In the case of M/s Raveechee and Co. vs. Union of India, civil appeal nos. 5964-5965 of 2018, the Supreme Court of India deal with the issue of whether an arbitrator has the power to award interest pendente lite and held in affirmative. The case analysis given below:
M/s Raveechee and Co. (Raveechee) entered in to a contract for quarrying, stacking etc., with the Government of India (GOI). Disputes arose between the parties due to which Raveechee appointed the Arbitrators to settle the dispute. The arbitrator passed an award along with an interest pendente lite at 12% on the award. Thereafter Raveechee filed the execution proceedings in the Civil Court which were challenged by the GOI in the High Court. The High Court set aside the award qua the interest awarded pendente lite. Therefore, the matter went into the Supreme Court.
It is pertinent to mention Clause 16(3) of the contract between the parties which inter alia states that no interest will be payable on earnest money, security deposits or on any amounts payable to the contractor under the contract. The said clause is reproduced herewith:
“16(3): No interest will be payable upon the earnest money and 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 be payable with interest accrued thereon.”
The Arbitrators held that what was intended under Clause 16(3) barred the grant of interest on earnest money, security deposit and amounts payable to the Raveechee; it does not in any way bar grant of interest pendente lite.
The GOI contended that the Arbitrators by reason of Clause 16(3) could not have awarded interest pendente lite.
Refuting the above contention of GOI, the Court held that ex facie the clause does not deal with interest pendente lite. In terms, the clause only bars interest upon earnest money and security deposits or amounts payable to the contractor under the contract.
The Court further noticed that the interest amounts are not awarded on account of any payment due under the contract but are awarded on losses determined in the course of arbitration or the ‘lis’.
The Court observed that a claimant becomes entitled to interest not as compensation for any damage done but for being kept out of the money due to him. In a case of unascertained damages such as this, the question of interest would arise upon the ascertainment of the damages in the course of the lis. Such damages could attract interest pendente lite for the period from the commencement of the arbitration to the award. Thus, the liability for interest pendente lite does not arise from any term of the contract, or during the terms of the contract, but in the course of determination by the Arbitrators of the losses or damages that are due to the claimant. Specifically, the liability to pay interest pendente lite arises because the claimant has been found entitled to the damages and has been kept out from those dues due to the pendency of the arbitration i.e. pendente lite.
Regarding the express bar in the clause to award interest, the Court opined that an agreement which bars interest is essentially an agreement that the parties will not claim interest on specified amounts. It does not bar an Arbitrator, who is never a party to the agreement from awarding it.
The Court further cited the dictum of three Judge Bench in Union of India v. Ambica Construction (2016) 6 SCC 36 wherein the Court inter alia held that the power of an arbitrator to grant pendente lite interest will 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.
The Court held that The Arbitrator has the power to award interest pendente lite where justified.