Annual Arbitration Review 2018

M/s Ravechee and Co v Union of India

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Judgment:  M/s Ravechee and Co v Union of India,

 

Citation:2018 SCC Online SC 654

 

Court: Supreme Court of India

 

Coram: S. Bobde, J.

 

Date: July 3, 2018

 

Overview:This case dealt with application of interest on security depositsin the case of arbitration awards. The Supreme Court held in favour of the appellants and awarded interest in their favour. The rationale for the same was that in a case where there are unascertained damages, the question of interest would arise, and such damages could attract interest pendente lite for the period from the commencement of the arbitration to the award. It has been further held that as a matter of general rule the Arbitrator does have the power to award interest pendente lite unless there is a clear and specific bar which prohibits grant of interest.

 

Issue: Whether clause 16(3) of the General Contract Clauses, which prevents the arbitral tribunal from awarding interest on earnest money, security deposit and amounts payable to the appellant, restricted the power of the arbitrator to award interest pendente lite?

 

Factual background:

The appellant, Ravechee and Co, was awarded a contract in 1981 with respect to mining work for Western Railways. In 1988, the parties sought arbitration when disputes arose out of the contract. The arbitrators allowed the claim in 2001 and awarded interest at the rate of 12% per year on the claim for the period between the date of claim and the date of award. The award was challenged in Gujarat High Court. The high court set aside the award in so far as it ordered interest pendente lite (pending litigation). Subsequently, against this order an appeal was filed before the Supreme Court of India.

 

Analysis:

The Supreme Court allowed the appeal and held that the arbitrator’s award of amounts to the claimant were on account of the losses it suffered for various reasons. The amounts were not awarded on account of any payment due under the contract but rather losses determined in the course of arbitration. The court observed that a claimant becomes entitled to interest not as compensation for any damage done “but for being kept out of the money due to him”. Therefore, in a case where there are unascertained damages, the question of interest would arise, and such damages could attract interest pendente lite for the period from the commencement of the arbitration to the award. It has been further held that as a matter of general rule the Arbitrator does have the power to award interest pendente lite unless there is a clear and specific bar which prohibits grant of interest.

 

Conclusion:

It is imperative to point out that the Chittaranjan Maity[1]case also dealt with a similar clause and point of law. However, the interpretation given by the Supreme Court in both these cases are completely different. Hence, in order to clear the ambiguity which has been created by these two judgments, if given the opportunity, a larger bench of the Supreme Court should pronounce a judgment clarifying this position of law once and for all.

[1]Chittaranjan Maity v Union of India, (2017) 9 SCC 611

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