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Clause Excluding Interest on Security Deposit Not a Bar on Arbitrator to Award Pendente Lite Interest

In M/s Ravechee and Co v Union of India, the sole issue before the Supreme Court was the legality of the grant of pre-award interest by the arbitrator. The appellant, M/s Ravechee and Co, was awarded a contract with respect to mining work for Western Railways. When disputes arose out of the contract, arbitration was resorted to. The arbitrator allowed the claim of the appellant and awarded interest on the claim for the period between the date of claim and the date of award. The award was challenged in the high court. The high court set aside the award in so far as it ordered pendente lite interest.

The Supreme Court has held that a clause in an agreement excluding interest on security deposit does not act as a bar on the arbitrator to award pendente lite interest. A claimant becomes entitled to interest not as compensation for any damage done but for being kept out of the money due to him. Obviously, in a case of unascertained damages such as this, the question of interest would arise upon the ascertainment of the damages in the course of the lis. Such damages could attract interest pendente lite for the period from the commencement of the arbitration to the award. Thus, the liability for interest pendente lite does not arise from any term of the contract, or during the terms of the contract, but in the course of determination by the Arbitrators of the losses or damages that are due to the claimant.

Article referred: http://www.livelaw.in/clause-excluding-interest-on-security-deposit-not-a-bar-on-arbitrator-to-award-pendente-lite-interest-sc/

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