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M/S Raveechee and Co. v. Union of India

Civil Appeal · 2018 INSC 574Decided 3 Jul 2018
Civil Appeal Nos. 5964-5965 of 2018
Justice S.A. Bobde · Justice L. Nageswara Rao

Background

Raveechee and Co. had a 1981 contract with the Western Railway (Union of India) for quarrying and supplying stone ballast. Disputes arose, and an Arbitral Tribunal awarded the contractor roughly Rs. 76.4 lakh against its claim of about Rs. 1.35 crore, including pendente-lite interest (interest for the period the dispute was being arbitrated) of 12% on part of the award. The Gujarat High Court partly allowed the Railways' challenge and struck down this interest award, reasoning that a contract clause (16(3)) barring interest on security deposits and contract payments also barred the arbitrator from awarding pendente lite interest. The contractor appealed to the Supreme Court.

Decision Breakdown

The Supreme Court held that Clause 16(3) only barred interest on earnest money, security deposits, and amounts otherwise payable under the contract, not on damages awarded for losses determined during arbitration. It explained that pendente lite interest compensates a claimant for being kept out of money that is only finally ascertained during the arbitration itself, so it is conceptually different from interest on sums already fixed by the contract. Relying on its own earlier rulings (including Union of India vs Ambica Construction), the Court held that an arbitrator has an inherent power to award pendente lite interest unless the contract contains a clear and specific bar on it, which this contract did not. The appeal was allowed, the High Court's judgment was set aside, and the arbitrator's award of interest was restored.

Lesson Learnt

A contract clause that bars interest on specific items like security deposits or earnest money does not automatically stop an arbitrator from awarding interest on damages for the period the dispute was being arbitrated: any such bar must be clear and specifically worded to cover pendente lite interest.

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

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