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The Supreme Court has held that a clause in an agreement excluding interest on security deposit does not act as a bar on the arbitrator to award pendente lite interest. The judgment was rendered by a bench comprising Justice SA Bobde and Justice L Nageswara Rao in the case M/s Ravechee and Co v Union of India.
The appellant, M/s Ravechee and Co, was awarded a contract with respect to mining work for Western Railways. When disputes arose out of the contract, arbitration was resorted to. The arbitrator allowed the claim of the appellant and awarded interest on the claim for the period between the date of claim and the date of award. The award was challenged in the high court. The high court set aside the award in so far as it ordered pendente lite interest.
The appellants contended that under Clause16(3) of the General Conditions of contract any interest was barred. The clause read” No interest will be payable upon the earnest money and the security deposit or amounts payable to the Contractor under the Contract”
The Supreme Court rejected the contention and stated” That Clause 16(3) cannot be construed as a bar on award of interest pendente lite, as it was only dealing with the arrest of interest on the security deposit. The court noted that the claim of the appellant was for damages on account of ban on mining and that interest was awarded for damages ascertained.
The court held” A claimant becomes entitled to interest not as compensation for any damage done but for being kept out of the money due to him. Obviously, in a case of unascertained damages such as this, the question of interest would arise upon the ascertainment of the damages in the course of the lis. Such damages could attract interest pendente lite.
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