UNION OF INDIAversusM/S. KRAFTERS ENGINEERING & LEASING (P) LTD.

                         [2011] 8 S.C.R. 196


A                         UNION OF INDIA
                                  v.
      M/S. KRAFTERS ENGINEERING & LEASING (P) LTD.
               (Civil Appeal No. 2005 of 2007)
                           JULY 12, 2011
B
           [P. SATHASIVAM AND A.K. PATNAIK, JJ.]

       Arbitration Act, 1940 - Jurisdiction of arbitrator to award
  interest when contract prohibits it - Held: In such a case,
C arbitrator cannot award interest for the amount payable to the
  contractor under the contract - However, where there is no
  prohibition as regards the grant of interest, arbitrator has the
  power to award interest pendente lite - On facts, the bar under
  clause 1.15 of the General Conditions of the Contract between
o the parties prohibiting payment of interest on amount payable
  to contractor under the contract, is absolute and interest cannot ·
  be awarded without rewriting the contract - Thus, the award of
  the arbitrator granting interest in respect of the amount
  payable to the contractor under the contract is set aside.
E      Respondent was awarded a works contract. Certain
  disputes arose between the parties. On an application by
  the respondent, an arbitrator was appointed but since the
  arbitrator could not deliberate the matter within the time
  limit, the respondent invoked the jurisdiction of Umpire.
F The Umpire gave award for certain claims and rejected
  certain claims. The appellant challenged the award given
  by the Umpire as regards the grant of interest. The High
  Court dismissed the arbitration petition as also the
  appeal.
G
        The question which arose for consideration in the ·.
    instant appeal was whether the arbitrator has jurisdiction
    to grant interest despite the agreement prohibiting the
    same.
H                                196
   UNION OF INDIA v. KRAFTERS ENGINEERING &                197
               LEASING (P) LTD.
     Allowing the appeal, the Court                               A

       HELD: 1.1 Where the parties had agreed that no
  interest shall be payable, the arbitrator cannot award
  interest for the amounts payable to the contractor under
  the contract. Where the agreement between the parties           8
  does not prohibit grant of interest and where a party
  claims interest and the said dispute is referred to the
  arbitrator, he shall have the power to award interest
  pendente lite. In such a case, it must be presumed that
. interest was an implied term of the agreement between           C
  the parties. However, this does not mean that in every
  case, the arbitrator should necessarily award interest
  pendente lite. In the absence of any specific stipulation
  or prohibition in the contract" to claim or grant any such
  interest, the arbitrator is free to award interest. [Para 14)
  [210-G-H; 211-A-B]                                              D
      1.2 In light of the above said principle and in view of
 Clause 1.15 of the General Conditions of the Contract
 between the parties whereby it prohibits payment of
 interest on the amount payable to the contractor under           E
 the contract, the arbitrator ceases to have the power to
 grant interest. It is clarified that the Arbitration Act, 1940
 does not contain any specific provision relating to the
 power of arbitrator to award interest. However, in the
 Arbitration and Conciliation Act, 1996, there is a specific      F
 provision with regard to award of interest bY the
 arbitrator. The bar under clause 1.15 is absolute and
 interest cannot be awarded without rewriting the contract.
 Thus, the award of the arbitrator granting interest in
 respect of the amount payable to the contractor under            G
 the contract as well as the order of the Single Judge and
 the Division Bench of the High Court confirming the same
 are set aside. [Paras 15 and 16) [211-C-E)

     Secretary, Irrigation Department, Government of Orissa
 and Ors. vs. G.C. Roy (1992) 1 SCC 508: 1991 (3) Suppl.          H
                                                                   .-...
    198       SUPREME COURT REPORTS             [2011) 8 S.C.R.


A  SCR 417; Executive Engineer, Dhenkana/ Minor Irrigation
  Division, Orissa and, Ors. ·vs. N. C. Budharaj (deceased) by
  LRs. and Ors. (2001) 2 sec 721: 2001 (1) SCR 264; Sayeed
  Ahmed and Company vs. State of Uttar Pradesh and Ors.
  (2009) 12 SCC 26: 2009 (10) SCR 841; Sree Kamatchi
B Amman Constructions vs. Divisional Railway Manager
  (Works),. Pa/ghat and Ors. (2010) 8 SCC 767: 2010 (10)
  SCR 487 - relied on.

