RELIANCE CELLULOSE PRODUCTS LTD v. OIL AND NATURAL GAS CORPORATION LTD

1.3 The submission that, in any case, on the facts of the present case, clause 16 is not at all attracted inasmuch as factually there was no delay in payment as a sum of Rs.14,999/- per MT had, in fact, been paid for both 1200 MT and 600 MT, but that the balance only became payable on and from the date of the award, is right, as it is nobody’s case that there was delay in payment on the facts of this case. It is only after Reliance went in a Writ Petition before the High Court that it became clear that a higher price would be payable, which was left to the Arbitrator to determine vide the High Court’s judgment referring the issue of price to an arbitrator, which was accepted by ONGC. In this view of the matter, it is clear that no delay on account of the higher price ever took place as it became payable only on and from the date of the award, Rs.14,999/- per MT having been paid on time earlier. This being the case, it is clear that even if clause 16 were to have application, both pre-reference and pendente lite interest are not barred. [Para 24] [646-H; 647-A-C] RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND NATURAL GAS CORPORATION LTD. 621

1.4 The only reason given for reducing interest from 18% to 10% being that ONGC is a Public Sector Undertaking, would not suffice to set aside what was within the Arbitrator’s discretion. There is no finding that this discretion has been exercised perversely, given the interest rates at the time of the award. The grant of interest at the rate of 18% as pre-reference and pendente lite interest is upheld. Considering the fact that ONGC has deposited the difference in the principal sums payable, and pre- reference, pendent lite and future interest, all at the rate of 10% being a sum of Rs.1,09,34,323/- till 21.01.1999, and a sum of Rs.46,86,138/- on 30.04.2003, it is made clear that recovery of interest till the two aforementioned dates will be at the rate of 18%. Thus, for pre-reference, pendent lite and future interest, ONGC is to pay the differential amount of interest of 8% till 21.01.1999 and 30.04.2003 within a period of eight weeks from today. In the interest of justice, it is clarified that on and from 21.01.1999, till payment, future interest is to be paid at 6% per annum on the balance differential sum of interest, being the difference between 10% and 18%, and similarly, on the balance differential sum of interest between 10% and 18% on and from 30.04.2003 till payment. [Para 25] [647-D-G] Irrigation Department, State of Orissa v. G.C. Roy (1992) 1 SCC 508 : [1991] 3 Suppl. SCR 417 ; Executive Engineer (Irrigation), Balimela v. Abhaduta Jena (1988) 1 SCC 418 : [1988] 1 SCR 253 ; Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and Ors. v. N.C. Budharaj (2001) 2 SCC 721 : [2001] 1 SCR 264 ; Board of Trustees for the Port of Calcutta v. Engineers-De-Space-Age, (1996) 1 SCC 516 : [1995] 6 Suppl. SCR 327 ; Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd., (2005) 6 SCC 462 : [2005] 3 SCR 232 ; M.B. Patel and Co. v. ONGC (2008) 8 SCC 251 : [2008] 8 SCR 35 ; State of Rajasthan and Anr. v. M/s. Ferro Concrete Construction (P) Ltd. (2009) 12 SCC 1: [2009] 10 SCR 31 ; Union of India v. Saraswat Trading Agency (2009) 16 SCC 504 : [2009] 10 SCR 1063; Madnani Construction Corporation (P) Ltd. v. Union of India and Ors. (2010) 1 SCC 549 : A B C D E F G H 622 SUPREME COURT REPORTS [2018] 6 S.C.R. [2009] 16 SCR 216 ; State of U.P. v. Harish Chandra and Co. (1999) 1 SCC 63 : [1998] 2 Suppl. SCR 660 ; Sree Kamatchi Amman Constructions v. The Divisional Railway Manager (Works), Palghat and Ors., (2010) 8 SCC 767 : [2010] 10 SCR 487; Union of India v. Krafters Engineering and Leasing (P) Ltd. (2011) 7 SCC 279 : [2011] 8 SCR 196 ; **Tehri Hydro Development Corporation Ltd. v. Jai Prakash Associates Ltd. (2012) 12 SCC 10 : [2012] 8 SCR 813 ; Union of India v. Bright Power Projects (India) (P) Ltd. (2015) 9 SCC 695 : [2015] 6 SCR 488 ; ***Union of India v. Ambica Construction (“First Ambica Construction Case”), (2016) 6 SCC 36 : [2016] 2 SCR 810; *Ambica Construction v. Union of India (“Second Ambica Construction Case”) (2017) 14 SCC 323 ; M/s Raveechee v. Union of India 2018 (8) SCALE 415 – referred to. Case Law Reference [1991] 3 Suppl. SCR 417 [1988] 1 SCR 253 [2001] 1 SCR 264 [1995] 6 Suppl. SCR 327 [2005] 3 SCR 232 [2008] 8 SCR 35 [2009] 10 SCR 31 [2009] 10 SCR 1063 [2009] 16 SCR 216 [1998] 2 Suppl. SCR 660 [2010] 10 SCR 487 [2011] 8 SCR 196 [2012] 8 SCR 813 [2015] 6 SCR 488 [2016] 2 SCR 810 (2017) 14 SCC 323 2018 (8 ) SCALE 415 referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to referred to Para 7 Para 7 Para 7 Para 8 Para 9 Para 10 Para 11 Para 12 Para 13 Para 13 Para 14 Para 15 Para 17 Para 18 Para 19 Para 20 Para 21 A B C D E F G H RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND NATURAL GAS CORPORATION LTD. 623 CIVIL APPELLATE JURISDICTION : Civil Appeal No. 1110 A of 2010. From the Judgment and Order dated 23.08.2006 of the High Court of Gujarat at Ahmedabad in First Appeal No. 5767 of 1998 WITH Civil Appeal No. 1111 of 2010. Sandeep Sethi, ASG, K. V. Viswanathan, Sr. Adv., Shabyashachi Patra, Sanjeev Kumar (for M/s Khaitan & Co.), P. B. Suresh, Vipin Nair, Abhay Pratap Singh, Advs.for the appearing parties. The Judgment of the Court was delivered by R. F. NARIMAN, J. 1. The present appeals relate to questions which arise qua the pre-reference and pendente lite interest under the Arbitration Act, 1940. The ONGC floated a notice inviting tender for the supply of 1200 Metric Tons (hereinafter referred to as “MT”) of Sodium Carboxyl Methyl Cellulose (hereinafter referred to as “CMC”). Reliance Cellulose Products Ltd. (hereinafter referred to as “Reliance”) submitted its tender quoting a price of Rs.14,999/- per MT for quantities above 900 MT. It is not disputed that the offer of Reliance was accepted for the supply of 1200 MT of CMC, and accordingly, a supply order dated 01.12.1988 was placed on Reliance. Since Reliance agreed to supply 1200 MT only if the price is higher than Rs.14,999/- per MT, the parties ultimately went to arbitration in order to decide what should be the contract price for supply of 1200 MT of CMC. A separate order, referred to as the repeat order, was also placed for supply of 600 MT of CMC. It is undisputed that the supply was made on time and payments were received for both contracts at the rate of Rs.14,999/- per MT.

