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Award of Pendente Lite Interest cannot be contrary to the Agreement between the Parties

Contributed by: Khaitan & Co

The single bench of the High Court of Delhi comprising of Hon’ble Ms Justice Jyoti Singh passed the judgment dated 27 May 2020 in the matter of Italian Thai Development Public Company Ltd v MCM Services Ltd, OMP (Comm) 297 of 2017 affirming that if the parties have agreed on a bar to grant of pendente lite interest in the arbitration agreement, the same cannot be granted by the Arbitral Tribunal.

In the present case, the Italian Thigh Development Public Company Ltd (“Petitioner”) had participated in the tender floated by the National Thermal Power Corporation (“NTPC”) in lieu of the project to construct a Hydroelectric Power Plant in Bilaspur District and the Letter of Award dated 12 December 2003 (“LOA December”) was granted in favour of the Petitioner. Thereafter, as per the Clause 4.1 of the FIDIC General Conditions of Contract (“FIDIC Conditions”) read with the NTPC Conditions of Particular Application (“COPA”), the Petitioner subcontracted the work to the MCM Services Ltd. (“Respondent”) and issued a Letter of Award dated 10 March 2004 (“LOA March”).

The Respondent invoked the clause 67 of the FIDIC Conditions to the Engineer following the disputes between the Petitioner and the Respondent (collectively being referred to as “Parties”) on 27 January 2009. It was observed by the Engineer that all the claims by the Respondent are untenable and the Petitioner is entitled to seek for the losses and damages on account of the breach and abandonment by the Respondent. Aggrieved by the observation of Engineer, the Respondent invoked the Arbitration clause. Thereafter, the Petitioner aggrieved by the Award of the Arbitral Tribunal, appealed the same before the Hon’ble High Court. It has been observed by the Justice Sinha that none of the objections raised against the finding of the Arbitral Tribunal fall within the scope of the Section 34 of the Act, except the award of simple interest as pendente lite from 20 April 2009 since the same has been agreed to not be applicable as per the contract between the parties.

The question of law before the Justice Singh to decide was whether the Arbitral Tribunal has the power to grant pendente lite interest under the Sec 31(7) of the Arbitration and Conciliation Act 1996 even if the parties have agreed contrary to in their contract/agreement?

It was observed by the court that the same issue has been settled by the Supreme Court in Jaiprakash Associates Ltd. v Tehri Hydro Development Corporation Ltd., (THDC) 2019 SCC OnLine 143, wherein the Hon’ble Supreme Court has noted the distinction between the State of UP v. Harish Chandra & Co., (1999) SCC 163, wherein the Court had observed that relevant clause required interpretation and did not bar the award of interest under the Act of 1940 and Sayeed Ahmed and Company vs. State of Uttar Pradesh (2009) 12 SCC 26, wherein it was observed that the grant of pendente lite interest in spite of a bar against the said interest as per the contract between the parties is not applicable under the Act of 1996. It was noted by the SC in Jaiprakash Associates (supra) that the judgment of Harish Chandra (supra) case, must distinguished from Sayeed Ahmed (supra), on account of its restrictive wording.

Justice Singh observed that the clause 78 of the present case is exactly like the clauses in Jaiprakash Associates (supra) and held that under the clause 77 and 78 of the contract between the parties, bars the grant of the pendente lite interest. Therefore, the appeal was partly allowed and the grant of pendente lite interest was set aside.

It is to be noted that the Legislation vide its amendment to the Act has made its intention clear to restrict the grant of pendente lite interest if the parties have agreed to the same under their executed contract/agreement. Section 31 (7) of the Act has granted the power to the Arbitral Tribunal to award the pendente lite interest, subject to any contrary agreement between the parties. Therefore, the present judgment affirms the already settled and followed law on the issue.

Contributed by Khaitan & Co

The above article is authored by Mr. Ajay Bhargava (Partner), Ms. Abhisaar Bairagi (Principal Associate) & Ms. Swati Jain (Associate). For any queries please contact:

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