       Board of Trustees for the Port of Calcutta vs. Engineers-
  De-Space Age (1996) 1 SCC 516: 1995 (6) Suppl. SCR 327;
C Madnani Construction Corporation Private Limited vs. Union
  of India and Ors. (2010) 1 sec 549: 2009 (16) SCR 216;
  Union of India vs. Saraswat Trading Agency and Ors. (2009)
  16 SCC 504: 2009 (10) SCR 1063 - referred to.

D                       Case Law Reference:
          2009 (10) SCR 841        Relied on.      Para 10
          1995 (6) Suppl. SCR 327 Referred to.     Para 10, 14
          2009 (10) SCR 1063       Referred to.    Para 11
E
          2010 (10) SCR 487        Relied on.      Para 13
          2009 (16) SCR 216        Referred to.    Para 14
          1991 (3) Suppl. SCR 417 Relied on.       Para 14
F
          2001 (1) SCR 264         Relied on.      Para 14

        CIVIL APPELLATE JURISDICTION : Civil Appeal No.
    2005 of 2007.

G        From the Judgment & Order dated 24.4.2006 of the High
    Court of Judicature at Bombay in Appeal No. 219 of 2006 in
    Arbiration Petition No. 274 of 2005.

      A.S. Chandhiok, ASG, Sonia Mathur, Ritesh Kumar,
H Piyush Sanhi, D.S. Mahra for the Appellant.
    UNION OF INDIA v. KRAFTERS ENGINEERING &                    199
                 LEASING (P) LTD.
     Ramesh Babu, M.R. Arun Francis, G. Prakash, Amarjit               A
 Singh Bedi for the Respondent.

      The Judgment of the Court was delivered by

      P. SATHASIVAM, J. 1. This appeal by Union of India
 arises out of the final judgment and order dated 24.04.2006           B
 passed by the High Court of Judicature at Bombay in Appeal
 No. 219 of 2006 in Arbitration Petition No. 274 of 2005 whereby
 the Division Bench of the High Court dismissed their appeal.

      2. Brief facts:                                                  c
       {a) On 16.05.1988, the respondent was awarded with a
  contract for the work of Provision of Signaling Arrangements
  at "C" Class Stations on lgatpuri-Bhusawal Section and 2 "C"
  Stations on Bhusawal-Badnera Section of Bhusawal Division
  of Central Railway at the cost of Rs.18, 10,400/-. On completion     D
  of the contract, the respondent raised certain disputes/claims
  by filing Suit No. 2822 of 1993 before the High Court and
  demanded for adjudication through arbitration. The High Court
  directed the General Manager of the Central Railway to appoint
  an arbitrator and refer the disputes for adjudication. Since the     E
  Arbitrator appointed could not deliberate the matter within the
  time limit, the respondent invoked the jurisdiction of the Umpire.
  The Umpire, by order dated 26.04.2005, gave award for Claim
  Nos. 1, 3, 6, 8, 9, 10, 11, 12 & 13 and rejected Claim Nos. 2,
  5, 7 & 14 and mentioned that a bank guarantee towards security       F
. deposit against claim No. 4 is to be returned.

     · (b) Challenging the award given by the Umpire for Claim
 Nos. 11 & 13, the appellant herein filed Arbitration Petition No.
 274 of 2005 before the High Court. The learned Single Judge           G
 of the High Court, vide order dated 06.12.2005 dismissed their
 petition.

     (c) Aggrieved by the order passed by the learned single
 Judge, the appellant herein filed an appeal being Arbitration
 Appeal No. 219 of 2006 before the Division Bench of the High          H
    200       SUPREME COURT REPORTS               (2011] 8 S.C.R.


A Court. The Division Bench, by impugned order dated
  24.04.2006, dismissed the appeal. Challenging the said order,
  the Union of India preferred this appeal by way of special leave
  before this Court.

B        3. Heard Mr. A. S. Chandhiok, learned Additional Solicitor
    General for the Union of India and.Mr. Ramesh Babu M.R.,
    learned counsel for the respondent.

       4. Before the High Court as well as before us, the appellant
  projected their case only with regard to interest that was granted
C by the arbitrator and confirmed by the High Court. Therefore,
  the only point for consideration in this appeal is whether an
  arbitrator has jurisdiction to grant interest despite the
  agreement prohibiting the same?

