Section 31(7) of The Arbitration Act IV

The clause only bars interest upon earnest money or security deposits or amounts payable to the contractor under the contract. The above-mentioned amounts are amounts which in a sense belong to the contractor. They are amounts voluntarily deposited with the other contracting party in order to be refunded or forfeited depending on performance of the contract. As such they are not amounts of which the contractor is deprived the use of against his wishes, so as to attract interest. It is not the case of the Government before us that interest has been awarded to the contractor under any of the three heads. The contention put forth by the Government is that the clause bars the Arbitrators from awarding interest pendente lite. On a plain reading we find that there is no such bar.

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. Specifically, the liability to pay interest pendente lite arises because the claimant has been found entitled to the damages and has been kept out from those dues due to the pendency of the Arbitration i.e. pendente lite.

The general rule is an Arbitrator has the power to award interest unless specifically barred from awarding it; and the bar must be clear and specific. The Arbitrator does have the power to award interest pendente lite. It essentially depends upon the ouster in each clause, which means that unless there is an express bar that provides that the Arbitrator cannot award interest pendente lite, the grant to interest pendente lite will predominantly be based on the Arbitrator’s discretion to award the same [G.C. Roy, (1992) 1 SCC 508; Engineers-De-Space Age, (1996) 1 SCC 516; Madnani Construction, (2010) 1 SCC 549].

This Court considered an identical clause in Ambica Constructions, (2017) 14 SCC 323 wherein it was observed that the clause did not bar the Arbitrator from awarding interest pendente lite and affirmed the award passed by the Arbitrator. The Arbitrator has the power to award interest pendente lite where justified.”

Hon’ble Justice S.A. Bobde, M/s. Raveechee v. Union of India, [Civil Appeal Nos. 5964-5965 of 2018].