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M/s Ferro Concrete Construction (India) Pvt. Ltd. v. The State of Rajasthan

Civil Appeal · 2025 INSC 429Decided 2 Apr 2025
C.A. No.-004723-004723 - 2025 (arising out of SLP(C) No. 7851 of 2023)
Justice Pamidighantam Sri Narasimha · Justice Joymalya Bagchi

Background

The appellant-contractor had a 1988 works contract with the Rajasthan government containing a clause barring the contractor from claiming "any interest upon any payment, any arrears or upon any balance" due to it. When a dispute went to arbitration, the arbitrator awarded the contractor Rs. 1.78 crore plus 15% interest for the pendente lite (during-proceedings) period. A District Judge set aside only the interest portion, holding the contract clause barred it, and the High Court upheld that view.

Decision Breakdown

The Supreme Court held that under the older 1940 Arbitration Act, a stricter test applies than under the current 1996 Act: a contractual clause bars an arbitrator from awarding pendente lite interest only if it is clearly and expressly worded to exclude interest arising from disputes, differences, delay, or "any other respect whatsoever": a clause that merely says no interest is payable on amounts due under the contract is not enough. Applying this test (drawn from precedents including Reliance Cellulose and the "First Ambica" case), the Court found the contract clause here too narrow to bar pendente lite interest. It restored the arbitrator's power to award interest but reduced the rate from 15% to 9% given the amounts already paid and the long passage of time since the 1995 award.

Lesson Learnt

A contract clause barring "interest on payments due" is not automatically a bar on an arbitrator awarding interest during the dispute itself: the exact wording matters, and only a clearly worded, comprehensive bar will strip an arbitrator of that power.

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

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