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M/S. Ambica Construction v. Union Of India
Factual and Procedural Background
An arbitrator, by award dated 28 June 1999, granted M/s. Ambica Construction (the claimant) Rs. 9,20,694 together with interest pendente lite at 15% per annum and post-award interest at the same rate. The Union of India challenged the award before the Calcutta High Court (A.P. No. 39 of 1999). A Single Judge dismissed the challenge on 3 August 2001, upholding both the principal amount and the pendente lite interest.
The Union of India then preferred an intra-court appeal (A.P.O.T. No. 678 of 2001). On 17 June 2005, the Division Bench modified the award by deleting the grant of pendente lite interest, relying on Clause 16(2) of the contract which excluded “interest … upon the earnest money or the security deposit or amounts payable to the contractor.”
M/s. Ambica Construction filed the present Civil Appeal No. 410 of 2008 in the Supreme Court, challenging the Division Bench’s deletion of pendente lite interest.
Legal Issues Presented
- Whether, in the face of Clause 16(2) of the contract barring interest on amounts payable, the arbitrator possessed the authority to award interest pendente lite to the contractor.
Arguments of the Parties
Appellant’s Arguments (M/s. Ambica Construction)
- Relied on the Supreme Court decision in Union of India v. Ambica Construction, (2016) 6 SCC 36, which, after examining the Constitution Bench ruling in Irrigation Dept., State of Orissa v. G.C. Roy, (1992) 1 SCC 508, held that a contractual bar on interest for delayed payments is not, by itself, an express bar on the arbitrator’s power to award interest pendente lite.
- Contended that Clause 16(2) does not expressly oust the arbitrator’s jurisdiction to grant pendente lite interest; hence the Division Bench erred in deleting that part of the award.
Respondent’s Arguments (Union of India)
- Invoked Clause 16(2) of the contract, asserting that since the clause prohibits interest on “amounts payable,” the arbitrator had no power to award interest pendente lite.
- Supported the Division Bench’s modification of the award, emphasizing the contractual exclusion of any form of interest.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| Union of India v. Ambica Construction, (2016) 6 SCC 36 | Held that an arbitrator cannot award interest pendente lite only when the contract expressly bars such interest; a general bar on delayed-payment interest is insufficient. | Supreme Court used this decision as the primary authority to conclude that Clause 16(2) does not bar pendente lite interest. |
| Irrigation Dept., State of Orissa v. G.C. Roy, (1992) 1 SCC 508 (Constitution Bench) | Laid down the principle that, absent an express prohibition, arbitrators have jurisdiction to award interest pendente lite. | Cited indirectly through the 2016 judgment to reaffirm the arbitrator’s power to grant such interest. |
Court's Reasoning and Analysis
The Court examined Clause 16(2) and found that while it bars interest on earnest money, security deposits and “amounts payable,” it does not contain an explicit prohibition against pendente lite interest. Referring to its own precedent in Union of India v. Ambica Construction (2016), read with the Constitution Bench ruling in G.C. Roy, the Court reiterated that :
- A contractual clause must expressly oust the arbitrator’s power to award pendente lite interest; a general ban on interest for delayed payments is insufficient.
- The arbitrator therefore acted within jurisdiction in awarding 15% pendente lite interest.
Consequently, the Division Bench’s deletion of pendente lite interest rested on an erroneous interpretation of Clause 16(2). The Supreme Court restored the arbitrator’s award as affirmed by the Single Judge.
Holding and Implications
Appeal Allowed. The Supreme Court set aside the Division Bench’s order of 17 June 2005, reinstating the arbitrator’s grant of 15% pendente lite interest. The Union of India must pay the awarded pendente lite interest to the appellant within two months.
Implications: The judgment reaffirms that a clause excluding interest on amounts payable does not, without explicit language, bar an arbitrator from awarding interest pendente lite. The decision strengthens the jurisprudence that contractual bans must be express and specific to oust arbitral power on this issue.
1. The only issue that arises for consideration before this Court is, whether the claimant, i.e, the appellant before this Court - M/s. Ambica Construction, could have been awarded interest pendente lite by the arbitrator. The arbitrator by his award dated 28.06.1999, besides awarding a sum of Rs. 9,20,694/- to the claimant, held the claimant also entitled to interest pendente lite, at the rate of 15% per annum. The operative part of the award passed by the arbitrator depicting the above position is extracted below:
“I therefore award a sum of Rs. 9,20,694.00 in favour of the claimant and against the respondent. The claimant will also be entitled to interest pendente lite at the rate of 15% per annum and interest on award until recovery at the rate of 15% per annum.”