       5. Though the appellant has challenged the award of the
D Umpire in respect of Claim Nos. 11 and 13, they are mainly
  concerned about grant of interest; hence there is no need to
  traverse all the factual details except the required one which
  we. have adverted to. According to Mr. AS. Chandhiok, learned
  ASG, in view of clause 1.15 of the General Conditions of the
E Contract between the parties, the arbitrator does not have the
  power to award interest pendente lite. The said clause reads
  as under:

          "1.15 Interest on Amounts - No interest will be payable
F         upon the Earnest Money or the Security Deposit or
          amounts payable to the Contractor under the Contract but
          Government Securities deposited in terms of clause 1.14.4
          will be repayable with interest accrued thereon."
  According to the learned ASG, in view of the above-mentioned
G clause, no interest is payable on the amount payable to the
  Contractor under the contract. On the other hand, Mr. Ramesh
  Babu M.R., learned counsel appearing for the respondent
  submitted that irrespective of the bar in the contract arbitrator
  has power to award interest for which he strongly relied on the
H decision of this Court in Board of Trustees for the Port Of
  UNION OF INDIA v. KRAFTERS ENGINEERING &                     201
      LEASING (P) LTD. [P. SATHASIVAM, J.]
Calcutta vs. Engineers-De-Space-Age, (1996) 1 SCC 516                  A
and Madnani Construction Corporation Private Limited vs.
Union of India and Others, (2010) 1 SCC 549.

     6. We have already extracted the relevant clause wherein
the words "amounts payable to the Contractor under the                 B
contract" are of paramount importance. If there is no prohibition
in the arbitration agreement to. exclude the jurisdiction of the
arbitrator to entertain a claim for interest on the amount due
under the contract, the arbitrator is free to consider and award
interest in respect of the period. If there is a prohibition in the    C
agreement to pay the interest, in that event, the arbitrator cannot
grant the interest. Clause 1.15 prohibits payment of interest on
the amount payable to the contractor under the contract.

      7. It is not in dispute that the provisions of the Arbitration
Act, 1940 alone are applicable to the case on hand. Now, let           D
us consider various decisions of this Court dealing with similar
prohibition in the agreement for grant of interest. In Secretary,
Irrigation Department, Government of Orissa and Others vs.
G.C. Roy, (1992) 1 SCC 508, the Constitution Bench had
considered Section 29 of the Arbitration Act, 1940 which deals         E
with interest pendente lite. After analyzing the scheme of the
Act and various earlier decisions, the Constitution Bench
considered the very same issue, namely, whether an arbitrator
has power to award interest pendente lite and, if so, on what
principle. The relevant paragraphs are extracted hereunder:-           F

     "43. The question still remains wheth~r arbitrator has the
     power to award interest pendente lite, and if so on what
     principle. We must reiterate that we are dealing with the ·
     situation where the agreement does not provide for grant
     of such interest nor does it prohibit such grant. In other G
     words, we are dealing with a case where the agreement
     is silent as to award of interest. On a conspectus of
     aforementioned decisions, the following principles emerge:

           (i) A person deprived of the use of money to which          H
    202        SUPREME COURT REPORTS                 (2011) 8 S.C.R.


A         he is legitimately entitled has a right to be compensated
          for the deprivation, call it by any name. It may be called
          interest, compensation or damages. This basic
          consideration is as valid for the period the dispute is
          pending before the arbitrator as it is for the period prior
8         to the arbitrator entering upon the reference. This is the
          principle of Section 34, Civil Procedure Code and there
          is no reason or principle to ho.Id otherwise in the case of
          arbitrator.

                 (ii) An arbitrator is an alternative form (sic forum) for
c         resolution of disputes arising between the parties. If so, he
          must. have the power to decide all the disputes or
          differences arising between the parties. If the arbitrator has
          no power to award interest pendente lite, the party claiming
          it would have to approach the court for that purpose, even
D         though he may have obtained satisfaction in respect of
          other claims from the arbitrator. This would lead to I
          multiplicity of proceedings.

                 (iii) An arbitrator is the creature of an agreement. It
E         is open to the parties to confer upon him such powers ·and
          prescribe such procedure for him to follow, as they think
          fit, so long as they are not opposed to law. (The proviso
          to Section 41 and Section 3 of Arbitration Act illustrate this
          point). All the same, the agreement must be in conformity
F         with law. The arbitrator must also act and make his award
          in accordance with the general law of the land and the
          agreement.

