GARG BUILDERS versus BHARAT HEAVY ELECTRICALS LIMITED

Citation: [2021] 10 S.C.R. 82 · Decided: 04-10-2021 · Supreme Court of India · Bench: S. ABDUL NAZEER · Disposal: Dismissed

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Judgment (excerpt)

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SUPREME COURT REPORTS
[2021] 10 S.C.R.
GARG BUILDERS
v.
BHARAT HEAVY ELECTRICALS LIMITED
(Civil Appeal No. 6216 of 2021)
OCTOBER 04, 2021
[S. ABDUL NAZEER AND KRISHNA MURARI, JJ.]
Arbitration and Conciliation Act, 1996: s.31(7)(a) – Pendente
lite interest on the award amount – Interest barring clause in the
contract – Claim for pre-reference pendente lite and future interest
– Held: It is clear from s.31(7)(a) that if the contract prohibits pre-
reference and pendente lite interest, the arbitrator cannot award
interest for the said period – In the instant case, clause barring
interest is very clear and categorical – It uses the expression “any
moneys due to the contractor” by the employer – Therefore, it is not
open for the arbitrator to grant pendente lite interest – Interest –
Contract Act, 1872 – s.28.
Contract Act, 1872: s.28 – Interest barring clause – Whether
contract barring payment of interest extinguish the rights of the
parties and, therefore, ultravires in terms of s.28 of the Contract
Act, 1872 – Held: The provisions of s.3(3) of the Interest Act, 1978
explicitly allows the parties to waive their claim to interest by virtue
of an agreement – s.3(3)(a)(ii) states that the Interest Act will not
apply to situations where the payment of interest is “barred by virtue
of an express agreement” – Thus, when there is an express statutory
permission for the parties to contract out of receiving interest and
they have done so without any vitiation of free consent, it is not
open for the arbitrator to grant pendente lite interest – Thus, interest
barring clause of the contract is not ultra vires in terms of s.28 of
the Contract Act, 1872 – Interest Act, 1978.
Dismissing the appeal, the Court
HELD: 1. The provisions of the 1996 Act give paramount
importance to the contract entered into between the parties and
categorically restricts the power of an arbitrator to award pre-
reference and pendente lite interest when the parties themselves
have agreed to the contrary. It is clear from Section 31(7)(a) that
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if the contract prohibits pre-reference and pendente lite interest,
the arbitrator cannot award interest for the said period. In the
present case, clause barring interest is very clear and categorical.
It uses the expression “any moneys due to the contractor” by
the employer which includes the amount awarded by the arbitrator.
[Paras 10 and 11][87-E-F, H; 88-A]
Sayeed Ahmed and Company v. State of Uttar Pradesh
& Ors. (2009) 12 SCC 26 : [2009] 10 SCR 841; Sree 
Kamatchi Amman Constructions v. Divisional Railway
Manager (Works), Palghat & Ors. (2010) 8 SCC 767 :
[2010] 10 SCR 487 ; Bharat Heavy Electricals Limited
v. Globe Hi-Fabs Limited (2015) 5 SCC 718 ; Sri
Chittaranjan Maity v. Union of India (2017) 9 SCC
611 : [2017] 11 SCR 722 – relied on.
Ambica Construction v. Union of India (2017) 14 SCC
323; Raveechee and Company v. Union of India (2018)
7 SCC 664 : [2018] 5 SCR 138 – held inapplicable.
2.1 Whether Clause 17 of the Contract (Interest barring
clause) is ultra vires in terms of Section 28 of the Indian Contract
Act, 1872. According to Section 28, a contract is void to the extent
it restricts absolutely a party from enforcing his rights by usual
proceedings in ordinary courts or if it limits the time within which
he may enforce his rights. Exception I to this section contains a
rule that a contract by which two or more persons agree that any
dispute which has arisen or which may arise between them in
respect of any subject or class of subjects shall be referred to
arbitration is not illegal.  Exception I to Section 28 saves contracts
where the right to move the Court for appropriate relief is
restricted but where the parties have agreed to resolve their
dispute through arbitration. Thus, a lawful agreement to refer
the matter to arbitration can be made a condition precedent before
going to courts and it does not violate Section 28. No cause of
action then accrues until the Arbitrator has made the award and
the only amount awarded in such arbitration is recoverable in
respect of the dispute so referred. Section 31(7)(a) of the 1996
Act which allows parties to waive any claim to interest including
pendente lite and the power of the Arbitrator to grant interest is
subject to the agreement of the parties. [Paras 19, 20][89-F-G;
90-B-C]
GARG BUILDERS v. BHARAT HEAVY ELECTRICALS LIMITED
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2.2 Interest pa

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