UNION OF INDIA versus MANRAJ ENTERPRISES

Citation: [2021] 7 S.C.R. 413 · Decided: 18-11-2021 · Supreme Court of India · Bench: M.R. SHAH · Disposal: Appeal(s) allowed

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Judgment (excerpt)

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413
UNION OF INDIA
v.
MANRAJ ENTERPRISES
(Civil Appeal No. 6592 of 2021)
NOVEMBER 18, 2021
[M. R. SHAH AND B. V. NAGARATHNA, JJ.]
Interest: Interest pendente lite – Award of interest by arbitrator
contrary to clause 16(2) of the General Conditions of Contract –
Correctness of – Dispute related to work contract – Arbitrator
awarded pendente lite and future interest at the rate of 12% and
18% respectively on the entire awarded amount except for the earnest
money deposit and security deposit – Said order upheld by the High
Court – On appeal, held: Once the contractor agrees that he shall
not be entitled to interest on the amounts payable under the contract,
including the interest upon the earnest money and the security
deposit as mentioned in clause 16(2) of the agreement/contract
between the parties, the arbitrator in the arbitration proceedings
has no power to award interest, contrary to the terms of the
agreement/contract between the parties and contrary to clause 16(2)
– Expression “amounts payable to the contractor under the
contract” cannot be read in conjunction with “earnest money
deposit” or “security deposit” – It has to be read independently
and disjunctively to earnest money deposit and security deposit as
the word used is “or” and not “and” between “earnest money
deposit”, “security deposit” and “amounts payable to the contractor
under the contract” – Thus, the principle of ejusdem generis is not
applicable – Furthermore, even if the Government would have been
awarded interest, the same also was not permissible and could have
been a subject matter of challenge – There cannot be an estoppel
against law – Arbitrator erred in awarding pendente lite and future
interest on the amount due and payable to the contractor under the
contract and the same was erroneously confirmed by the High Court,
thus, the order passed by both the High Courts and the award passed
by the arbitral tribunal set aside – Arbitration and Conciliation
Act, 1996 – ss. 34, 37.
[2021] 7 S.C.R. 413
413
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414
SUPREME COURT REPORTS
[2021] 7 S.C.R.
Allowing the appeal, the Court
HELD: 1.1 The submission raised on behalf of the
respondent that de hors the bar under clause 16(2) of the General
Conditions of Contract, the Arbitral Tribunal independently and
on equitable ground and/or to do justice can award interest
pendente lite or future interest has no substance and cannot be
accepted. Once the contractor agrees that he shall not be entitled
to interest on the amounts payable under the contract, including
the interest upon the earnest money and the security deposit as
mentioned in clause 16(2) of the agreement/contract between
the parties herein, the arbitrator in the arbitration proceedings
being the creature of the contract has no power to award interest,
contrary to the terms of the agreement/contract between the
parties and contrary to clause 16(2) of the agreement/contract in
question. [Para 8.1][427-D-F]
1.2 The respondent submitted that clause 16 has to be read
as a whole and on doing so, it can be said that clause 16 pertains
specifically to earnest money and security deposit and that the
same can in no way be read in a manner to imply a bar on pendente
lite interest. It is required to be noted that clause 16(1) is with
respect to earnest money/security deposit. However, clause 16(2)
is specifically with respect to interest payable upon the earnest
money or the security deposit or amounts payable to the
contractor under the contract. The words used in clause 16(2) is
“or”. Therefore, the expression “amounts payable to the
contractor under the contract” cannot be read in conjunction with
“earnest money deposit” or “security deposit” by applying the
principle of ejusdem generis. The expression “amounts payable
to the contractor under the contract” has to be read
independently and disjunctively to earnest money deposit and
security deposit as the word used is “or” and not “and” between
“earnest money deposit”, “security deposit” and “amounts
payable to the contractor under the contract”. Therefore, the
principle of ejusdem generis is not applicable in the instant case.
[Para 10][427-F-H; 428-A-B]
1.3 In view of clause 16(2) of the GCC, the arbitrator could
not have awarded the interest, pendente lite or future interest
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on the amount due and payable to the contractor under the
contract in the instant case. [Para 11][430-H; 431-A]
1.4 It is required to be noted that the concession if any by
the

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