                (iv) Over the years, the English and Indian courts
          have acted on the assumption that where the agreement
G         does not prohibit and a party to the reference makes a
          claim for interest, the arbitrator must have the power to
          award interest pendente lite. Thawardas has not been
          followed in the later decisions of this Court. It has been
          explained and distinguished on the basis that in that case
H         there was no claim for interest but only a claim for
  UNION OF INDIA v. KRAFTERS ENGINEERING &                      203
      LEASING (P) LTD. [P. SATHASIVAM, J.]
    unliquidated damages. It has been said repeatedly that             A
    observations in the said judgment were not intended to lay
    down any such absolute or universal rule as they appear
    to, on first impression. Until Jena case almost all the courts
    in the country had upheld the power of the arbitrator to
    award interest pendente lite. Continuity and certainty is a        B
    highly desirable feature of law.

           (v) Interest pendente lite is not a matter of-substantive
    law, like interest for the period anterior to reference (pre-
    reference period). For doing complete justice between the          C
    parties, such power has always been inferred.

    44. Having regard to the above consideration, we think
    that the following is the correct principle which should be
    followed in this behalf:
                                                                       D
           Where the agreement between the parties does not
    prohibit grant of interest and Where a party claims interest
    and that dispute (along with the claim for principal amount
    or independently) is referred to the arbitrator, he shall have
    the power to award interest pendente lite. This is for the         E
    reason that in such a case it must be presumed that
    interest was an implied term of the agreement between the
    parties and therefore when the parties refer all their
    disputes - or refer the dispute as to interest as such -
    to the arbitrator, he shall have the power to award interest.
    This does not mean that in every case the arbitrator should        F
     necessarily award interest pendente lite. It is a matter
    within his discretion to be exercised in the light of all the
    facts and circumstances of the case, keeping the ends of
    justice in view.•
                                                                       G
     8. In Executive Engineer, Dhenkana/ Minor Irrigation
Division, Orissa and Othe~ vs. N. C Budharaj (deceased) by
LRs and Others, (2001) 2 SCC 721, another Constitution
Bench considered payment of interest for pre-reference period
in respect of cases arising when Interest Act, 1839 was in force.      H
    204        SUPREME COURT REPORTS                  [2011] 8 S.C.R.
                                                                             -....
A The following conclusion in para 26 is relevant which reads thus:
          "26. For all the reasons stated above, we answer the
          reference by holding that the arbitrator appointed with or
          without the intervention of the court, has jurisdiction to
          award interest, on the sums found due and payable, for the
B
          pre-reference period, in the absence of any specific
          stipulation or prohibition in the contract to claim or grant
          any such interest. The decision in Jena case taking a
          contra view does not lay down the correct position and
          stands overruled, prospectively, which means that this
c         decision shall not entitle any party nor shall it empower any
          court to reopen proceedings which have already become
          final, and apply only to any pending proceedings. No
          costs."

D                                                (Emphasis supplied).

          9. In the earlier paras, we have referred to the stand taken
    by the learned counsel for the respondent and reliance based
    on the decision reported in Board of Trustees for the Port of
E    Calcutta (supra). It is true that in that decision, this Court has
    held that arbitrator has jurisdiction to interpret the clauses of
    the contract and to decide whether interest pendente lite could
    be awarded by him. The short question that arose in that case
    was that the arbitrator had awarded interest pendente lite
    notwithstanding the prohibition contained in the contract against
F   the payment of interest on delayed payments. Ultimately, the
    two-Judge Bench of this Court has concluded that irrespective
    of the terms of the contract, the arbitrator was well within his
    jurisdiction in awarding interest pendente lite. It is useful to point
    out that the ratio in that decision was considered by this Court
G   in Sayeed Ahmed and Company vs. State of Uttar Pradesh
    and Others, (2009) 12      sec    26. While considering the very
    same issue, particularly, specific clause in the agreement
    prohibiting interest pendente lite, this Court considered the very
    same decision i.e. Board of Trustees for the Port of Calcutta
H   <suora). After advertin!'.l to the clause in the Board of Trustees
-....     UNION OF INDIA v. KRAFTERS ENGINEERING &                  205
              LEASING (P) LTD. [P. SATHASIVAM, J.]
        for the Port of Calcutta (supra) and the Constitution Bench in      A
        G.C. Roy's case (supra), this Court concluded as under:

            "23. The observation in Engineers-De-Space-Age that the
            term of the contract merely prohibits the departmenU
            employer from paying interest to the contractor for delayed     B
            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        C
            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 not contain another bar            D
            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        E
            on the basis of the above observations in Engineers-De-
            Space-Age, that even if Clause G1 .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
                                                I


            to 31-7-2001. He contended that the award of interest           F
            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 and N.C. Budharaj rendered before         G
            and after the decision in Engineers-De-Space-Age, it is
            doubtful whether the observation in Engineers-De-Space-
            Age 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
                                                                            H
    206        SUPREME COURT REPORTS                [2011] 8 S.C.R.
                                                                         -
                                                                         ....
A         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."

