Contractual interest bar cannot stop arbitrator awarding pendente lite interest; award upheld, payment ordered within two months

SC allowed the appeal, holding that a contractual bar on interest did not prevent an arbitrator from awarding interest pendente lite. The clause relied on by the respondent was not a valid basis to deny pendente lite interest. The arbitrator's award granting pendente lite interest was upheld and the respondent was directed to pay the pendente lite interest to the appellant within two months.

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Issues:
1. Whether the claimant could have been awarded interest pendente lite by the arbitrator.
2. Validity of the clause barring interest on amounts payable under the contract.
3. Interpretation of legal position regarding the award of interest pendente lite.

Issue 1:
The primary issue before the Supreme Court was whether the claimant, M/s. Ambica Construction, could have been awarded interest pendente lite by the arbitrator. The arbitrator's award dated 28.06.1999 granted a sum to the claimant along with interest pendente lite at the rate of 15% per annum. The High Court affirmed this award, but a subsequent Division Bench set aside the interest pendente lite determination. The Court analyzed the contractual obligation between the parties, which expressly stated that no interest would be payable on the principal amount or other specific sums. The Appellant argued based on a previous judgment that a clause barring interest on delayed payments does not automatically bar interest pendente lite. The Court concluded that the arbitrator was justified in awarding interest pendente lite, overturning the Division Bench's decision, and ordered the payment of pendente lite interest to the Appellant.

Issue 2:
The second issue revolved around the validity of the clause in the contract that prohibited the payment of interest on amounts payable under the contract. The Union of India relied on this clause to contest the claim for pendente lite interest. However, the Court held that this clause was not a valid consideration to deny pendente lite interest. The Court emphasized that a clause barring interest on delayed payments does not necessarily preclude the award of interest pendente lite. Therefore, the clause prohibiting interest on specific amounts did not prevent the arbitrator from granting interest pendente lite to the claimant.

Issue 3:
The final issue involved the interpretation of the legal position regarding the award of interest pendente lite. The Court referred to a previous judgment that clarified that if a contract explicitly prohibits interest pendente lite, the arbitrator cannot award it. However, the mere exclusion of interest on delayed payments does not automatically bar pendente lite interest. The Court reiterated that the power of the arbitrator to award pendente lite interest must be considered based on various relevant aspects. In this case, the Court concluded that the clause relied upon by the Union of India did not justify denying pendente lite interest to the claimant. Therefore, the Court upheld the arbitrator's decision to award interest pendente lite and directed the payment of the same to the Appellant within two months.

In conclusion, the Supreme Court ruled in favor of the claimant, allowing the appeal and ordering the payment of interest pendente lite as awarded by the arbitrator.

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