INTRODUCTION
Today, I will talk about the case of Garg
Builders v. Bharat Heavy Electricals Limited, 2021 SCC OnLine SC 855,
wherein the Hon’ble Supreme Court discussed the concept of pendente lite interest
in the context of Arbitral Proceedings.
MEANING
Before adverting any further, let us understand
the bare meaning of pendente lite and Section 31 (7) (a) of the Arbitration
& Conciliation Act, 1996. Black’s Law Dictionary defines pendente lite
as “during the proceeding of litigation; in a manner contingent on the outcome
of litigation.” Thus, pendente lite interest means the interest
that is granted to the parties on account of pendency of litigation. If a
litigation persists for a particular period of time, then pendente lite
interest may be granted for that particular period of time for which the
litigation took place. The rationale behind the concept of pendente lite interest
is to compensate a party in proportion to the amount of time that it has spent
on litigation while claiming its rightful dues from the opposite party.
SECTION 31
In this regard, S. 31 (7) (a) of the Arbitration
Act provides that: -
“Unless otherwise agreed by the parties,
where and insofar as an arbitral award is for the payment of money, the
arbitral tribunal may include in the sum for which the award is made interest,
at such rate as it deems reasonable, on the whole or any part of the money, for
the whole or any part of the period between the date on which the cause of
action arose and the date on which the award is made.”
Therefore, S. 31 (7) (a) of the Arbitration Act
provides party autonomy and states that though the Arbitral Tribunal may grant pendente
lite interest on the sum of the award, but the same is subject to the
agreement that has transpired between the parties. Hence, if an agreement
prohibits such grant of interest, then under S. 31 (7) (a) the Arbitral
Tribunal is also prohibited from granting pendente lite interest.
The facts of the case are not necessary for the
purposes of this show and hence, the same are not being discussed here. In
order the understand the concept of pendente lite interest in a better
manner, let us go through the pertinent observations by the Court.
OBSERVATIONS BY THE COURT
Firstly, the Court noted that “if the
contract prohibits pre-reference and pendente lite interest, the arbitrator
cannot award interest for the said period.”
Secondly, the Court observed that “a
provision has been made under Section 31(7)(a) of the 1996 Act in relation to
the power of the arbitrator to award interest. As per this section, if the
contract bars payment of interest, the arbitrator cannot award interest from
the date of cause of action till the date of award.”
Thirdly, the Court cited various case laws to
explain that “where the parties had agreed that the interest shall not be
payable, the Arbitral Tribunal cannot award interest between the date on which
the cause of action arose to the date of the award.”
Fourthly, the Court clarified that “if the
contract contains a specific clause which expressly bars payment of interest,
then it is not open for the arbitrator to grant pendente lite interest.”
Fifthly, the Court also cited Section 3 (3) (a) (ii)
of the Payment of Interest Act, 1978, that provides that “the Interest
Act will not apply to situations where the payment of interest is ‘barred by
virtue of an express agreement’.”
And lastly, the Court concluded by stating that “when
there is an express statutory permission for the parties to contract out of
receiving interest and they have done so without any vitiation of free consent,
it is not open for the Arbitrator to grant pendent lite interest.”
Therefore, I hope that the meaning of pendente lite
interest is clear by now. So, what are my concluding remarks?
CONCLUDING REMARKS
I concur with the reasoning of the Court that party autonomy is paramount. Once parties out of their free volition have agreed that there shall be no payment of interest, then later on, they cannot contend that interest should be granted to them. Further, Arbitration Act is a special legislation governing arbitration matters. When S. 31 (7) (a) unequivocally gives precedence to party autonomy over grant of pendente lite interest, then even a general law that provides for payment of pendente lite interest would be of no help since it is a settled proposition that special law supersedes the general law.
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