TaxTMI 
TaxTMI 
2025 (4) TMI 173
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.... the award, and upheld by the High Court by order dated 06.01.2023, which is impugned herein. By relying on settled caselaw on the grant of interest under the 1940 Act and the interpretation of contractual clauses barring payment of interest, we have allowed the present appeal and have directed payment of pendente lite interest on the arbitral sum. 4. The relevant facts are that the appellant was awarded a works contract by the respondent, and they entered into an agreement dated 06.02.1988 that contains the following clause barring the appellant from claiming interest on any payment or arrears or balance due to him at any time: "22. Payments :- (i) Payments will be made to the contractor within one month of the issuing of the corresponding bills. The contractor shall comply with the procedure that may be prescribed for all operations from the recording of progress measurements upto payment of bills. (ii) All materials and work for which payment is made in part or full shall become the sole property of the Govt, but this provision shall not relieve the contractor of his responsibility for the care and protection of the materials and works at his own co....
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....d by this Court's decision in Reliance Cellulose (supra). He submits that the contractual clause in the present case does not clearly and expressly bar the arbitrator from awarding interest on the arbitral sum. He has also referred to this Court's decision in Pam Developments Private Limited v. State of West Bengal (2024) 10 SCC 715, para 23 in support of his argument. 7.2 On the other hand, Ms. Pathak has made detailed submissions regarding the interpretation of the contractual clause, which are as follows: First, the interpretation of an ouster clause is the same under the 1940 Act and the Arbitration and Conciliation Act, 1996 Hereinafter "1996 Act". Under both statutes, the arbitrator can award interest unless the agreement provides otherwise. The key difference between the statutes is that the 1996 Act contains an express statutory provision for the grant of interest in Section 31(7), but this is based on the principle in G.C. Roy Secretary, Irrigation Department, Government of Orissa v. G.C. Roy, (1992) 1 SCC 508 that recognised the arbitrator's power to award interest under the 1940 Act. Further, that Section 31(7)(a) of the 1996 Act does not differentiate pre-reference a....
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....through Section 31(7) of the 1996 Act. Sayeed Ahmed & Co. v. State of U.P., (2009) 12 SCC 26, para 24; Sree Kamatchi Amman Constructions v. Railways, (2010) 8 SCC 767, paras 18-19; Union of India v. Bright Power Projects (India) (P) Ltd., (2015) 9 SCC 695, paras 17-19; Chittaranjan Maity v. Union of India, (2017) 9 SCC 611, para 16; Garg Builders v. BHEL, (2022) 11 SCC 697, para 17 The difference in the interpretative approach has been expounded by this Court in Reliance Cellulose (supra) as follows: "24. A conspectus of the decisions that have been referred to above would show that under the 1940 Act, an arbitrator has power to grant pre-reference interest under the Interest Act, 1978 as well as pendente lite and future interest. However, he is constricted only by the fact that an agreement between the parties may contain an express bar to the award of pre-reference and/or pendente lite interest. Since interest is compensatory in nature and is parasitic upon a principal sum not having been paid in time, this Court has frowned upon clauses that bar the payment of interest. It has therefore evolved the test of strict construction of such clauses, and has gone on to state th....
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....y, interest is not payable the moment the contract provides otherwise. This distinction has been reiterated by us in a recent decision in Pam Developments (supra), which summarised the position of law as follows: "23. The power of the arbitrator to grant pre-reference interest, pendente lite interest, and post-award interest under Section 31(7) of the Act is fairly well-settled. The judicial determinations also highlight the difference in the position of law under the Arbitration Act, 1940. The following propositions can be summarised from a survey of these cases: 23.1. Under the Arbitration Act, 1940, there was no specific provision that empowered an arbitrator to grant interest. However, through judicial pronouncements, this Court has affirmed the power of the arbitrator to grant pre-reference, pendente lite, and post-award interest on the rationale that a person who has been deprived of the use of money to which he is legitimately entitled has a right to be compensated for the same. When the agreement does not prohibit the grant of interest and a party claims interest, it is presumed that interest is an implied term of the agreement, and therefore, the arbitrat....
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....omprehensive survey of the case-law on the issue of payment of interest on arbitral awards, including a detailed discussion of the First Ambica case, Reliance Cellulose (supra), paras 19-21. before formulating the legal position extracted hereinabove. 12. In the First Ambica case (supra), the issue before this Court was whether Engineers-De-Space-Age (supra) and Madnani Construction Madnani Construction Corpn. (P) Ltd. v. Union of India, (2010) 1 SCC 549. were correctly decided. First Ambica case (supra), para 1 After taking note of the interpretation of various contractual clauses barring payment of interest in this Court's decisions under the 1940 Act and the 1996 Act, it summarised their rulings as follows: "28. It is apparent from various decisions referred to above that in G.C. Roy the Constitution Bench of this Court has laid down that where the agreement expressly provides that no interest pendente lite shall be payable on amount due, the arbitrator has no power to award interest. In N.C. Budharaj a Constitution Bench has observed that in case there is nothing in the arbitration agreement to exclude jurisdiction of the arbitrator to entertaining claim for interes....
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....llows: "32. In para 4 in Engineers-De-Space-Age this Court has observed that bar under the contract will not be applicable to the arbitrator cannot be said to be observation of general application. In our opinion, it would depend upon the stipulation in the contract in each case whether the power of the arbitrator to grant pendente lite interest is expressly taken away. If answer is "yes" then the arbitrator would have no power to award pendente lite interest. 33. The decision in Madnani Construction Corpn. has followed the decision in Engineers-De-Space-Age. The same is also required to be diluted to the extent that express stipulation under contract may debar the arbitrator from awarding interest pendente lite. Grant of pendente lite interest may depend upon several factors such as phraseology used in the agreement, clauses conferring power relating to arbitration, nature of claim and dispute referred to arbitrator and on what items power to award interest has been taken away and for which period. 34. Thus, our answer to the reference is that if the contract expressly bars the award of interest pendente lite, the same cannot be awarded by the arbitrator....