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An arbitrator can always award pendente lite interest unless there is bar under contract: SC set aside the high court’s order

Last Updated on March 21, 2023 by Administrator

Recently, the supreme court set aside the impugned judgement and order passed by the high court of Delhi and held that the arbitrator/ arbitral tribunal can award pendente lite interest unless there is a specific bar under the contract.

an Agreement was entered into between IRCON and the respondent – M/s. National Buildings Construction Corporation Limited (hereinafter referred to as “NBCC”), whereby the respondent was awarded the work of construction of a Railway Station cum Commercial Complex at Vashi, Navi Mumbai at the cost of Rs.3042.91 lakh, to be constructed within a period of 30 months from 05.04.1990. NBCC failed to complete the work in time. NBCC referred the dispute to arbitration. The Arbitral Tribunal passed an Award in 2011, rejecting NBCC’s claim for a refund of two security deposits i.e. Claim No. 33 and 34. the Arbitral Tribunal held that though termination with reference to Clause 60.1 was bad in law, but justified the termination with reference to Clause 17.4 of the Contract. the Tribunal also considered the counterclaim of IRCON and awarded 18% p.a. pendente lite interest on special advance given by IRCON to NBCC.

the NBCC approached the High Court by filing an application under Section 34 of the Arbitration and Conciliation Act, 1996 (hereinafter referred to as “Arbitration Act”). the learned Single Judge of the High Court set aside the rejection by the learned Arbitral Tribunal of Claim Nos.33 and 34 of NBCC to the extent it concerned the return of security deposit amounts i.e. Rs.5,57,486/+ Rs.60,85,840/by observing and concluding that once the Arbitral Tribunal found that the termination with regard to Clause 60.1 was not justified. The Single Judge 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 impugned judgment and order passed by the Division Bench of the High Court, IRCON has preferred the present appeal.

Shri R.S. Hegde, learned counsel appearing on behalf of the appellant submitted that “on appreciation of evidence and the material on record as the learned Tribunal has observed and held that the IRCON was justified in rescinding the contract due to abandonment of work by NBCC and when the said finding attained the finality, the IRCON was justified in forfeiting the security deposits. It is submitted that as such the High Court has taken too technical view.”

Mr Minocha appearing on behalf of the respondent supported the order passed by the high court and contended that “even the learned Arbitral Tribunal also observed and held that the IRCON was not justified in rescinding the contract under Clause 60.1. It is submitted that however, thereafter the Arbitral Tribunal justified the termination of the contract under Clause 17.4, which as rightly held by the learned Single Judge / Division Bench was not permissible.”

The bench of Justice M.R. Shah and Justice M.M. Sundresh passed the order which said “The impugned judgment and order passed by the learned Single Judge as well as the Division Bench of the High Court quashing and setting aside the award passed by the Arbitral Tribunal rejecting Claim Nos. 33 and 34 are hereby quashed and set aside and the award passed by the Arbitral Tribunal rejecting claim Nos. 33 and 34 are hereby restored.” 

Written By – Shagun Behal

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