Arbitrator Can Award Pendente Lite Interest Unless There Is A Specific Bar Under Contract- Reiterates SC

The Supreme Court has reiterated that unless there is a specific bar under the contract, it is always open for the Arbitrator to award pendente lite interest in view of Section 31(7) (a) of the Arbitration and Conciliation Act, 1996 (Act).

The Court further has set aside the order passed by the Delhi High Court for exceeding its jurisdiction under Section 34 of the Act.

The Bench of Justice M.R. Shah and Justice M.M. Sundresh observed that “At the cost of repetition it is observed that the learned Arbitral Tribunal on appreciation of entire evidence on record, had specifically observed that the contractor failed to complete the work even within the stipulated extended period of time and even abandoned the work and therefore, the IRCON was justified in rescinding the contract. The said finding as observed hereinabove has attained finality....We are of the opinion that the learned Single Judge, therefore, exceeded in its jurisdiction under Section 34 of the Arbitration Act quashing and setting aside the well reasoned award passed by the learned Arbitral Tribunal on rejecting Claim Nos.33 and 34, which the Division Bench of the High Court has wrongly affirmed.” added the Bench.

The Apex Court after finding out that the Agreement had been terminated under the wrong clause, determined the correct clause for termination and justified the termination and further affirmed the award. The Apex Court also affirmed the grant of pendente lite interest by the Arbitral Tribunal without there being an express provision in the Agreement.

Advocate R.S. Hegde appeared for the appellant- Indian Railway Construction Company Limited (IRCON) and Senior Advocate Arvind Minocha appeared on behalf of the respondent.

Agreement was executed between the appellant and the respondent, in 1990, for the construction of Railway Station cum Commercial Complex at Vashi, Navi Mumbai. In case the work was not completed within stipulated timelines and given extensions, Clause 17.4 of the Agreement provided for termination of agreement and forfeiture of security deposit.

The NBCC failed to complete the construction work in time and IRCON terminated the Agreement by invoking clause 60.1 of the same and forfeited two security deposits of NBCC. NBCC referred the dispute to arbitration. The Arbitral Tribunal rejected the NBCC’s claim for refund and held that termination was valid in terms of Clause 17.4 and not Clause 60.1 as pleaded by IRCON. The Tribunal also considered the counter claim of IRCON and awarded 18% p.a. pendente lite interest on special advance given by IRCON to NBCC.

NBCC challenged the Award before the High Court and the Single Judge set aside the rejection of the claim and further set aside the award of pendente lite interest on special advance, on the ground that the Agreement did not contain any clause for such interest. The Division Bench of the High Court affirmed the stand taken by Single Judge. Aggrieved by the order, IRCON approached the Apex Court.

IRCON contended that even if a wrong clause was mentioned in the Termination letter, the power to terminate the contract could not be said to be illegal.

The Apex Court observed that IRCON had rightly rescinded the agreement and forfeited the security deposits and the Arbitral Tribunal’s finding regarding rescinding the contract under Clause 17.4 was not set aside by either the Single Judge or Division Bench of the High Court. Therefore, the findings on Clause 17.4 had attained finality.

Further, it observed that the Single Judge exceeded its jurisdiction under Section 34 of the Arbitration Act by setting aside a well-reasoned Award and further quashed and set aside the orders passed by the High Court and allowed the appeal.

Cause Title- Indian Railway Construction Company Limited v. M/s National Buildings Construction Corporation Limited  

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