SREE KAMATCHI AMMAN CONSTRUCTIONS versus THE DIVISIONAL RAILWAY MANAGER (WORKS), PALGHAT & ORS.

Citation: [2010] 10 S.C.R. 487 · Decided: 20-08-2010 · Supreme Court of India · Bench: R.V. RAVEENDRAN · Disposal: Dismissed

Cited by 9 judgment(s) · see the full citation network in Lexace

Judgment (excerpt)

[2010] 10 S.C.R. 487 · 
SREE KAMATCHI AMMAN CONSTRUCTIONS 
v. 
THE DIVISIONAL RAILWAY MANAGER (WORKS), 
PALGHAT & ORS. 
(Civil Appeal Nos. 6815-6816 of 2010) 
AUGUST 20, 2010 
[R.V. RAVEENDRAN AND H.L. GOKHALE, JJ.] 
A 
B 
Interest - Award of - Contract - Arbitration - Award 
refusing interest for pre-reference period and pendente lite -
C 
Propriety of - Held: Award of interest for such period was 
rightly denied by arbitral tribunal - General conditions of the 
contract between the parties expressly barred award of interest 
- In view of s. 37(1) of Arbitration and Conciliation Act, arbitral 
tribunal is bound by the terms of the contract and thus cannot 
D 
award interest for pre-reference period or pendente lite -
Arbitration and Conciliation Act, 1996 - s. 37(1) - Contract. 
First respondent-Railways entrusted construction 
work to the appellant under a contract. The appellant-
E 
contractor invoked the arbitration clause, alleging breach 
of contract by the first respondent. Disputes were 
referred to arbitral tribunal, which ultimately passed a 
reasoned award rejecting all the claims of the Railways. 
It awarded only future interest and refused to award the 
interest for pre-reference period and interest pendente lite. 
However, it rejected two of the claims of the contractor. 
Railways as well as the contractor filed petitions u/ 
F 
s. 34 of the Arbitration and Conciliation Act, 1996. Single 
Judge of the High Court rejected both the challenges to 
G 
the award. As regards interest, it held that in view of the 
bar contained in Clause 16(2) of General Conditions of 
contract, the contractor was not entitled to it. Division 
Bench of the High Court dismissed the writ appeal filed 
487 
H 
488 
SUPREME COURT REPORTS 
[2010] 10 S.C.R. 
A by the contractor and allowed the writ appeal filed by the 
Railways. Therefore, the instant appeals were filed. 
B 
The questions for consideration in the instant appeal 
were: 
(1) Whether the contract between the parties 
contained an express bar regarding award of interest; 
and 
(2) Whether the arbitral tribunal was justified in 
c refusing interest for the period between the date of cause 
of action to the date of the award. 
Dismissing the appeals, the Court 
HELD: 1. Clause 16(2) of the General Conditions of 
D contract governing the contract between the parties in 
terms specifically bars payment of interest on earnest 
money or the security deposit or the amounts payable to 
the contractor under the contract. Claim No.4 (relating to 
erroneous billing) related to a work executed by the 
E contractor as a part and parcel of the work contemplated 
under the agreement. Payment directed by the arbitral 
tribunal for such work was also in accordance with the 
Agreement Schedule Item No.19. Therefore it is evident 
that the amount awarded in regard to claim No. (4) was 
F an amount payable to the contractor under the contract. 
Consequently, no interest could be paid thereon having 
regard to the bar under Clause 16(2) of the General 
conditions of contract. [Para 5] [492-F-H; 493-A-E] 
2.1 If there is a bar against payment of interest in the 
G contract, the arbitrator cannot award any interest for the 
pre-reference period or pendente lite. In view of the 
specific bar under Clause 16(2) of the General Conditions 
of the contract, the arbitral tribunal was justified in 
refusing interest from the date of cause of action to the 
H date of awards. [Para 6] [495-E-F] 
SREE KAMATCHI AMMAN CONSTRUCTIONS v. DIVISIONAL 489 
RLY MANAGER (WORKS), PALGHAT 
Sayeed Ahmed and Co. v. State of UP. 2009 (12) SCC 
A 
26; Union oflndia v. Saraswat Trading Agency 2009 (16) 
sec 504, relied on. 
Irrigation Department, Government of Orissa v. G.C. Roy 
1992 (1) SCC 508; Executive Engineer, Dhenkanal Minor 
B 
Irrigation Division v. NC. Budharaj 2001 (2) SCC 721; 
Bhagawati Oxygen Ltd. v. Hindustan Copper Ltd. 2005 (6) 
SCC 462; State of Rajasthan v. Ferro Concrete Construction 
(P) Ltd. 2009 (12) SCC 1, referred to. 
2.2 The appellant will not be entitled to interest C 
pendente lite, that is, for the period from the date of 
reference to the date of the award. Section 37(1) of the 
Arbitration and Conciliation Act, 1996, by using the words 
"unless otherwise agreed by the parties" categorically 
clarifies that the arbitrator is bound by the terms of the 
D 
contract insofar as the award of interest from the date of 
cause of action to the date of the award. Therefore, where 
the parties hav

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