Supreme Court sets aside interest award in arbitration appeal

The Supreme Court allowed the appeal, setting aside the judgments of the Division Bench and Single Judge of the High Court, and the award by the arbitrator granting pendente lite and future interest. The Court held that Clause 16(2) of the General Conditions of Contract explicitly barred such interest, emphasizing that the arbitrator had no power to award interest contrary to the contract's terms. The appeal was allowed with no order as to costs.

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Issues Involved:
1. Entitlement to Pendente Lite and Future Interest under the Contract.
2. Interpretation of Clause 16(2) of the General Conditions of Contract (GCC).
3. Applicability of Judicial Precedents on Awarding Interest by Arbitrators.
4. Concession by Counsel and Estoppel Against Law.

Detailed Analysis:

1. Entitlement to Pendente Lite and Future Interest under the Contract:
The primary issue was whether the contractor was entitled to pendente lite and future interest on amounts payable under the contract, given the specific bar in Clause 16(2) of the GCC. The Union of India argued that Clause 16(2) explicitly barred the payment of interest on any amounts payable under the contract, including pendente lite and future interest. The respondent contended that Clause 16(2) pertained only to earnest money and security deposits, and did not bar pendente lite interest on other amounts.

2. Interpretation of Clause 16(2) of the General Conditions of Contract (GCC):
Clause 16(2) of the GCC states: "No interest will be payable upon the earnest money or the security deposit or amounts payable to the Contractor under the Contract." The Court noted that the language of Clause 16(2) was clear and unambiguous, barring interest on earnest money, security deposits, and any amounts payable under the contract. The Court rejected the respondent's argument that the clause should be read as pertaining only to earnest money and security deposits, emphasizing the disjunctive use of "or" indicating separate categories.

3. Applicability of Judicial Precedents on Awarding Interest by Arbitrators:
The Court examined various precedents, including:
- Union of India v. Bright Power Projects (India) (P) Ltd.: Held that specific contractual bars on interest bind both parties and arbitrators.
- Garg Builders v. Bharat Heavy Electricals Limited: Reinforced that if a contract prohibits pre-reference and pendente lite interest, the arbitrator cannot award such interest.
- Secretary, Irrigation Department, State of Orissa v. G.C. Roy: Discussed the arbitrator's power to award interest when not explicitly barred by the contract.
- Raveechee and Company v. Union of India: Stated that arbitrators have inherent power to award pendente lite interest unless expressly barred.

The Court concluded that the precedents under the 1996 Act (such as Bright Power Projects and Garg Builders) were applicable and binding, emphasizing that the arbitrator is bound by the terms of the contract, including any specific bars on interest.

4. Concession by Counsel and Estoppel Against Law:
The respondent argued that the appellant's counsel had conceded before the High Court that the issue was covered by a precedent allowing interest, and that the appellant had also claimed interest in its counter-claim. The Court held that any concession by counsel contrary to established law is not binding and does not create an estoppel against law. The Court further noted that even if the appellant had been awarded interest, it would not have been permissible under the contract and could have been challenged.

Conclusion:
The Supreme Court allowed the appeal, setting aside the judgments of the Division Bench and Single Judge of the High Court, and the award by the arbitrator granting pendente lite and future interest. The Court held that Clause 16(2) of the GCC explicitly barred such interest, and the arbitrator, being a creature of the contract, had no power to award interest contrary to the contract's terms. The appeal was allowed with no order as to costs.

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