   award   of

       the   arbitrator   could   not   be   interfered   with.   On   this   ground

       also   the   decisions   in  Engineers-De-Space-Age  and  Madnani

       are inapplicable..."



13)    Inasmuch as we have already expressed similar view



as   mentioned   above   and   conveyed   our   inability   to   apply



the   reasoning   in  Madnani   Construction   Corporation


Private   Limited   (supra),   we   fully   endorse   the   view


expressed   in  Sree   Kamatchi   Amman   Constructions


(supra).


14)    In   the   light   of   the   above   discussion,   following



conclusion emerge:



       Reliance based on the ratio in Board of Trustees for


the   Port   of   Calcutta   (supra)  is   unacceptable   since   the


said   view   has   been   overruled   in  Sayeed   Ahmed   and


Company   (supra)  and   insofar   as   the   ratio   in  Madnani


Construction   Corporation   Private   Limited   (supra)


which   is   also  unacceptable   for   the   reasons   mentioned   in



the earlier paras, we reject the stand taken by the counsel



for the respondent.  On the other hand, we fully accept the




                                                                                           16


stand of the Union of India as rightly projected by Mr. A.S.



Chandhiok,   learned   ASG.     We   reiterate   that   where   the



parties   had   agreed   that   no   interest   shall   be   payable,   the



arbitrator cannot award interest for the amounts payable



to   the   contractor   under   the   contract.     Where   the



agreement   between  the   parties   does   not  prohibit   grant  of



interest   and   where   a   party   claims   interest   and   the   said



dispute   is   referred   to   the   arbitrator,   he   shall   have   the



power to award interest pendent elite.  As observed by the



Constitution Bench in  G.C. Roy's case  (supra), in such a



case,   it   must   be   presumed   that   interest   was   an   implied



term of the agreement between the parties.  However, this



does   not   mean   that   in   every   case,   the   arbitrator   should



necessarily   award   interest          pendente   lite.         In   the



subsequent  decision  of  the  Constitution  Bench,  i.e.,  N.C.


Budharaj's   case  (supra),   it   has   been   reiterated   that   in


the   absence   of   any   specific   stipulation   or   prohibition   in



the   contract   to   claim   or   grant   any   such   interest,   the





                                                                         17


arbitrator is free to award interest.



15)    In the light of the above principle and in view of the



specific   prohibition   of   contract   contained   in   Clause   1.15,



the   arbitrator  ceases   to  have   the   power   to  grant   interest.



We   also   clarify   that   the   Arbitration   Act,   1940   does   not



contain   any   specific   provision   relating   to   the   power   of



arbitrator to award interest.  However, in the Arbitration &



Conciliation   Act,   1996,   there   is   a   specific   provision   with



regard   to   award   of   interest   by   the   arbitrator.     The   bar



under   clause   1.15   is   absolute   and   interest   cannot   be



awarded without rewriting the contract.  



16)    For the aforesaid reasons, we set aside the award of



the   arbitrator   granting   interest   in   respect   of   the   amount



payable to the contractor under the contract as well as the



order of the learned Single Judge and the Division Bench



of the High Court confirming the same.



17)    Consequently,   the   appeal   is   allowed   to   the   extent



pointed out above with no order as to costs.          





                                                                        18


                                 ..........................................J.

                                      (P. SATHASIVAM)




                                ..........................................J.

                                   (A.K. PATNAIK)



NEW DELHI;

JULY 12, 2011.





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