Contractual Bar on Pendente Lite Interest: Strict Construction Required Under Arbitration Act, 1940. Supreme Court Upholds Arbitrator’s Power to Award Interest Unless Expressly Barred in Contract

Case Note & Summary

Arbitration Act1940 Act: Arbitrator has inherent power to award pendente lite interest unless expressly barred by contract (Para 8, 10). Strict Construction: Clauses must clearly exclude interest for disputes/delays (Para 9, 15).

Arbitration and Conciliation Act 1996 Act Contrast: Section 31(7)(a) enforces party autonomy; any contractual bar suffices (Para 10).

Precedents Clarified: First Ambica Construction and Reliance Cellulose harmonized: Express ouster required under 1940 Act (Para 13–14).

Reasoning: Clause 22 did not expressly bar interest for disputes/delays (Para 15). 1940 Act Precedents: G.C. Roy and N.C. Budharaj mandated express ouster (Para 8–10). Distinction from 1996 Act: Section 31(7)(a) sanctifies party autonomy; stricter standard under 1940 Act (Para 9–10).

Arbitration Act, 1940 (Hereinafter “1940 Act”) – Governed the dispute.

Arbitration and Conciliation Act, 1996 (Hereinafter “1996 Act”) – Referred for comparative analysis.

Interest Act, 1978 – Cited for pre-reference interest claims.

Section 31(7) of the 1996 Act – Statutory power of arbitrator to grant interest, sanctifying party autonomy.

Para 45 of G.C. Roy (1992) and Para 23 of Pam Developments (2024) – Recognized arbitrator’s inherent power to award interest under the 1940 Act unless expressly barred.

Nature of Litigation: Civil appeal challenging the denial of pendente lite interest by the High Court, arising from an arbitral award under the 1940 Act.

Parties:

Appellant: M/s Ferro Concrete Construction (India) Pvt. Ltd. (Contractor).

Respondent: State of Rajasthan (Government).

Contractual Clause: Clause 22 barred the contractor from claiming interest on "any payment, arrears, or balance due at any time."

Arbitral Award: Arbitrator granted 15% pendente lite interest (from reference date 18.12.1991 till award date 07.03.1995), which was set aside by lower courts.

Litigation Timeline:

Award: 07.03.1995.

District Court: Upheld award but denied interest (16.08.2005).

High Court: Affirmed denial (06.01.2023).

Question of Law:

Whether Clause 22 of the contract constituted an express bar on the arbitrator’s power to award pendente lite interest under the 1940 Act?

Relied on Reliance Cellulose (2018) and Pam Developments (2024):

Clause 22 did not expressly exclude arbitrator’s jurisdiction.

Under the 1940 Act, strict construction required for ouster clauses.

Interpretation Uniformity: Ouster clauses similarly construed under 1940 and 1996 Acts.

Precedent Conflict: Reliance Cellulose relied on Engineers-De-Space-Age, which was diluted in First Ambica Construction (2016).

Payment Already Made: Rs. 4.65 crores (including Rs. 2.83 crores interest) paid; further interest unwarranted.

Pendente lite interest, Express bar, Strict construction, Party autonomy, Arbitrator’s jurisdiction, Compensatory interest.