The Supreme Court recently held that an arbitrator has the power to award interest unless barred from awarding it, and the exclusion must be clear and specific.
In M/s Ravechee and Co v Union of India, the appellant, Ravechee and Co, was awarded a contract in 1981 with respect to mining work for Western Railways. In 1988, the parties sought arbitration when disputes arose out of the contract. The arbitrators allowed the claim in 2001 and awarded interest at the rate of 12% per year on the claim for the period between the date of claim and the date of award. The award was challenged in Gujarat High Court. The high court set aside the award in so far as it ordered interest pendente lite (pending litigation).
On appeal, the question before the Supreme Court was whether clause 16(3) of the General Contract Clauses, which prevents the arbitral tribunal from awarding interest on earnest money, security deposit and amounts payable to the appellant, restricted the power of the arbitrator to award interest pendente lite.
The Supreme Court allowed the appeal and held that the arbitrator’s award of amounts to the claimant were on account of the losses it suffered for various reasons. The amounts were not awarded on account of any payment due under the contract but rather losses determined in the course of arbitration. 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”. Therefore, in a case where there are unascertained damages, the question of interest would arise, and such damages could attract interest pendente lite for the period from the commencement of the arbitration to the award.
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