RELIANCE CELLULOSE PRODUCTS LTD. versus OIL AND NATURAL GAS CORPORATION LTD.

Citation: [2018] 6 S.C.R. 618 · Decided: 20-07-2018 · Supreme Court of India · Bench: R.F. NARIMAN · Disposal: Disposed off

Cited by 5 judgment(s) · cites 12 · see the full citation network in Lexace

Judgment (excerpt)

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SUPREME COURT REPORTS
[2018] 6 S.C.R.
RELIANCE CELLULOSE PRODUCTS LTD.
v.
OIL AND NATURAL GAS CORPORATION LTD.
(Civil Appeal No. 1110 of 2010)
JULY 20, 2018
[R. F. NARIMAN AND INDU MALHOTRA, JJ.]
Arbitration Act, 1940 -  Pre-reference, pendente lite interest
and future interest – Power of arbitrator to award – On facts,
disputes between parties referred to arbitration with regard to price
for supply of goods – Fixation of price by arbitrator and award of
pre-reference, pendente lite and future interest all at the rate of 18%
per annum  – Reduction of the interest to 10% per annum by the
Civil Judge – High Court upheld the same – On appeal, held: Under
the Arbitration Act, an arbitrator has power to grant pre-reference
interest under the Interest Act, as well as pendente lite and future
interest – However, he is constricted only by the fact that an
agreement between the parties may contain an express bar to the
award of pre-reference and/or pendente lite interest – In the instant
case, clause 16 of the General Conditions of Contract clearly bars
payment of interest for any delay – There is nothing in this clause
which refers even obliquely to the Arbitrator’s power to grant
interest – There was no delay on account of the higher price as it
became payable only on and from the date of the award – Even if
clause 16 were to have application, both pre-reference and pendente
lite interest are not barred – Only reason given for reducing interest
from 18% to 10% being that ONGC is a Public Sector Undertaking,
would not suffice to set aside what was within the Arbitrator’s
discretion – Further, there is no finding that arbitrator exercised
the discretion perversely – Thus, the grant of interest at the rate of
18% as pre-reference, pendente lite and future interest upheld –
Interest Act, 1978.
Allowing Reliance’s appeal and dismissing ONGC’s appeal,
the Court
HELD: 1.1 Under the Arbitration Act, 1940, an arbitrator
has power to grant pre-reference interest under the Interest Act,
[2018] 6 S.C.R. 618
618
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1978 as well as pendente lite and future interest. However, he is
constricted only by the fact that an agreement between the parties
may contain an express bar to the award of pre-reference and/or
pendente lite interest. Since interest is compensatory in nature
and is parasitic upon a principal sum not having been paid in time,
this Court has frowned upon clauses that bar the payment of
interest. It has therefore evolved the test of strict construction
of such clauses, and has gone on to state that unless there is a
clear and express bar to the payment of interest that can be
awarded by an arbitrator, clauses which do not refer to claims
before the Arbitrators or disputes between parties and clearly
bar payment of interest, cannot stand in the way of an arbitrator
awarding pre-reference or pendente lite interest. Thus, when one
contrasts a clause such as the clause in the *Second Ambica
Construction Case with the clause in **Tehri Hydro
Development Corporation Ltd., it becomes clear that unless a
contractor agrees that no claim for interest will either be
entertained or payable by the other party owing to dispute,
difference, or misunderstandings between the parties or in
respect of delay on the part of the engineer or in any other respect
whatsoever, leading the Court to find an express bar against
payment of interest, a clause which merely states that no interest
will be payable upon amounts payable to the contractor under
the contract would not be sufficient to bar an arbitrator from
awarding pendente lite interest under the 1940 Act. As has been
held in the ***First Ambica Construction Case the grant of
pendente lite interest depends upon the phraseology used in the
agreement, clauses conferring power relating to arbitration, the
nature of claim and dispute referred to the Arbitrator, and on
what items the power to award interest has been taken away and
for which period. The position as explained in some of the
judgments under Section 31(7) of the 1996 Act, is wholly different,
inasmuch as Section 31(7) of the 1996 Act sanctifies agreements
between the parties and states that the moment the agreement
says otherwise, no interest becomes payable right from the date
of the cause of action until the award is delivered. [Para 22]
[645-D-H; 646-A-C]
1.2 In the instant case, clause 16 of the General Conditions
of Contract only speaks of any delay in payment not making ONGC
RELIANCE CELLULOSE 

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