#2. In October 1990, the petitioner filed a Special Civil Application before the Gujarat High Court in the course of which, by an order dated 11.10.1990, the disputes between the parties were referred to arbitration, which were with regard to the price for the supply of 1200 MT and 600 MT of CMC respectively. The original Arbitral Tribunal consisted of Justice V.S. Deshpande and Mr. S. Tibrewal. Shri Deshpande having died, Justice B.J. Divan was appointed in his place. B C D E F G H 624 SUPREME COURT REPORTS [2018] 6 S.C.R.

#3. By an award dated 29.12.1993, the Arbitrators fixed the price of 1200 MT at Rs.18,500/- per MT, and Rs.20,500/- per MT insofar as 600 MT of CMC was concerned. The Arbitrators awarded pre-reference, pendente lite and future interest all at the rate of 18% per annum. Objections were filed to the award by the ONGC. The learned Civil Judge, by his judgment dated 30.07.1998, rejected these objections, but ultimately reduced the interest for all three periods to 10% per annum. Needless to state, this interest was payable on the difference between Rs.14,999/- and Rs.18,500/- and Rs.20,500/- respectively. The appeals that were filed to the High Court yielded the same result vide the impugned judgment dated 23.08.2006. Both parties are in appeal before us.

#4. Shri K.V. Viswanathan, who argued Civil Appeal No.1110/2010, has argued before us that no good reason is given for reducing interest from 18% to 10%. Indeed, the only reason that is forthcoming from the impugned judgment is that interest has been reduced because ONGC is a Public Sector Undertaking. According to him, therefore, pre-reference, pendente lite and future interest at 18% all become payable from the date of the cause of action till 21.01.1999, when the ONGC had deposited an amount of Rs.1,09,34,323/-, and an amount of Rs.46,86,138/- on 30.04.2003, on account of principal and interest at the rate of 10% per annum, and differential interest till date.

