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Garg Builders v. Bharat Heavy Electricals Limited

Civil Appeal · 2021 INSC 606Decided 4 Oct 2021
Civil Appeal No. 6216 of 2021
Justice S. Abdul Nazeer · Justice Krishna Murari

Background

Garg Builders had a construction contract with BHEL that expressly barred payment of interest on "any moneys due to the contractor." After a dispute, an arbitrator awarded Garg Builders pendente lite (during litigation) interest at 10% per annum, reasoning the clause only barred other categories of interest. BHEL challenged this before the Delhi High Court, which set aside the pendente lite interest portion of the award, and the Division Bench upheld that decision.

Decision Breakdown

The Supreme Court held that under Section 31(7)(a) of the Arbitration and Conciliation Act, 1996, an arbitrator cannot award pre-reference or pendente lite interest if the parties' contract expressly bars it. The clause in this contract, barring interest on "any moneys due to the contractor", was wide enough to cover pendente lite interest, and the Court distinguished contrary precedent (Ambica Construction) as having been decided under the older 1940 Act, which had no such express bar. The Court also rejected the argument that the no-interest clause was void under Section 28 of the Contract Act, since arbitration agreements are specifically saved by that section. The appeal was dismissed.

Lesson Learnt

When a commercial contract clearly states that no interest will be paid on amounts due, that bar is enforceable against an arbitrator under the 1996 Arbitration Act, even for interest accruing during the course of litigation.

Official source (sci.gov.in)View Judgment (PDF)

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