       10. Considering the specific prohibition in the agreement
8 as discussed and interpreted by the Constitution Bench, we are
  in respectful agreement with the view expressed in Sayeed
  Ahmed and Company (supra) and we cannot possibly agree
  with the observation in Board of Trustees for the Port of
  Calcutta (supra) in a case arising under the Arbitration Act,
C 1940 that the arbitrator could award interest pendente lite
  ignoring the express bar in the contract.

       11. In Union of India vs. Saraswat Trading Agency and
  Others, (2009) 16 SCC 504, though it was under.the Arbitration
  and Conciliation Act, 1996, this Court has considered
D elaborately about the legal position in regard to interest after
  adverting to all the earlier decisions and basing reliance on1
  clause 31 of the agreement held:

          "33. In the case in hand Clause 31 of the agreement is
          materially different. It bars payment of any interest or
E
          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
F         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."

G     12) At the end of the argument, learned counsel for the
  respondent heavily· relied on the recent decision of this Court
  in Madnani Construction Corporation Private Limited (supra)
  which arose under the Arbitration Act, 1940. There also, Clause
  30 of SCC and Clause 52 of GCC prohibits payment of interest.
H Though the Bench relied on all the earlier decisions and
.-..     UNION OF INDIA v. KRAFTERS ENGINEERING &                     207
             LEASING (P) LTD. [P. SATHASIVAM, J.]
       considered the very same clause as to which we are now A
       discussing; upheld the order awarding interest by the ar.bitrator
       de hors to specific bar in the agreement. It is relevant to point
       out that the decision of Madnani Construction Corporation
       Private Limited (supra) was cited before another Bench of this ·
       Court in Sree Kamatchi Amman Constructions vs. Divisional B
       Railway Manager (Works), Pa/ghat and Others, (2010) 8 SCC
       767, wherein the decision in Madnani Construction Corporation
       Private Limited (supra) was very much discussed and
       considered. After adverting to all the earlier decisions including
       the Constitution Bench judgments, this Court has analyzed the c
       effect of Madnani Construction Corporation Private Limited
       (supra). The following discussion and ultimate conclusion are
       relevant:

           "17. In Madnani the arbitrator had awarded interest
           pendente lite, that is, from the date of appointment of            D
           arbitrator to the date of award. The High Court had
           interfered with the same on the ground that there was a
           specific prohibition in the contract regarding awarding of
           interest. This Court following the decision in Engineers-De-
           Space-Age reversed the said rejection and held as                  E
           follows: (Madnani case, SCC pp. 560-61, para 39)

                   "39. In the instant case also the relevant clauses,
             which have been quoted above, namely, Clause 16(2) of
             GCC and Clause 30 of sec do not contain any prohibition          F
         . · 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 those clauses and
             relying on the ratio in Engineers find that the said clauses     G
             do not impose any bar on the arbitrator in granting
             interest."

           18. At the outset it should be noticed that Engineers-De-
           Space-Age and Madnani arose under the old Arbitration
           Act, 1940 which did not contain a provision similar to             H
    208        SUPREME COURT REPORTS                 [2011] 8 S.C.R.
                                                                           ---
A         Section 31 (7) of the new Act. This Court, in Sayeed
          Ahmed 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 was that while the contract governed the
B         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
c         is concerned. This Court in Sayeed Ahmed held that the
          decision in Engineers-De-Space-Age would not apply to
          cases arising under the new Act. We extract below, the
          relevant portion from Sayeed Ahmed: (SCC p. 36, paras
          23-24)
D                "23. The observation in Engineers-De-Space-Age
          that the term of the contract mere.ly prohibits the
          department/employer from paying interest to the contractor
          for delayed payment but once the matter goes to the
          arbitrator, the discretion oi the arbitrator is not in any
E         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.
F         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 not contain another bar prohibiting the arbitrator from
G         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, that even if Clause G 1.09 is held to bar
H
UNION OF INDIA v. KRAFTERS ENGINEERING &                 209
    LEASING (P) LTD. [P. SATHASIVAM, J.]
 interest in the pre-reference period, it should be held not     A
 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    B
 by the High Court. In view of the Constitution Bench
 decisions in G.C. Roy and N.C. Budharaj rendered before
 and after the decision in Engineers-De-Space-Age, it is
 doubtful whether the observation in Engineers-De-Space-
 Age in a case arising under the Arbitration Act, 1940 that      c
 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."                                 D