#5. In the ONGC appeal, the learned Additional Solicitor General, Shri Sandeep Sethi, has argued that though the plea that no pre-reference or pendente lite interest was payable, there is an express bar to the grant of such interest between the parties, which was noted by both the learned Civil Judge and the High Court, but no finding has been given thereon. According to the learned ASG, clause 16 of the General Conditions of Contract clearly bars payment of interest for any delay and is set out hereinbelow: “16. Our standard terms of payment are within 30 days of receipt of stores and inspection at site. But any delay in payment will not make the Commission liable for any interest.”

#6. He has cited a number of judgments to buttress his submission that clause 16 would amount to a contractual bar to the payment of any interest on the facts of this case. On the other hand, Shri Viswanathan has also referred to various judgments. His argument is that clause 16 A B C D E F G H RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.] 625 does not apply at all on the facts of this case as there was no delay in payment, but only the difference between the sum of Rs.14,999/- per MT and the higher figures mentioned above were payable on account of the disputes between the parties being resolved through arbitration. In any case, he submitted that a holistic reading of the various decisions cited by both the learned ASG as well as by him would show that so far as the 1940 Act is concerned, interest would be payable only if there is no express bar in the agreement, and agreements between the parties have to be construed strictly as interest is the grant of compensation for value of money lost, as has been held in some of the judgments. This being so, though there may be a bar inter-se the parties, yet the Arbitrator is not barred from awarding either pre-reference or pendente lite interest. It may be added that there is no dispute that future interest is to be granted, except as to the rate of interest awarded.

#7. Two important five-Judge Bench judgments have laid down that, under the 1940 Act, in the absence of an express bar under the agreement, the Arbitrator has jurisdiction to award interest for all three periods, i.e., pre-reference, pendente lite as well as future interest. The judgment of this Court in Irrigation Department, State of Orissa v. G.C. Roy, (1992) 1 SCC 508, overruled Jena’s case [Executive Engineer (Irrigation), Balimela v. Abhaduta Jena, (1988) 1 SCC 418] and held that arbitrators under the 1940 Act would be clothed with the jurisdiction to award pendente lite interest. Insofar as pre-reference interest is concerned, another five-Judge Bench in Executive Engineer, Dhenkanal Minor Irrigation Division, Orissa and Ors. v. N.C. Budharaj, (2001) 2 SCC 721, held that arbitrators under the 1940 Act were clothed with the power to award pre-reference interest even before the 1978 Interest Act came into force. We are concerned in the present case only with the 1940 Act. The 1996 Act has made a major departure from the position under the 1940 Act qua pre-reference and pendente lite interest which will emerge from the conspectus of case law laid down by this Court.

#8. In Board of Trustees for the Port of Calcutta v. Engineers- De-Space-Age, (1996) 1 SCC 516, a two-Judge Bench of this Court had to consider whether clause 13(g) of the contract barred the award of interest pendente lite. Clause 13(g) of the contract in that case is set out hereunder:- A B C D E F G H 626 SUPREME COURT REPORTS [2018] 6 S.C.R. “No claim for interest will be entertained by the Commissioners with respect to any money or balance which may be in their hands owing to any dispute between themselves and the Contractor or with respect to any delay on the part of the Commissioners in making interim or final payment or otherwise.” [at paragraph 2] After setting out the judgment in G.C. Roy (supra), this Court held:- “4. We are not dealing with a case in regard to award of interest for the period prior to the reference. We are dealing with a case in regard to award of interest by the arbitrator post reference. The short question, therefore, is whether in view of sub-clause (g) of clause 13 of the contract extracted earlier the arbitrator was prohibited from granting interest under the contract. Now the term in sub-clause (g) merely prohibits the Commissioner from entertaining any claim for interest and does not prohibit the arbitrator from awarding interest. The opening words “no claim for interest will be entertained by the Commissioner” clearly establishes that the intention was to prohibit the Commissioner from granting interest on account of delayed payment to the contractor. Clause has to be strictly construed for the simple reason that as pointed out by the Constitution Bench, ordinarily, a person who has a legitimate claim is entitled to payment within a reasonable time and if the payment has been delayed beyond reasonable time he can legitimately claim to be compensated for that delay whatever nomenclature one may give to his claim in that behalf. If that be so, we would be justified in placing a strict construction on the term of the contract on which reliance has been placed. Strictly construed the term of the contract merely prohibits the Commissioner from paying interest to the contractor for delayed payment but once the matter goes to arbitration the discretion of the arbitrator is not, in any manner, stifled by this term of the contract and the arbitrator would be entitled to consider the question of grant of interest pendente lite and award interest if he finds the claim to be justified. We are, therefore, of the opinion that under the clause of the contract the arbitrator was in no manner prohibited from awarding interest pendente lite.” A B C D E F G H RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.] 627

#9. In Bhagwati Oxygen Ltd. v. Hindustan Copper Ltd., (2005) 6 SCC 462, a judgment of two learned judges arising out of the 1940 Act, this Court was concerned with all the three periods relating to interest, and held that it was open for the Arbitrator acting under the 1940 Act to award interest for each of these periods provided there is no contractual bar.