2. The Union of India, namely, the respondent before this Court, assailed the award passed by the arbitrator in the High Court of Calcutta, by preferring A.P No. 39 of 1999. A learned Single Judge of the High Court, by an order dated 3.8.2001, affirmed the award passed by the arbitrator on 28.6.1999, including the pendente lite interest, extended to the claimant. The relevant portion of the order of the learned Single Judge is extracted below:
“Apart from that there is no allegation of misconduct against the Arbitrator. There is no impropriety in the matter of procedure or norms of hearing before the Arbitrator. There is hardly any reason for the court to pass an order allowing the application. This application for setting aside the award is dismissed.”
3. The award dated 28.6.1999, and the order passed by the learned Single Judge dated 3.8.2001 were then assailed by the Union of India, before a Division Bench of the High Court, by preferring A.P.O.T No. 678 of 2001. While disposing of the above intra-court appeal, the High Court accepted the prayer made by the Union of India, and set aside the determination of the arbitrator in awarding interest pendente lite, by observing as under:
“In respect of award of interest as payment of interest is excluded under clause 16(2) of the agreement and as no reason was assigned by the learned Arbitrator for awarding interest till then, in our opinion, interest could not be awarded and the award is modified by excluding interest therefrom.
In above view of the findings the award stands modified by excluding the award of interest and the appeal is allowed to that extent only.”
4. The impugned order passed by the High Court dated 17.06.2005, limited to the determination with reference to pendente lite interest, has been assailed by the appellant, through the instant civil appeal. During the course of hearing, it was not disputed, that the contractual obligation between the parties expressly provided, that interest could not be claimed, either on earnest money or on the security deposit, and even on amounts payable to the claimant. The relevant clause affirming the above position is extracted hereinbelow:
“(2) Interest on amounts. No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract, but Government Securities deposited in terms of sub-clause (1) of this clause will repayable with interest accrued thereon.”
5. The aforesaid clause has been relied upon by the learned counsel representing the Union of India to contend, that when interest was not payable even on the principal amount, there was no question of the same being payable during the period the matter remained pending for adjudication. It is therefore apparent, that the learned counsel for the respondent, relied upon the contractual obligation contained in the clause, extracted hereinabove, to counter the claim of pendente lite interest and to support the impugned order passed by the High Court.
6. The only contention advanced at the hands of the learned counsel for the appellant, was based on the judgment of this Court in Union of India v. Ambica Construction, (2016) 6 SCC 36, wherein, having examined the legal position declared by this Court, by a Constitution Bench in Irrigation Department, State of Orissa v. G.C Roy, (1992) 1 SCC 508, it was held as under:
“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. We also make it clear that the bar to award interest on delayed payment by itself will not be readily inferred as express bar to award interest pendente lite by the Arbitral Tribunal, as ouster of power of the arbitrator has to be considered on various relevant aspects referred to in the decisions of this Court, it would be for the Division Bench to consider the case on merits.”
7. A perusal of the conclusions drawn by this Court in the above judgment, rendered by a three Judge Division Bench, leaves no room for any doubt, that the bar to award interest on the amounts payable under the contract, would not be sufficient to deny payment of pendente lite interest. In the above view of the matter, we are satisfied, that the clause relied upon by the learned counsel for the Union of India, to substantiate his contention, that pendente lite interest could not be awarded to the appellant, was not a valid consideration, for the proposition being canvassed. We are therefore satisfied, that the arbitrator, while passing his award dated 28.6.1999, was fully justified in granting interest pendente lite to the appellant. Accordingly, while affirming the award passed by the arbitrator on the issue of pendente lite interest, as also, the determination rendered by the learned Single Judge in his order dated 6.9.2001, we set aside the impugned order passed by the Division Bench of the High Court, on 17.06.2005, on the question of pendente lite interest. The pendente lite interest determined by the arbitrator, shall be paid to the appellant, within two months from today.
8. The instant appeal is allowed in the aforesaid terms.
SUPREME COURT OF INDIA
RECORD OF PROCEEDINGS
Civil Appeal No(s). 410/2008
M/s. Ambica Construction.….Appellant(s)
v.
Union of India.….Respondent(s)
Date : 26/04/2017 This appeal was called on for hearing today.
(Before Jagdish Singh Khehar, C.J and D.Y Chandrachud and Sanjay Kishan Kaul, JJ.)
For Appellant(s) Mr. Raj Kumar Mehta, Adv.
For Respondent(s) Mr. Ajit Kr. Sinha, Sr. Adv.
Ms. Kiran Bhardwaj, Adv.
Mr. Uday Prakash, Adv.
Mr. Raj Bahadur, Adv.
for Mr. Shreekant N. Terdal, AOR
UPON hearing the counsel the Court made the following
9. The appeal is allowed in terms of the signed order.
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