 The same reasoning applies to the decision in Madnani
 also as that also relates to a case under the old Act and
 did not independently consider the issue but merely
 relied upon the decision in Engineers-De-Space-Age.
                                                                 E
 19. Section 37(1) of the new Act by using the words
 "unless otherwise agreed by the parties" categorically
 clarifies that the arbitrator is bound by the terms of the
 contract insofar as the award of interest from the date of
 cause of action to the date of award. Therefore, where the      F
 parties had agreed that no interest shall be payable, the
 Arbitral Tribunal cannot award interest between the date
 when the cause of action arose to the date of award.

 20. We are of the view that the decisions in Engineers-
 De-Space-Age and Madnani are inapplicable for yet               G
 another reason. In Engineers-De-Space-Age and Madnani
 the arbitrator had awarded interest for the pendente lite
 period. This Court upheld the award of such interest under
 the old Act on the ground that the arbitrator had the
 discretion to decide whether interest should be awarded         H
    210        SUPREME COURT REPORTS                 [2011] 8 S.C.R.


A         or not during the pendente lite period and he was not
          bound by the contractual terms insofar as the interest for
          the pendente lite period. But in the instant case the Arbitral
          Tribunal has refused to award interest for the pendente lite
          period. Where the Arbitral Tribunal has exercised its
B         discretion and refused award of interest for the period
          pendente lite, even if the principles in those two cases
          were applicable, the award of the arbitrator could not be
          interfered with. On this ground also the decisions in
          Engineers-De-Space-Age             and      Madnani      are
c         inapplicable .. ."

       13. Inasmuch as we have already expressed similar view
  as mentioned above and conveyed our inability to apply the
  reasoning in Madnani Construction Corporation Private
  Limited (supra), we fully endorse the view expressed in Sree
D Kamatchi Amman Constructions (supra).

        14. In the light of the above discussion, following conclusion
    emerge:

E Reliance based on the ratio in Board of Trustees for the Port
  of Calcutta (supra) is unacceptable since the said view has
  been overruled in Sayeed Ahmed and Company (supra) and
  insofar as the ratio in Madnani Construction Corporation
  Private Limited (supra) which is also unacceptable for the
F reasons mentioned in the earlier paras, we reject the stand
  taken by the counsel for the respondent. On the other hand, we
  fully accept the stand of the Union of India as rightly projected
  by Mr. A.S. Chandhiok, learned ASG. We reiterate that where
  the parties had agreed that no interest shall be payable, the
  arbitrator cannot award interest for the amounts payable to the
G contractor under the contract. Where the agreement between
  the parties does not prohibit grant of interest and where a party
  claims interest and the said dispute is referred to the arbitrator,
  he shall have the power to award interest pendent elite. As
  observed by the Constitution Bench in G.C. Roy's case (supra),
H in such a case, it must be presumed that interest was an
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           UNION OF INDIA v. KRAFTERS ENGINEERING &                   211
               LEASING (P) LTD. [P. SATHASIVAM, J.]
       implied term of the agreement between the parties. However,           A
       this does not mean that in every case, the arbitrator should
       necessarily award interest pendente lite. In the subsequent
       decision of the Constitution Bench, i.e., N. C. Budharaj's case
       (supra), it has been reiterated that in the absence of any specific
       stipulation or prohibition in the contract to claim or grant any      B
       such interest, the arbitrator is free to award interest.

             15. In the light of the above principle and in view of the
       specific prohibition of contract contained in Clause 1.15, the
       arbitrator ceases to have the power to grant interest. We also
       clarify that the Arbitration Act, 1940 does not contain any           C
       specific provision relating to the power of arbitrator to award
       interest. However, in the Arbitration & Conciliation Act, 1996,
       there is a specific provision with regard to award of interest by
       the arbitrator. The bar under clause 1.15 is absolute and interest
       cannot be awarded without rewriting the contract.                     D

       .      16. For the aforesaid reasons, we set aside the award of
       the arbitrator granting interest in respect of the amount payable
       to the contractor under the contract as well as the order of the
       learned Single Judge and the Division Bench of the High Court         E
       confirming the same.

              17. Consequently, the appeal is allowed to the extent
       pointed out above with no order as to costs:

       N.J.                                            Appeal allowed.       F