Arbitrators' Authority Upheld: Interest Pendente Lite Allowed in Contract Dispute

The Supreme Court held that Clause 16(3) of the General Contract Clauses did not limit the arbitrators' authority to award interest pendente lite. Emphasizing that interest is typically granted to compensate a claimant for being deprived of money during arbitration, the Court reinstated the arbitrators' decision to award interest in the contractual dispute between M/s. Raveechee and Co. and the Union of India. The Court highlighted that unless a contract explicitly prohibits interest pendente lite, arbitrators have the discretion to grant it, citing relevant case law to support this principle.

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Issues:
1. Interpretation of Clause 16(3) of the General Contract Clauses restricting the power of arbitrators to award interest pendente lite.

Analysis:
The case involved a contractual dispute between M/s. Raveechee and Co. and the Union of India regarding a quarrying contract. The Arbitrators awarded a total amount to the claimant, including interest pendente lite at 12% on a specific claim. The High Court partly allowed the appeal by the Union of India, setting aside the interest amount awarded under Claim No. 12. The primary issue before the Supreme Court was whether Clause 16(3) of the General Contract Clauses limited the arbitrators' authority to grant interest pendente lite.

The Supreme Court analyzed the relevant clauses of the contract, specifically Clause 16(3, which stated that no interest would be payable on earnest money, security deposits, or amounts payable to the contractor under the contract. The Court examined the scope of this clause and concluded that it did not expressly prohibit the arbitrators from awarding interest pendente lite. The Court emphasized that interest pendente lite is typically granted to compensate a claimant for being deprived of money due to them during the arbitration process.

Referring to previous judgments, the Court highlighted that unless there is a clear and specific bar in the contract preventing the arbitrator from awarding interest pendente lite, the arbitrator retains the discretion to grant such interest. The Court cited cases such as Irrigation Deptt., State of Orissa v. G.C. Roy and Union of India v. Ambica Construction to support the principle that the arbitrator can award interest pendente lite unless explicitly prohibited.

Ultimately, the Supreme Court held that the arbitrators were justified in awarding interest pendente lite in this case, as the contract clause did not explicitly restrict this power. The Court set aside the High Court's judgment and reinstated the award passed by the Arbitral Tribunal regarding Claim No. 12, allowing the appeals accordingly.

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