#10. In M.B. Patel and Co. v. ONGC, (2008) 8 SCC 251, the clause which was said to interdict interest was clause 18 of the Agreement which provided as follows: “18. Interest on amounts.—No interest will be payable on the security deposit or any other amount payable to the contractor under the contract.” [at paragraph 4] The Court held that interest had been awarded in violation of clause 14 of the Agreement as the Arbitrator did not take into account this clause at all. On this and other grounds, the Award as a whole was set aside, and remanded to the Arbitrator to consider the matter afresh.

#11. In State of Rajasthan and Anr. v. M/s. Ferro Concrete Construction (P) Ltd., (2009) 12 SCC 1, a two-Judge Bench decision of this Court was concerned with pre-reference interest given by an award under the 1940 Act. This Court restated the position qua pre- reference interest by referring to the five-Judge Bench referred to hereinabove and Bhagwati Oxygen (supra). What was highlighted was the importance of the Interest Act, 1978, under Section 3 of which it is clear that pre-reference interest can be allowed by an arbitrator unless there is a bar by virtue of an express provision between the parties (see paragraphs 63 and 64).

#12. In Union of India v. Saraswat Trading Agency, (2009) 16 SCC 504, the question of pendente lite interest arose under the Arbitration and Conciliation Act, 1996. The clause which was said to bar interest in the aforesaid case was clause 31 of the Agreement which provided as follows: “31. No interest or damage for delay in payment.—No interest or damage shall be paid to the contractor for delay in payment of the bill or any other amount due to the contractor for any A B C D E F G H 628 SUPREME COURT REPORTS [2018] 6 S.C.R. reason whatsoever. The Railway Administration will, however, make every endeavour for payment of the bills or other amount due to the contractor within a reasonable time.” [emphasis supplied] The judgment in Engineers-De-Space-Age (supra) was distinguished by stating that clause 31 of the Agreement was materially different as no interest or damage was payable for any reason whatsoever, as a result of which it was held: “33. In the case in hand Clause 31 of the agreement is materially different. It bars payment of any interest or damage to the contractor for any reason whatsoever. We are, therefore, clearly of the view that no pre-reference or pendente lite interest was payable to the respondent on the amount under Item 3 and the arbitrator’s award allowing pre-reference and pendente lite interest on that amount was plainly in breach of the express terms of the agreement. The order of the High Court insofar as pre-reference and pendente lite interest on the amount under Item 3 is concerned is, therefore, unsustainable.” This case has later been distinguished as having arisen under the 1996 Act, under which the position qua both pre-reference and pendente lite interest is materially different.

#13. In Madnani Construction Corporation (P) Ltd. v. Union of India and Ors., (2010) 1 SCC 549, two judges of this Court had to deal with the grant of pre-reference interest under the Interest Act in an award passed under the 1940 Act. Paragraphs 22 and 23 of the judgment set out the clauses which interdict payment of interest as follows: “22. … Clause 16(2) of GCC is set out below: “16. (2) No interest will be payable upon the earnest money or the security deposit or amounts payable to the contractor under the contract but government securities deposited in terms of such Clause (1) of this Clause will be repayable with interest accrued thereto.”

#23. … The relevant portion of Clause 30 relating to interest is set out below: A B C D E F G H RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.] 629 “… That the contractor will have no claim for interest and damage whatsoever on any account in respect of such withholding or retention under the lien referred to supra and duly notified as such to the contractor.” After referring to the Interest Act and Section 29 of the Arbitration Act, 1940, the Court referred to a three-Judge Bench decision in State of U.P. v. Harish Chandra and Co., (1999) 1 SCC 63, as follows: “34. In a subsequent decision of a three-Judge Bench in State of U.P. v. Harish Chandra and Co. [(1999) 1 SCC 63] there was stipulation in the arbitration agreement against grant of interest. The relevant clause, namely, Clause 1.9 to the aforesaid effect is set out below: (SCC p. 67, para 9) “9. … ‘1.9. No claim for delayed payment due to dispute, etc.—No claim for interest or damages will be entertained by the Government with respect to any moneys or balances which may be lying with the Government owing to any dispute, difference; or misunderstanding between the Engineer-in- Charge in marking periodical or final payments or in any other respect whatsoever.’ “ Considering the said clause, the Court held that the prohibition in the said clause does not prevent the contractor from raising the claim of interest by way of damages before the arbitrator on the relevant items placed for adjudication. (See SCC p. 67, para 10.) In saying so, the learned Judges relied on the ratio in B.N. Agarwalla [(1997) 2 SCC 469] and G.C. Roy [(1992) 1 SCC 508].” It then referred to Engineers-De-Space-Age (supra) in paragraph 35 and Saraswat Trading Agency (supra) in paragraphs 37 and 38. Finally, however, the two-Judge Bench held:- “39. In the instant case also the relevant clauses, which have been quoted above, namely, Clause 16(2) of GCC and Clause 30 of SCC do not contain any prohibition on the arbitrator to grant interest. Therefore, the High Court was not right in interfering with the arbitrator’s award on the matter of interest on the basis of the aforesaid clauses. We therefore, on a strict construction of A B C D E F G H 630 SUPREME COURT REPORTS [2018] 6 S.C.R. those clauses and relying on the ratio in Engineers [(1996) 1 SCC 516] find that the said clauses do not impose any bar on the arbitrator in granting interest.”

#14. In Sree Kamatchi Amman Constructions v. The Divisional Railway Manager (Works), Palghat and Ors., (2010) 8 SCC 767, a two-Judge Bench of this Court, after referring to some of the earlier judgments of this Court, held: - “18. At the outset it should be noticed that Engineers-De-Space- Age [(1996) 1 SCC 516] and Madnani [(2010) 1 SCC 549] arose under the old Arbitration Act, 1940 which did not contain a provision similar to Section 31(7) of the new Act. This Court, in Sayeed Ahmed [(2009) 12 SCC 26] held that the decisions rendered under the old Act may not be of assistance to decide the validity of grant of interest under the new Act. The logic in Engineers-De-Space- Age [(1996) 1 SCC 516] was that while the contract governed the interest from the date of cause of action to date of reference, the arbitrator had the discretion to decide the rate of interest from the date of reference to date of award and he was not bound by any prohibition regarding interest contained in the contract, insofar as pendente lite period is concerned. This Court in Sayeed Ahmed [(2009) 12 SCC 26] held that the decision in Engineers-De-Space- Age [(1996) 1 SCC 516] would not apply to cases arising under the new Act. We extract below, the relevant portion from Sayeed Ahmed [(2009) 12 SCC 26] : (SCC p. 36, paras 23-24) “23. The observation in Engineers-De-Space-Age [(1996) 1 SCC 516] that the term of the contract merely prohibits the department/ employer from paying interest to the contractor for delayed payment but once the matter goes to the arbitrator, the discretion of the arbitrator is not in any manner stifled by the terms of the contract and the arbitrator will be entitled to consider and grant the interest pendente lite, cannot be used to support an outlandish argument that bar on the Government or department paying interest is not a bar on the arbitrator awarding interest. Whether the provision in the contract bars the employer from entertaining any claim for interest or bars the contractor from making any claim for interest, it amounts to a clear prohibition regarding interest. The provision need A B C D E F G H RELIANCE CELLULOSE PRODUCTS LTD. v. OIL AND NATURAL GAS CORPORATION LTD. [R. F. NARIMAN, J.] 631 not contain another bar prohibiting the arbitrator from awarding interest. The observations made in the context of interest pendente lite cannot be used out of contract.

#24. The learned counsel for the appellant next contended on the basis of the above observations in Engineers-De-Space- Age [(1996) 1 SCC 516], that even if Clause G 1.09 is held to bar interest in the pre-reference period, it should be held not to apply to the pendente lite period, that is, from 14-3-1997 to 31- 7-2001. He contended that the award of interest during the pendency of the reference was within the discretion of the arbitrator and therefore, the award of interest for that period could not have been interfered with by the High Court. In view of the Constitution Bench decisions in G.C. Roy [(1992) 1 SCC 508] and N.C. Budharaj [(2001) 2 SCC 721] rendered before and after the decision in Engineers-De-Space-Age [(1996) 1 SCC 16], it is doubtful whether the observation in Engineers- De-Space-Age [(1996) 1 SCC 516] in a case arising under the Arbitration Act, 1940 that the arbitrator could award interest pendente lite, ignoring the express bar in the contract, is good law. But that need not be considered further as this is a case under the new Act where there is a specific provision regarding award of interest by the arbitrator.”